Read TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2024 2025. Students should study TS Grewal Solutions Class 12 Accountancy available on Studiestoday.com with solved questions and answers. These chapter-wise answers for Class 12 Accountancy have been prepared by expert teachers. These TS Grewal Class 12 Solutions have been designed as per the latest accountancy TS Grewal Book for Class 12 and if practiced thoroughly can help you to score good marks in Accounts class tests and examinations.
Class 12 Accounts Chapter 6 Retirement of a Partner TS Grewal Solutions
TS Grewal Solutions for Chapter 6 Retirement of a Partner Class 12 Accounts have been provided below based on the latest TS Grewal Class 12 book. The answers have been prepared based on the latest 2024 2025 book for the current academic year. TS Grewal Solutions Class 12 will help students to improve their concepts and easily solve accountancy questions for Class 12.
Chapter 6 Retirement of a Partner TS Grewal Class 12 Solutions
About this chapter: TS Grewal Class 12 Chapter 6 provides all details relating to the concept of the Retirement of a Partner from a partnership firm. It is very important topic for Class 12 commerce students. As explained in the chapter the Retirement of a partner from a partnership firm can happen due to various reasons, including personal reasons, health issues, or the desire to pursue other opportunities. There are detailed notes relating to legal and accounting provisions related to the retirement of a partner, such as the rights and liabilities of the retiring partner and the remaining partners. The accounting matters such as different methods of settling the accounts of the retiring partner, including the gaining ratio and the sacrificing ratio, treatment of accumulated profits and losses, goodwill, and revaluation of assets and liabilities have been explained in detail.
The chapter provides various practical examples and questions that can help students understand the concepts better. It is essential for students to practice these questions and understand the various scenarios that can arise during the retirement of a partner. Our teachers have provided detailed solutions to all the questions given in the chapter so that the students can solve the questions and then compare their answers with what we have provided below.
Partner’s Capital A/c………………………….Dr.
To Goodwill A/c
(Being the existing goodwill written off)
Question 10. Why the value of goodwill needs to be determined on retirement or death of a partner?
Answer:
At the time of retirement or death of a partner, adjustment is necessary for goodwill. When a partner retires of dies, his share in profit is taken by the continuing partners for which they should compensate the retiring or deceased partner.
Question 11. For which share of goodwill a partner is entitled at the time of retirement?
Answer:
The retiring or deceased partner is entitled to his share of goodwill at the time of retirement/death because goodwill has been earned by the firm at the time when he was a partner.
Question 12. Neetu, Meetu and Teetu were partners in a firm. On 1st January, 2018, Meetu retired. On Meetu’s retirement the goodwill of the firm was valued at Rs. 4,20,000.
Pass necessary Journal entry for the treatment of goodwill on Meetu's retirement.
Question 13. Give two circumstances in which the gaining ratio may be applied.
Calculation of Gaining Ratio under below circumstances:-
1.) When a partner retires or dies.
2.) When there is a change in the profit-sharing ratio.
Question 14. Why the revaluation of assets and reassessment of liabilities are required at the time of retirement or death of a partner?
At the time of retirement or death of a partner, assets of the firm are revalued and liabilities are reassessed with a purpose that the retiring partner is not at an advantage of disadvantage because of the change in the value.
Question 15. Give the Journal entry to distribute ‘Workmen Compensation Reserve’ of Rs. 60,000 at the time of retirement of Sajjan, when there is no claim against it. The firm has three partners Rajat, Sajjan and Kavita.
Working Note:-
1.) Rajat’s Share in Workmen Compensation Reserve = 60,000 × 1/3 = 20,000
2.) Sajjan’s Share in Workmen Compensation Reserve = 60,000 × 1/3 = 20,000
3.) Kavita’s Share in Workmen Compensation Reserve = 60,000 × 1/3 = 20,000
Question 16. State any two deductions that may have to be made from the amount payable to a retiring partner.
Deduction that may have to be made from the amount payable to a retiring partner:-
1.) Loss on revaluation
2.) Goodwill to be written off
Question 17. How is share in profit of outgoing partner calculated when he retires during the accounting year?
