Short Answer Questions
Question 1.
Solution 1. Goodwill earned by the firm is the result of the efforts of all the existing partners in the past. A part of the future profits will accruing because of the present goodwill and the retiring or deceased partner will not be share future profit. Thus the remaining partners should compensate the retiring or the deceased partner by entitling him/her a share of firm’s goodwill.
Question 2.
Solution 2. The treatment of goodwill at the time of retirement of a partner will made through partner’s capital account. The retiring or deceased partner’s capital account will be credited with his share of goodwill and continuing partner’s capital account will be debited in their gaining ratio.
Journal Entry
Continuing Partner’s Capital A/c Dr. (in the gaining ratio)
To Retiring/ Deceased Partner’s Capital A/c (with his share of goodwill)
(Retiring / deceased partner’s share of goodwill
Adjusted to continuing partners in the gaining ratio)
Question 3.
Solution 3. The following adjustments require on retirement of a partner from the firm:
i) Calculate new gaining ratio of all remaining partners.
ii) Calculate new ratio of the remaining partners.
iii) Calculation of goodwill of the firm and its accounting treatment.
iv) Revaluation of assets and liabilities.
v) Distribution of accumulated profit and losses and reserve among all the partners.
vi) Treatment of joint life policy.
vii) Settlement of the amount due to retiring partner.
viii) Adjustment of capital accounts of the remaining partners in their new profit sharing ratio.
Question 4.
Solution 4. Gaining ratio is the ratio in which the retiring partner’s share is acquired by continuing partners. It is computed by deducting old ratio from the new ratio.
It is calculated as : Gaining ratio = New ratio – Old ratio.
Question 5.
Solution 5
Question 6.
Solution 6 The legal executive of the deceased partner is entitled for the balancing figure of deceased partner’s capital account.
In debit side the following items are posted in deceased partner’s capital account:
a) Credit balance of the deceased partner’s capital account or current account.
b) Deceased partner’s share of profit up to the date of his/her death.
c) Deceased partner’s share of goodwill.
d) Deceased partner’s share in accumulated reserves and profit account.
e) Deceased partner’s share in gain on revaluation of assets and liabilities.
f) Deceased partner’s share of joint life policy.
g) Interest on capital and salary or commission, if any, up to the date of the death.
In credit side the following items are posted in deceased partner’s capital account:
a) Debit balance of the deceased partner’s capital account and current account.
b) Amount withdrawn in the form of drawings up to the date of death of the partner.
c) Interest on drawings, if any, up to the date of the death.
d) Deceased partner’s share of loss on revaluation of assets and liabilities.
e) Deceased partner’s share of loss up to the date of the death.
f) Deceased partner’s share in the accumulated losses of the firm.
Question 7.
Solution 7 If the death of a partner occurs on any day during the year, the executors of the deceased partner will also be entitled to the share of profits earned by the firm from the beginning of the year till the date of his death. Such profit may be ascertained from any of the following methods:
(A) On Time Basis.
(B) On Turnover or Sale Basis.
Question 8.
Solution 8 The items which are credited to the account of a deceased partner while calculating the amount due to his legal representatives:-
1.) His share of the increase in the value of Goodwill of the firm.
2.) The amount standing to the credit of his capital account.
3.) Interest on capital, if provided in the partnership deed.
4.) His share of profit on the revaluation of assets and liabilities.
5.) His share of the undistributed profit or reserves.
Practical Questions
Question 1. (A)
Solution 1 (A) Old Ratio = 6 : 5 : 4.
New ratio of the remaining partners will be calculated by striking out the share of the retiring partner.
When A retires, the new ratio between B and C will be 5:4.
When B retires, the new ratio between A and C will be 6:4.
When C retires, the new ratio between A and B will be 6:5.
Question 1. (B)
Solution 1 (B) Old Ratio = 5:3:1:2.
B and C retire the new ratio between A and D will be 5:2.
Question 2.
Solution 2
Question 3.
Solution 3
Old Ratio of L, M and O is 3:2:2.
M’s Share will be divided into L and O equally.
Question 4.
Solution 4
Old Ratio of A, B and C = 4:3:2
Question 5. (A)
Solution 5 (A)
Old Ratio of A, B and C = 4:3:1
Question 5. (B)
Solution 5 (B)
Question 6.
