# 12th | Ts grewal 2022-2023 Question 26 to 30 | Retirement of A Partner

Question 26: Punit, Ramit and Akshit were partners sharing profits equally. Akshit retired on 1st April, 2022. Punit and Ramit decided to continue the business and share profits in the ratio of 3: 2. They also decided to give effect to the change in values of assets and liabilities without changing their book values.

The book values and their revised values were as follows:

 Book Values (`) Revised Values (`) Land 5,50,000 8,50,000 Building 2,50,000 2,10,000 Computers 1,00,000 70,000 Computer Softwares 5,00,000 4,00,000 Sundry Creditors 70,000 60,000 Workmen Compensation Claim - 5,000

 Punit Ramit Akshit Old Ratio 1 : 1 : 1 New Ratio 3 : 2 : Retired

Punit = 1/3-3/5=5-9/15= -4/15 (Gain)

Ramit = 1/3-2/5=5-6/15= -1/15 (Gain)

Akshat = 1/3-0/5=5-0/15= 5/15 =1/3 (Sacrifice)

SHARE OF SACRIFICE FOR AKSHAT, RETIRING PARNTER

Sacrificing ratio of Akshat is 1/3

Compensating amount =1,35,,000×1/3=45,000

Share of Compensating amount by Punit and Ramit in sacrificing ratio (4:1)

Punit= 45,000×4/5=36,000

Ramit= 45,000×1/5=9,000

 Particulars Dr. ` Cr. ` Punit’s Capital A/c          Dr. Ronit’s Capital A/c          Dr.     To Akshat’s Capital A/c 36,000 9,000 45,000

#### Question 27:

X, Y and Z are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. Z retires from the firm on 31st March, 2022. On the date of Z's retirement, the following balances appeared in the books of the firm:
General Reserve
` 1,80,000
Profit and Loss Account (Dr.)
` 30,000
Workmen Compensation Reserve
` 24,000 which was no more required
Employees' Provident Fund
` 20,000.
Pass necessary Journal entries for the adjustment of these items on Z's retirement.

 Journal Date Particulars L.F. Debit  ( `) Credit  ( `) 2022 Mar.31 General Reserve A/c Dr. 1,80,000 Workmen Compensation Reserve A/c Dr. 24,000 To X’s Capital A/c 1,02,000 To Y’s Capital A/c 68,000 To Z’s Capital A/c 34,000 ((Being Accumulated profits distributed among partners in old ratio) X’s Capital A/c Dr. 15,000 Y’s Capital A/c Dr. 10,000 Z’s Capital A/c Dr. 5,000 To Profit and Loss A/c 30,000 ((Being Debit balance in Profit and Loss A/c distributed among partners in old ratio)

Working Notes:

WN1: Calculation of Share in Credit Balance of Reserves

 Total Credit Balance of Reserves = General Reserve + WCF = 1,80,000 + 24,000 = 2,04,000

X‘s share= 2,04,000××3/6 =1,02,000

Y‘s share= 2,04,000××2/6 =68,000

Z‘s share= 2,04,000××1/6 =34,000

WN2: Calculation of Share in Debit Balance of Profit and Loss A/c

X‘s share= 30,000××3/6 =15,000

Y‘s share= 30,000××2/6 =10,000

Z‘s share= 30,000××1/6 =5,000

Note: Employees’ Provident Fund will not be distributed as it is a liability and not accumulated profit.

#### Question 28:

Asha, Naveen and Shalini were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Goodwill appeared in their books at a value of  ` 80,000 and General Reserve at  ` 40,000. Naveen decided to retire from the firm. On the date of his retirement, goodwill of the firm was valued at  ` 1,20,000. The new profit-sharing ratio decided among Asha and Shalini is 2 : 3.
Record necessary Journal entries on Naveen's retirement.

 Journal Date Particulars L.F. Debit (`) Credit  (`) Asha’s Capital A/c Dr. 40,000 Naveen’s Capital A/c Dr. 24,000 Shalini’s Capital A/c Dr. 16,000 To Goodwill A/c 80,000 (Being Existing goodwill written off amongst existing partners in old ratio) General Reserves A/c Dr. 40,000 To Asha’s Capital A/c 20,000 To Naveen’s Capital A/c 12,000 To Shalini’s Capital A/c 8,000 (Being General Reserves distributed  among all partners in old ratio) Shalini’s Capital A/c Dr. 48,000 To Asha’s Capital A/c 12,000 To Naveen’s Capital A/c 36,000 (Being Goodwill adjusted by debiting gaining partner and crediting sacrificing partner and retiring partner)