Profit of outgoing partner calculated when he retires during the accounting year:-
1) Change in the Profit-sharing ratio, i.e. determining New Profit-sharing Ratio and Gaining Ratio.
2) Valuation and Adjustment of goodwill.
3) Revaluation of Assets and Reassessment of liabilities.
4) Reserves and Undistributed Profit.
Question 18. Jamuna, Ganga and Krishna are partners in a firm. Krishna retired from the firm. After making adjustments for Reserve and Revaluation of Assets and Liabilities the balance in krishna’s capital account was Rs. 1,20,000. Jamuna and Ganga paid Rs. 1,80,000 in full settlement to Krishna. Identify the item for which Jamuna and Ganga paid Rs. 60,000 more to Krishna.
Rs. (1,80,000- 1,20,000) = Rs. 60,000
Krishna’s Share of Goodwill which is paid by Jamuna and Ganaga.
Short Answer Type Questions
Question 1. Explain the Procedure of determining the amount payable to a retiring partner when he leaves the firm.
Amount payable to a retiring partner when he leaves the firm:-
1.) Change in the Profit-sharing ratio i.e. determining New Profit-sharing Ratio and Gaining ratio.
2.) Valuation and Adjustment of Goodwill.
3.) Revaluation of assets and Reassessment of Liabilities.
4.) Reserves and Undistributed Profit (Accumulated Profit/losses)
5.) Computation of retiring Partner’s Internet and Payments to the Retiring Partner.
6.) Adjustment of Capital.
Question 2. Explain the accounting treatment of goodwill on retirement of a partner.
For Accounting Treatment of Goodwill, guidelines of Accounting Standard-26 on Accounting for intangible Assets are followed.
When goodwill does not appear in the books:-
When Goodwill does not appear in the Balance Sheet, there are three ways in which the retiring or deceased partner can be given the credit for his share of goodwill as follows:
(a) Goodwill Account is not Raised in the books of Account: Retiring or deceased partner’s share of the current value of Goodwill is credited to his Capital Account by debiting Gaining Partner’s Capital in their gaining ratio.
Gaining Partners’ Capital A/c…………………..Dr.
To Retiring/Deceased Partner’s Capital A/c
(Being the share of goodwill credited to retiring/deceased partner debiting gaining partner’s Capital account in their gaining ratio)
(b) Goodwill is Raised at its Full Value and Written off: Goodwill Account is debited with the current value of goodwill, crediting Capital Accounts of all the partners, including retiring or deceased partner in their old profit-sharing ratio. Goodwill account so debited is immediately written off by debiting continuing partners capital account, in their new profit-sharing ratio and crediting goodwill account with its current value.
Goodwill A/c…………………..Dr.
To All Partner’s Capital A/c
(Being the goodwill raised at its current value)
Continuing Partner’s Capital A/c…………………..Dr.
To Goodwill A/c
(Being the goodwill Account written off in new profit-sharing ratio)
When goodwill appears in the books:-
Goodwill appearing in the books of account means it is purchase goodwill because self-generated goodwill is not recorded in the books of account following AS-26, Intangible Assets. Goodwill appearing in the books of account is written off by debiting all the partners’ Capital Accounts including retiring or deceased partner in their old profit-sharing ratio. The journal entry passed is:
All Partners’ Capital A/c………………..Dr.
To Goodwill A/c
(Being the existing goodwill written off)
Question 3. Why are assets and liabilities revalued on the retirement or death of a partner?
At the time of retirement or death of a partner, assets of the firm are revalued and liabilities are reassessed with a purpose that the retiring partner is not at an advantage or disadvantage because of the change in the values. To give effect to the change in value, a Profit and Loss Adjustment Account and Revaluation Account is prepared in the same manner is prepared at the time if admission of a partner. To recapitulate:
1.) Increase in the value of assets, unrecorded assets, decrease in amount of liabilities and excess provisions written back are credited to Revaluation Account.
2.) Decrease in value of assets, increase in amount of liabilities, liabilities provided and unrecorded liabilities are debited to it.
3.) Gain or loss from the revaluation is distributed among the partners in their old profit-sharing ratio. Gain on revaluation is credited to the Partners’ Capital Account or Partner’s Current Accounts.
4.) After revaluation, assets and liabilities are shown at their revised value in new balance sheet of the firm.