Solution 6
Old Ratio = 2:2:1
Question 7.
Solution 7
Question 8. (A)
Solution 8 (A)
Old Ratio of A, B and C = 7:5:3
(i) When A retires the gaining ratio between B and C is 5:3. A retires the New ratio between B and C is 5:3.
(ii) When B retires the gaining ratio between A and C is 7:3. B retires the New ratio between A and C is 7:3.
(iii) When C retires the gaining ratio between A and B is 7:5. C retires the New ratio between A and B is 7:5.
Question 8. (B)
Solution 8 (B)
(i) When X dies the gaining ratio between Y and Z is 3:2. X dies the new ratio between Y and Z is 3:2.
(ii) When Y dies the gaining ratio between X and Z is 5:2. Y dies the new ratio between X and Z is 5:2.
(iii) When Z dies the gaining ratio between X and Y is 3:2. Z dies the new ratio between X and Y is 5:3.
Question 8. (C)
Solution 8 (C)
Old Ratio of P, Q , R and S is 5:4:3:1
P and S retire:
Gaining Ratio between Q and R is 4 : 3
New Ratio between Q and R is 4 : 3
Question 9. (A)
Solution 9 (A)
Gaining Ratio = New Ratio – Old Ratio
Question 9. (B)
Solution 9 (B)
Gaining Ratio = New Ratio – Old Ratio
Question 10. (A)
Solution 10 (A)
Gaining Ratio = New Ratio – Old Ratio
Question 10. (B)
Solution 10 (B)
Gaining Ratio = New Ratio – Old Ratio
Question 11.
Solution 11
Question 12.
Solution 12
Question 13.
Solution 13
Question 14.
Solution 14
Question 15.
Solution 15
X and Y = 5 : 4
New Ratio of Y and Z will also be 5 : 4
Gaining Ratio = New Ratio – Old Ratio
Question 16. (A)
Solution 16 (A)
Question 16. (B)
Solution 16 (B)
Question 17.
Solution 17
Question 18.(A)
Solution 18(A)
Question 18.(B)
Solution 18 (B)
Question 19.(A)
Solution 19 (A)
Question 19.(B)
Solution 19 (B)
Question 20.
Solution 20
Question 21.
Solution 21
Question 22 (A).
Solution 22 (A)
Question 22. (B)
Solution 22 (B)
Question 23
Solution 23
Question .24
Solution 24
C and D will be debited they have gained and A and B will be credited since they have sacrificed in ratio 2:9.
Question 25.
Solution 25
Question 26 (new).
Solution 26 (new).
Question .26
Solution 26
Question 27.
Solution 27
Question .28
Solution 28
Question 29.
Solution 29
Question 30.
Solution 30
Question 31.
Solution 31
Question 32.(A)
Solution 32 (A)
Question 32.(B)
Solution 32 (B)
Question 33.
Solution 33
Question 34.
Solution 34
Question 35 (new).
Solution 35 (new). 
Question 35.
Solution 35.
Question 36.
Solution 36.
Question 37. (A)
Solution 37. (A)
Question 37. (B)
Solution 37. (B)
3.) Calculation of Bank Overdraft:
Bank Overdraft = Bank Balance as per Balance Sheet - Amount required to pay off
Bank Overdraft = Rs. 44,800 – Rs. 1,24,800
Bank Overdraft = Rs. 80,000
Question 38.
Solution 38.
Question 39.
Solution 39.
Question 40.
Solution 40.
Question 41.
Solution 41.
Question 42.
Solution 42.
Question 43 (new).
Solution 43 (new).
Working Note:-
1.) Calculation of Gaining Ratio:-
Saman’s Gain = 3/5-2/7=(21-10)/35=11/35
Meeta’s Gain = 2/5-2/7=(14-10)/35=4/35
Gaining Ratio = 11:4
2.) Harish’s Share of goodwill = Rs. 5,60,200 × 3/7 = Rs. 2,40,000
Saman’s Share = Rs. 2,40,000 × 11/15 = Rs. 1,76,000
Meeta’s Share = Rs. 2,40,000 × 4/15 = Rs. 64,000
3.) Total Capital new firm = Rs. 35,00,000
Saman’s Capital = Rs. 35,00,000 × 3/5 = Rs. 21,00,000
Meeta’s Capital = Rs. 35,00,000 × 2/5 = Rs. 14,00,000
Question 43.