Calculation of Gaining Ratio:

Gain of a Partner=New Share - Old Shares

Asha's Gain (Sacrifice): 2/5-5/10=4-5/10=(-)1/10

Shalini's Gain (Sacrifice): 3/5-2/10=6-2/10=4/10

Therefore, Both Asha and Naveen would be compensated by Shalini in the ratio of 1:3

Asha's Sacrifice for 1/10th Share=1,20,000×1/10=12,000

Naveen's Sacrifice for 3/10th Share= 1,20,000×3/10=36,000

#### Question 29:

Ram, Laxman and Bharat are partners sharing profits in the ratio of 3 : 2 : 1. Goodwill is appearing in the books at a value of  ` 1,80,000. Laxman retires and at the time of his retirement, goodwill is valued at  ` 2,52,000. Ram and Bharat decided to share future profits in the ratio of 2 : 1. The Profit for the first year after Laxman's retirement amount to  ` 1,20,000. Give the necessary Journal entries to record goodwill  and to distribute the profit. Show your calculations clearly.

 Journal Date Particulars L.F. Debit  (`) Credit  (`) Ram’s Capital A/c Dr. 90,000 Laxman’s Capital A/c Dr. 60,000 Bharat’s Capital A/c Dr. 30,000 To Goodwill A/c 1,80,000 ((Being Goodwill written off) Dr. 42,000 Ram’s Capital A/c Dr. 42,000 Bharat’s Capital A/c 84,000 To Laxman’s Capital A/c ((Being Adjustment of Laxman’s share of goodwill) Profit & Loss Appropriation A/c Dr. 1,20,000 To Ram’s Capital A/c 80,000 To Bharat’s Capital A/c 40,000 ((Being Profit on revaluation transferred to Partners’ Capital A/c)

Working Notes:

WN1:Calculation of Gaining Ratio

Ram :Laxman :Bharat=3:2:1(Old ratio)

Ram :Bharat = 2:1(New ratio)

Gaining Ratio = New Ratio - Old Ratio

Ram's Gain =2/3−3/6=4−3/6=1/6

Bharat's Gain =1/3−1/6=2−1/6=1/6

Ram:Bharat=1:1

WN2: Calculation of Retiring Partner’s Share of Goodwill

Laxman's share of goodwill=2,52,000×2/6=` 84,000

Laxman's share of goodwill will be brought by Ram and Bharat in their gaining ratio1:1

Therefore, Ram's Capital A/c will be debited with 84,000×1/2=` 42,000

And, Bharat's Capital A/c will be debited with 84,000×1/2=` 42,000

Note: The entry for distributing profit as given in the book is wrong. The profit will be distributed between Ram & Bharat and not Ram and Laxman (since Laxman has retired)

#### Question 30:

Partnership Deed of C and D, who are equal partners, has a clause that any partner may retire from the firm on the following terms by giving a six-month notice in writing:
The retiring partner shall be paid−
(a) the amount standing to the credit of his Capital Account and Current Account.
(b) his share of profit to the date of retirement, calculated on the basis of the average profit of the three preceding completed years.
(c) half the amount of the goodwill of the firm calculated at 11/2 times the average profit of the three preceding completed years.
gave a notice on 31st March, 2021 to retire on 30th September, 2021, when the balance of his Capital Account was  ` 6,000 and his Current Account (Dr.)
` 500. Profits for the three preceding completed years ended 31st March, were: 2019   ` 2,800; 2020 −  ` 2,200 and 2021 −  ` 1,600. What amount is due to as per the partnership agreement?

 C’s Capital Account Dr. Cr. Particulars ` Particulars ` C’s Loan A/c 7,700 Balance b/d 6,000 C’s Current A/c 1,700 7,700 7,700

 C’s Current Account Dr. Cr. Particulars ` Particulars ` Balance b/d 500 Profit and Loss Suspense A/c (Share of profit) (WN 1) 550 C’s Capital A/c (balancing figure) 1,700 D’s Current A/c (Share of goodwill) (WN 2) 1,650 2,200 2,200

Working Notes:

WN 1 Calculation of Profit (from April 01, 2021 to Sept. 30, 2021)

Average profit = total profit of past given years/number of years

Average profit =2,800+2,200+1,600/3=2,200

C’s  share of profit (for last 6 month)=Average profit×C’s share×6/12

=2,200×1/2×6/12=550

WN 2 Calculation of Goodwill

Goodwill = Average Profit × 1.5
= 2,200 × 1.5 =
` 3,300
C’s Share of Goodwill =3,300×1/2=1650

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