Question 4. Distinguish between the sacrificing ratio and the gaining ratio among partners.
EXERCISE................
Question 1: A, B and C were partners sharing profits in the ratio of 1/2, 2/5 and 1/10. Find the new ratio of the remaining partners if C retires.
Answer 1:
If c retires then the New Profit Sharing Ratio will be A:B = 5:4
Question 2: From the following particulars, calculate new profit-sharing ratio of the partners:
(a) Shiv, Mohan and Hari were partners in a firm sharing profits in the ratio of 5:5:4. Mohan retired and his share was divided equally between Shiv and Hari.
(b) P, Q and R were partners sharing profits in the ratio of 5:4:1. P retires from the firm.
Answer 2:
(a) Old Ratio of Shiv: Mohan: Hari = 5:5:4
(b) Old Ratio of P: Q: R = 5:4:1
Therefore New Ratio of Q : R = 4:1
Question 3: R, S and M are partners sharing profits in the ratio of 2/5,2/5 and 1/5. M decides to retire from the business and his share is taken by R and S in the ratio of 1:2. Calculate the new profit-sharing ratio.
Answer 3:
Old Ratio of R:S:M = 2:2:1
Question 4: A, B and C were partners sharing profits in the ratio of 4:3:2. A retires, assuming B and C will share profits in the ratio of 2:1. Determine the gaining ratio.
Answer 4:
Old Ratio of A:B:C = 4:3:2
New Ratio of B:C = 2:1
Gaining Ratio = New Ratio – Old Ratio
Question 5: X, Y and Z are partners sharing profits in the ratio of 1/2, 3/10, and 1/5. Calculate the gaining ratio of remaining partners when Y retires from the firm.
Answer 5:
Question 6:
(a) W, X, Y and Z are partners sharing profits and losses in the ratio of 1/3, 1/6, 1/3 and 1/6 respectively. Y retires and W, X and Z decide to share the profits and losses equally in future. Calculate gaining ratio.
(b) A, B and C are partners sharing profits and losses in the ratio of 4:3:2. C retires from the business. A is acquiring 4/9 of C's share and balance is acquired by B. Calculate the new profit-sharing ratio and gaining ratio.
Answer 6:
Question 7: Kumar, Lakshya, Manoj and Naresh are partners sharing profits in the ratio of 3:2:1:4. Kumar retires and his share is acquired by Lakshya and Manoj in the ratio of 3:2. Calculate new profit-sharing ratio and gaining ratio of the remaining partners.
Answer 7:
Old Ratio of Kumar : Lakshya : Manoj : Naresh = 3:2:1:4
Question 8: A, B, and C were partners in a firm sharing profits in 8:4:3. B retires and his share is taken up equally by A and C. Find the new profit-sharing ratio.
Answer 8:
Old Ratio of A:B:C = 8:4:3
Question 10: P, Q and R are partners sharing profits in the ratio of 7:5:3. P retires and it is decided that profit-sharing ratio between Q and R will be same as existing between P and Q. Calculate New profit-sharing ratio and Gaining Ratio.
Answer 10:
Old Ratio of P : Q : R = 7 : 5 : 3
New Ratio of Q : R = 7 : 5
Gaining Ratio = New Ratio – Old Ratio
Q’s Gain = New Share – Old Share = 7/12 - 5/15 = (35-20)/60 = 15/60
R’s Gain = New Share – Old Share = 5/12 - 3/15 = (25-12)/60 = 13/60
Gaining Ratio of Q : R = 15:13
Question 11: Murli, Naveen and Omprakash are partners sharing profits in the ratio of 3/8, 1/2 and 1/8. Murli retires and surrenders 2/3rd of his share in favour of Naveen and remaining share in favour of Omprakash. Calculate new profit-sharing ratio and gaining ratio of the remaining partners.
Answer 11:
Question 12: A, B and C are partners in a firm sharing profits and losses in the ratio of 4:3:2 . B decides to retire from the firm. Calculate new profit-sharing ratio of A and C in the following circumstances:
(a) If B gives his share to A and C in the original ratio of A and C .
(b) If B gives his share to A and C in equal proportion.
(c) If B gives his share to A and C in the ratio of 3:1.
