# 12th | Ts grewal 2022-2023 Question 56 to 59 | Retirement of A Partner

Question 56: Amar, Bhuvi and Charan were partners in a firm sharing profits equally. Bhuvi retired on 30th September, 2021. Profit or loss till the date of retirement was to be estimated based on last year's profit. Loss for the year ended 31st March, 2021 was ` 1,80,000.

Calculate Bhuvi's share of loss till her retirement and pass Journal entry / entries for the same when:

(i) The profit-sharing ratio between Amar and Charan does not change; and

(ii) The new profit-sharing ratio between Amar and Charan changes to 3: 2.

 Date Particulars ` ` (Case) Bhuvi’s Capital A/c Dr. 60,000 1. To Profit and Loss Suspense A/c A/c 60,000 (Bhavi was compensated for his share of goodwill ) (W.N. – 1) (Case) Bhuvi’s Capital A/c Dr. 60,000 2. To Amar’s Capital A/c 48,000 To Charu’s Capital A/c 12,000 (Bhavi was compensated for his share of goodwill) (W.N. – 2)

Working notes:

Loss for the year ended 31st March, 2021 was ` 1,80,000.

W.N. – 1 ((i) The profit-sharing ratio between Amar and Charan does not change)

Profit sharing ratio of Amrit, Bhanu and Charu was 1:1:1

Loss for the year ended 31st March, 2021 was ` 1,80,000.

Bhavi's share of profit = 1,80,000×1/3 = 60,000

W.N.-2 ((ii) The new profit-sharing ratio between Amar and Charan changes to 3: 2)

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

B=  1/3-2/5=5-6/15= -1/15 (Gain)

Share of A and B in 4:1

A=  60,000×4/5=48,000

B=  60,000×1/5=12,000

Question 57:

Yogesh, Naresh and Pavesh were partners in a firm sharing profits in the ratio of 2: 2: 1. Naresh retired on 1st October, 2022. In terms of the Partnership Deed, financial statements were prepared as on date of retirement and profit was determined as ` 7,20,000.

(i) Pass the Journal entries for distribution of profit for the period.

(ii) Pass the Journal entries if loss of ` 3,60,000 was incurred.

 Date Particulars ` ` (Case) Profit & Loss Appropriation A/c Dr. 7,20,000 1. To Yogesh’s Capital A/c 2,88,000 To Naresh’s Capital A/c 2,88,000 To Pavesh’s Capital A/c 1,44,000 (Bhavi was compensated for his share of goodwill ) (W.N. – 1) (Case) Yogesh’s Capital A/c Dr. 1,44,000 2. Naresh’s Capital A/c Dr. 1,44,000 Pavesh’s Capital A/c Dr. 72,000 To Profit & Loss Appropriation A/c 3,60,000 (Bhavi was compensated for his share of goodwill) (W.N. – 2)

Working Notes:

W.N. – 1 ((i) Pass the Journal entries for distribution of profit for the period.)

Profits sharing in the ratio of 2: 2: 1

Yogeshs = 7,20,000×2/5=2,88,000

Nareshs =  7,20,000×2/5=2,88,000

Pavesh =  7,20,000×1/5=1,44,000

W.N. – 2 ((ii) Pass the Journal entries if loss of ` 3,60,000 was incurred)

Profits sharing in the ratio of 2: 2: 1

Yogeshs = 3,60,000 ×2/5 = 1,44,000

Nareshs =  3,60,000 ×2/5 = 1,44,000

Pavesh =  3,60,000 ×1/5 = 72,000

Question 58:

The Partnership Deed of Aman, Bharat and Chetan has a clause that any partner may retire from the firm on the following terms by giving six months' 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, if he retires in-between the year.

(c)His Share of Goodwill of the firm calculated on the basis of 1% times the average profit of the three preceding completed years.

(d) Assets shall be revalued and liabilities re-assessed. Retiring partner will get his share in the gain (profit and will bear loss, if any.

Chetan gave notice on 31st March, 2021 to retire with effect from 30th September, 2021. On that date, the balance of his capital was ` 1,60,000 and his Current Account (in debit)  ` 5,000. The profits for the three preceding completed years were: I- ` 45,000, II- ` 30,000 and III- ` 24,000.

Revaluation of assets and reassessment of liabilities resulted in neither gain (profit) nor loss.

What amount is due to Chetan in accordance with the partnership agreement?

 CHETAN'S CURRENT ACCOUNT Particulars ` (Dr.) Particulars ` (Cr.) To Balance bld 5,000 By Profit & Loss Suspense A/c 5,500 To Chetan's Capital A/c (Balancing Figure) 17,000 By Aman's Current A/c (Share of Goodwill) 8,250 By Bharat's Current A/c (Share of Goodwill) 8,250 22,000 22,000

Working Notes:

W.N. – 1 (Calculation of Share of Profit)

The profits for the three preceding completed years were: I- ` 45,000, II- ` 30,000 and III- ` 24,000.