Solution 43.
Question 44.
Solution 44.
New ratio of Y and Z after X’s retirement 2:1
Y’s Capital in the new firm should be = Rs. 2,10,000 × 2/3 = Rs. 1,40,000
Cash withdrawn by Y = Y’s New Capital – Y’s existing Capital
Cash withdrawn by Y = Rs. 1,40,000 – Rs. 1,45,000
Cash withdrawn by Y = Rs. 5,000
Z’s Capital in the new firm should be = Rs. 2,10,000 × 1/3 = Rs. 70,000
Cash withdrawn by Y = Y’s New Capital – Y’s existing Capital
Cash withdrawn by Y = Rs. 70,000 – Rs. 63,000
Cash withdrawn by Y = Rs. 7,000
Question 45.
Solution 45.
Question 46.
Solution 46.
Question 47.
Solution 47.
Question 48.
Solution 48.
Question 49.
Solution 49.
Question 50 A (new).
Solution 50 A (new).
Working Note:-
G’s share in Goodwill = Rs. 15,000 × 3/6 = Rs. 7,500
Question 50. (A)
Solution 50 (A)
Question 50. (B)
Solution 50 (B)
Question 51.
Solution 51.
Question 52.
Solution 52.
Question 53.
Solution 53.
Question 54.
Solution 54.
Question 55.
Solution 55.
Question 56.
Solution 56.
Question 57.
Solution 57.
Question 58.
Solution 58.
Question 59.
Solution 59.
Question 60 (new).
Solution 60 (new). Profit from 1st April 2019 to 31st December, 2019 on the basis of sales If sales are Rs. 4,00,000, profit is Rs. 60,000
If sales are Rs. 3,30,000 profit will be 60,000/(4,00,000 ) × 3,30,000= Rs. 49,500
A’s share will be = Rs. 49,500 × 4/(9 ) = Rs. 22,000
Question 60.
Solution 60.
Question 61. P, R and S are in the partnership sharing profit in the ratio of 2:1:1 respectively. R died on 1st Feb.2018 and it is decided that profit sharing ratio between P and S in future will be 2:3. Pass the necessary journal entries.
Solution 61.
Question 62 (new).
Solution 62 (new).
Working Note:-
Calculation of Goodwill:-
Total goodwill of firm = Rs. 80,000 × 1.5 year
Total goodwill of firm = Rs. 1,20,000
B’s share in goodwill = Rs. 1,20,000 × 2/5 = 48,000
Calculation of Profit:-
Profit of the firm = Rs. 80,000
B’s Profit = Rs. 80,000 × 2/5 ×6/12 = Rs. 16,000
Question 62.
Solution 62.
Question 63 (new).
Solution 63 (new). Working Note:
1. Calculation of Goodwill:
Goodwill = 2 year’s purchase of average profit of the last three years
Goodwill = 2 × Rs. 80,000
Goodwill = Rs. 1,60,000
Sindhu’s Share of Goodwill = Rs. 1,60,000 × 3/10 = Rs. 48,000
Gaining ratio = 3 : 4
Rahul’s Contribution = Rs. 48,000 × 3/7 = Rs. 20,571
Kamlesh’s Contribution = Rs. 48,000 × 4/7 = Rs. 27,429
Question 63.
Solution 63.
Question 64.
Solution 64.
Question 65.
Solution 65.
Question 66 (new).
Solution (new).
Question 66.
Solution 66.
Question 67 A (new).
Solution 67 A (new).
Working Notes:-
(1) Calculation of Goodwill:-
Average Profit = (1,00,000 + 1,50,000 + 2,00,000)/3
Average Profit = Rs. 1,50,000
Goodwill of the firm = Average Profits of the last three years × Number of Years’ Purchase
Goodwill of the firm = Rs. 1,50,000 × 2
Goodwill of the firm = Rs. 3,00,000
Tripti’s share of goodwill = Rs. 3,00,000 × 2/5
Tripti’s share of goodwill = Rs. 1,20,000
(2) Calculation of Tripti’s Share of Profit
Last Year’s profit = Rs. 2,00,000
Profit till the date of death = Rs. 2,00,000 × 3/12 = Rs. 50,000
Tripti’s Share of Profits = Rs. 50,000 × 2/5 = Rs. 20,000
Question 67. (A)
Solution 67. (A)
Question 67. (B)
Solution 67. (B)
Question 68.