(d) If B gives his share to A only.
Answer 12:
Treatment of Goodwill
Question 13: L, M and O are partners sharing profits and losses in the ratio of 4:3:2. M retires and the goodwill is valued at Rs. 72,000. Calculate M's share of goodwill and pass the necessary Journal entry for Goodwill. L and O decided to share the future profits and losses in the ratio of 5:3.
Answer 13:
Points of Knowledge:
Question 14: P, Q, R and S were partners in a firm sharing profits in the ratio of 5 : 3 : 1 : 1. On 1st January, 2017, S retired from the firm. On S's retirement the goodwill of the firm was valued at Rs 4,20,000. The new profit-sharing ratio between P, Q and R will be 4 : 3 : 3. Showing your working notes clearly, pass necessary journal entry for the treatment of goodwill in the books of the firm on S's retirement.
Answer 14:
Points of Knowledge:
Question 15: Aparna, Manisha and Sonia are partners sharing profits in the ratio of 3 : 2 : 1 . Manisha retires and goodwill of the firm is valued at Rs 1,80,000. Aparna and Sonia decided to share future profits in the ratio of 3 : 2 . Pass necessary journal entries.
Answer 15:
Question 16: A, B and C are partners sharing profits in the ratio of 3 : 2 : 1 . B retired and the new profit-sharing ratio between A and C was 2 : 1 . On B's retirement, the goodwill of the firm was valued at Rs. 90,000. Pass necessary journal entry for the treatment of goodwill on B's retirement.
Answer 16:
Question 17: Hanny, Pammy and Sunny are partners sharing profits in the ratio of 3 : 2 : 1 . Goodwill is appearing in the books at a value of Rs 60,000. Pammy retires and at the time of Pammy's retirement, goodwill is valued at Rs 84,000. Hanny and Sunny decided to share future profits in the ratio of 2 : 1 . Record the necessary journal entries.
Answer 17:
Question 18: X, Y and Z are partners sharing profits in the ratio of 3 : 2 : 1 . Goodwill is appearing in the books at a value of Rs 60,000. Y retires and at the time of Y's retirement, goodwill is valued at Rs 84,000. X and Z decide to share future profits in the ratio of 2 : 1 .Pass the necessary journal entries through Goodwill Account .
Answer 18:
Question 19: A, B and C are partners sharing profits in the ratio of 4/9 : 3/9 : 2/9. B retires and his capital after making adjustments for reserves and gain (profit) on revaluation stands at Rs 1,39,200. A and C agreed to pay him Rs 1,50,000 in full settlement of his claim. Record necessary journal entry for adjustment of goodwill if the new profit-sharing ratio is decided at 5 : 3.
Answer 19:
When One/Some (not all) of the Remaining Partner(s) Gain
Question 20: M, N and O are partners in a firm sharing profits in the ratio of 3 : 2 : 1 . Goodwill has been valued at Rs 60,000. On N's retirement, M and O agree to share profits equally. Pass the necessary journal entry for treatment of N's share of goodwill.
Answer 20:
Question 21: A, B, C and D are partners in a firm sharing profits in the ratio of 2 : 1 : 2 : 1 . On the retirement of C, Goodwill was valued Rs 1,80,000. A, B and D decide to share future profits equally. Pass the necessary journal entry for the treatment of goodwill.
Answer 21:
Question 22: A, B and C were partners in a firm sharing profits in the ratio of 6 : 5 : 4 . Their capitals were A—Rs 1,00,000; B—Rs 80,000 and C—Rs 60,000 respectively. On 1st April, 2009, A retired from the firm and the new profit sharing ratio between B and C was decided as 1 : 4 . On A's retirement, the goodwill of the firm was valued at Rs 1,80,000. Showing your calculations clearly, pass the necessary journal entry for the treatment of goodwill on A's retirement.
Answer 22:
Revaluation Account
Question 23: X, Y and Z are partners sharing profits and losses in the ratio of 5 : 3 : 2 . Z retires and on the date of his retirement, the following adjustments were agreed upon:
(a) The value of Furniture is to be increased by Rs 12,000.
(b) The value of stock to be decreased by Rs 10,000.