Average Profit= 45,000+30,000+24,000/3= 33,000

Share of Chetan’s Profit= 33,000×1×6/3×12=5,500

W.N. – 1 (Calculation of Share of Goodwill)

Average Profit= 45,000+30,000+24,000/3= 33,000

Firm’s Goodwill= 33,000×1.5=49,500

Chetan’s Share of Goodwill=49,500×1/3=16,500

Chetan will be compensated by Amar and Bharat in 1:1

Amar and Bharat = 16,500×1/2=8,250

Question 59:

Amit, Bunty and Charan are partners sharing profits and losses in the ratio of 2: 2:1. Charan retired on 30th June, 2022. The Balance Sheet of the firm on 31st March, 2022 was as follows:

 Liabilities ` Assets ` Capital Accounts: Building 10,00,000 Amit 6.00,000 Investments 1,25,000 Bunty 6,00,000 Stock 2,50,000 Charan 4,00,000 16,00,000 Debtors 4,00,000 employee’s' Compensation Reserve 1,00,000 Cash at Bank 2,00,000 General Reserve 3,00,000 Cash in Hand 1,25,000 Creditors 1,00,000 21,00,000 21,00,000

It was agreed that amount payable to Charan will be determined by making following adjustments

(a) Building be valued at ` 12,00,000.

(b) Investment be valued at ` 1,00,000.

(c) Stock to be valued at ` 3,00,000.

(d) Goodwill of the firm be valued at 2 years' purchase of average profit of last 5 years.

(e) Charans share of profit up to the date of retirement be calculated on the basis of average profit of the preceding three years.

Profits of the preceding five years were as under:

 Years 2017-18 (`) 2018-19 (`) 2019-20 (`) 2020-21 (`) 2021-22 (`) Profit 2,00,000 2,35,000 3,00,000 2,75,000 3,25,000

Prepare: (i) Revaluation Account; (ii) Partners' Capital Accounts and (ii) Balance Sheet after Charan's retirement.

 Revaluation Account Particulars (`) Dr. Particulars (`) Cr. Investment 25,000 Building 2,00,000 Gain transferred to: Stock 50,000 Amit’s Capital A/c 90,000 Bunty’s Capital A/c 90,000 Charan ’s Capital A/c 45,000 2,25,000 2,50,000 2,50,000

 Dr. Partners' Capital Accounts Cr. Particulars Amit Bunty Charan Particulars Amit Bunty Charan Charan ’s Capital A/c 53,400 53,400 - Balance B/d 6,00,000 6,00,000 4,00,000 Charan ’s Loan A/c - - 6,46,800 Revaluation A/c 90,000 90,000 45,000 Balance  C/d 7,96,600 7,96,600 - W.C.R. A/c 40,000 40,000 20,000 G. R. A/c 1,20,000 1,20,000 60,000 Amit’s Capital A/c - - 53,400 Bunty’s Capital A/c - - 53,400 P&L Suspense A/c 15,000 8,50,000 8,50,000 6,46,800 8,50,000 8,50,000 6,46,800

 Balance Sheet (after Charan's retirement) Liabilities ` Assets ` Capital Accounts: Building 12,00,000 Amit 7,96,600 Investments 1,00,000 Bunty 7,96,600 15,93,200 Stock 3,00,000 Charan ’s Loan 6,46,800 Debtors 4,00,000 Creditors 1,00,000 Cash at Bank 2,00,000 Cash in Hand 1,25,000 P&L Suspense A/c 15,000 23,40,000 23,40,000

Working Notes:

W.N.- 1: Distribution of  employee’s' Compensation Reserve

A = 1,00,000×2/5=40,000

B = 1,00,000×2/5=40,000

C = 1,00,000×1/5=20,000

W.N.- 2: Distribution of General Reserve

A = 3,00,000×2/5 = 1,20,000

B = 3,00,000×2/5 = 1,20,000

C = 3,00,000×1/5 = 60,000

W.N.- 3: Valuation of goodwill

Average Profit = 2,00,000+2,35,000+3,00,000+2,75,000+3,25,000/5=2,67,000

Goodwill =2,67,000×2= 5,34,000

Chetan’s share of Goodwill= 5,34,000×1/5=1,06,800

Chetan will be compensated by Amit and Bunty in 2:2 or 1:1 as follow

Amount of compensation = 1,06,800×1/2=53,400

W.N.- 3: Calculation of Share of Profit till the date of retirement on the basis of past three year profits

Average Profit = 3,00,000 + 2,75,000 + 3,25,000/3=3,00,000

Profit share of Chetan = 3,00,000 ×1×6/5×12= 15,000

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