Solution 68.
Question 69.
Solution 69.
Question 70.
Solution 70.
Question 71.
Solution 71.
Question 72.
Solution 72.
R died on 30th April, 2016. The partnership deed provided for the following on the death of a partner :
(i) Goodwill of the firm was to be valued at 3 year’s purchase of the average profits of the last 5 years. The profits for the years ending 31-3-2020, 31-3-2019, 31-3—2018 and 31—3-2017 were Rs. 80,000; Rs. 80,000; Rs. 1,10,000 and Rs. 2,20,000 respectively.
(ii) R‘s share of profit or loss till the date of his death was to be calculated on the basis of the profit or loss for the year ending 31-3-2021.
You are required to calculate the following :
(i) Goodwill of the firm and R’s share of goodwill at the time of his death.
(ii) R’s share in the profit or loss of the firm till the date of his death.
Prepare R’s Capital Account also at the time of his death to he presented to his executors.
Question 73 (new).
Question 73 (new).
Working Notes:
(1) Valuation of Firm’s Goodwill:
Average Profit = (Rs. 2,20,000 + Rs. 1,10,000 + Rs. 80,000 - Rs. 1,60,000 )/5 = Rs. 66,000
Values of Firm’s Goodwill = Average Profit X Number Of Years’ Purchase
Firm’s Goodwill = Rs. 66,000 × 3 = Rs. 1,98,000
R’s Share of Goodwill = Rs. 1,98,000 × 9/(20 ) = Rs. 89,100
(2) R’s Share of Profit/ Loss till the date of his death:
R’s Share of Profit /Loss will be Calculated on the basis of the profit or loss for the year ending 31-3-2016. In this year firm incurred a loss of Rs. 1,60,000
Hence, R’s Share of Loss = Rs. 1,60,000 × 1/12 × 9/(20 ) = Rs. 6,000
Question 73.
Solution 73.
Question 74.
Solution 74.
Question 75.
Solution 75.
Question 76.
Solution 76.
Old Ratio of A, B, C and D=4 :3 :2 : 1.
When A and C retire, the new ratio between B and D 3 : 1.
Question 77.
Solution 77
Question 78.
Solution 78.
B’s share will be divided between A and C in the ratio of 1 : 1
Question 79.
Solution 79.
Old Ratio of Shiv, Mohan and Hari = 5 : 5 : 4
Mohan’s share will be divided between Shiv and Hari in the ratio of 1 : 1
Question 80.
Solution 80.
Question 81.
Solution 81.
Question 82.
Solution 82.
Question 83.
Solution 83
Question 84.
Solution 84.
Gaining Ratio = New Ratio — Old Ratio
Question 85.
Solution 85.
Gaining Ratio = New Ratio — Old Ratio
Question 86.
Solution 86.
Question 87.
Solution 87.
Question 88.
Solution 88.
Question 89.
Solution 89.
Question 90.
Solution 90.
Question 91.
Solution 91.
Question 92.
Solution 92. (a)
Question 93.
Solution 93.
Question 94.
Solution 94
Question 95.
Solution 95.
Question 96.
Solution 96.
Question 97 (new).
Solution 97 (new).
Question 97.
Solution 97.
Question 98.
Solution 98.
Question 99 (new).
Solution 99 (new).
Working Note:-
1.) R’s Share of goodwill = Rs. 72,000 × 5/10 = Rs. 36,000
P = Rs. 36,000 × 2/5 = Rs. 14,400
Q = Rs. 36,000 × 3/5 = Rs. 21,600
Question 99.
Solution 99.
Question 100.
Solution 100
Question 101.
Solution 101.
Question 102.
Solution 102
Question 103.
Solution 103.
Question 104 (new).
Solution 104 (new).
Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of the reconstituted firm.