(c) Machinery of the book value of Rs 50,000 is to be depreciated by 10%.
(d) A Provision for Doubtful Debts @ 5% is to be created on debtors of book value of Rs 40,000.
(e) Unrecorded Investment worth Rs 10,000.
(f) An item of Rs 1,000 included in bills payable is not likely to be claimed, hence should be written back.
Pass necessary journal entries.
Answer 23:
Question 24: A, B and C were partners, sharing profits and losses in the ratio of 2 : 2 : 1 . B decides to retire on 31st March, 2018. On the date of his retirement , some of the assets and liabilities appeared in the books as follows: Creditors Rs 70,000; Building Rs 1,00,000; Plant and Machinery Rs 40,000; Stock of Raw Material;s Rs 20,000; Stock of Finished Goods Rs 30,000 and Debtors Rs 20,000.
The following was agreed among the partners on B's retirement:
(a) Building to be appreciated by 20%.
(b) Plant and Machinery to be depreciated by 10%.
(c) A Provision of 5% on Debtors to be created for Doubtful Debts.
(d) Stock of Raw Materials to be valued at Rs 18,000 and Finished Goods at Rs 35,000.
(e) An Old Computer previously written off was sold for Rs 2,000 as scrap.
(f) Firm had to pay Rs 5,000 to an injured employee.
Pass necessary journal entries to record the above adjustments and prepare the Revaluation Account.
Answer 24:
Question 25: Ramesh wants to retire from the firm. The gain (profit) on revaluation on that date was Rs 12,000. Mohan and Rahul want to share this in their new profit-sharing ratio of 3 : 2 . Ramesh wants this to be shared equally. How is the profit to be shared? Give reasons.
Answer 25:
Profit on Revaluation on the date of retirement will be shared among all the partners and in the absence of Partnership Deed it will be shared equally.
Ramesh’s share in revaluation profit = 12,000 × 1/3 = 4,000
Mohan’s share in revaluation profit = 12,000 × 1/3 = 4,000
Rahul’s share in revaluation profit = 12,000 × 1/3 = 4,000
Treatment of Reserves and Accumulated Profit/Losses
Question 26: 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, 2018. On the date of Z's retirement, the following balances appeared in the books of the firm:
General Reserve Rs 1,80,000
Profit and Loss Account (Dr.) Rs 30,000
Workmen Compensation Reserve Rs 24,000 which was no more required
Employees' Provident Fund Rs 20,000.
Pass necessary journal entries for the adjustment of these items on Z's retirement.
Answer 26:
Question 27: 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 Rs 80,000 and General Reserve at Rs 40,000. Naveen decided to retire from the firm. On the date of his retirement, goodwill of the firm was valued at Rs 1,20,000. The new profit ratio decided among Asha and Shalini is 2 : 3.
Record necessary journal entries on Naveen's retirement.
Answer 27:
Question 28: 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 Rs 1,80,000. Laxman retires and at the time of his retirement, goodwill is valued at Rs 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 Rs 1,20,000. Give the necessary journal entries to record goodwill and to distribute the profit. Show your calculations clearly.
Answer 28:
Preparation of the Capital Account and Balance Sheet
Question 29: The 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 profits 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 112/112 times the average profit of the three preceding completed years.
C gave a notice on 31st March, 2017 to retire on 30th September, 2017, when the balance of his Capital Account was Rs 6,000 and his Current Account (DR.) Rs 500. The profits for the three preceding completed years were; year ended 31st March, 2015 Rs 2,800; year ended 31st March, 2016 Rs 2,200 and year ended 31st March, 2017 Rs 1,600. What amount is due to C in accordance with the partnership agreement?
Answer 29:
Question 30: X, Y and Z were partners in a firm sharing profits in the ratio of 2 : 2 : 1. Their Balance Sheet as at 31st March, 2018 was:
Y retired on 1st April, 2018 on the following terms:
(a) Goodwill of the firm was valued at Rs 70,000 and was not to appear in the books.
(b) Bad Debts amounted to Rs 2,000 were to be written off.
(c) Patents were considered as valueless.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of X and Z after Y's retirement.
Answer 30:
Question 31: Kanika, Disha and Kabir were partners sharing profits in the ratio of 2 : 1 : 1 . On 31st March, 2016, their Balance Sheet was as under:
Kanika retired on 1st April, 2016. For this purpose, the following adjustments were agreed upon:
(a) Goodwill of the firm was valued at 2 years' purchase of average profits of three completed years preceding the date of retirement. The profits for the year:
2013-14 were Rs 1,00,000 and for 2014-15 were Rs 1,30,000.
(b) Fixed Assets were to be increased to Rs 3,00,000.
(c) Stock was to be valued at 120%.
(d) The amount payable to Kanika was transferred to her Loan Account .
Prepare Revaluation Account, Capital Accounts of the partners and the Balance Sheet of the reconstituted firm.
Answer 31:
Question 32: The Balance Sheet of X, Y and Z who were sharing profits in proportion to their capitals stood as follows at 31st March, 2018:
Y retires on 1st April, 2018 and the following readjustments were agreed upon:
(a) Out of insurance premium which was debited to the Profit and Loss Account , Rs 1,500 be carried forward as Unexpired Insurance.
(b) The Provision for Doubtful Debts be brought up to 5% of Sundry Debtors .
(c) The Land and Building be appreciated by 20%.
(d) A provision of Rs 4,000 be made in respect of outstanding bills for repairs.
(e) The goodwill of the entire firm be fixed at Rs 21,600.
Y's share of goodwill be adjusted to that of X and Z who will going to share in future profits in the ratio of 3:1.
Pass necessary journal entries and give the Balance Sheet after Y's retirement.
Answer 32:
Points of Knowledge:
Old Ratio of X : Y : Z = 45,000: 30,000: 15,000 = 3:2:1
New Ratio of X : Z = 3 : 1
Gaining Ratio = New Ratio – Old Ratio
X’s Gain = 3/4 - 3/6 = (18-12)/24 = 6/24
Z’s Gain = 1/4 - 1/6 = (6-4)/24 = 2/24
Therefore Gaining Ratio of X:Z = 6:2 = 3:1
Goodwill of the firm = 21,600
Y’s share of Goodwill = 21,600 × 2/6 = 7,200
X will transfer for goodwill to Y = 7,200 × ¾ = 5,400
Z will transfer for goodwill to Y = 7,200 × ¼ = 1,800
Condition for goodwill treatment :Remaining to Retiring
Question 33: N, S and G were partners in a firm sharing profits and losses in the ratio of 2 : 3 : 5 . On 31st March,2016 their Balance Sheet was as under:
G retired on the above ate and it was agreed that :
(a) Debtors of Rs 6,000 will be written off as bad debts and a provision of 5% on debtors for bad and doubtful debts will be maintained .
(b) Patents will be completely written off and stock , machinery and building will be depreciated by 5% .
(c) An unrecorded creditor of Rs 30,000 will be taken into account.
(d) N and S will share the future profits in 2 : 3 ratio.
(e) Goodwill of the firm on G's retirement was valued at Rs 90,000.
Pass necessary journal entries for the above transactions in the books of the firm on G's retirement.
Answer 33:
Question 34: A, B and C are partners in a firm, sharing profits and losses as A 1/3, B 1/2 and C 1/6 respectively. The Balance Sheet of the firm as at 31st March, 2018 was:
C retires on 1st April, 2018 subject to the following adjustments:
(a) Goodwill of the firm be valued at Rs 24,000. C's share of goodwill be adjusted into the account of A and B who are going to share in future in the ratio of 3 : 2 .
(b) Plant and Machinery to be depreciated by 10% and Furniture by 5%.
(c) Stock to be appreciated by 15% and Factory Building by 10%.
(d) Provision for Doubtful Debts to be raised to Rs 2,000.
You are required to pass journal entries to record the above transactions in the books of the firm and show the Profit and Loss Adjustment Account , Capital Account of C and the Balance Sheet of the firm after C's retirement.
Answer 34:
Question 35: X, Y and Z were in partnership sharing profits and losses in the proportions of 3 : 2 : 1 . On 1st April, 2018 Y retires from the firm. On that date, their Balance Sheet was:
The terms were:
(a) Goodwill of the firm was valued at Rs 13,500 and adjustment in this respect was to be made in the continuing Partners' Capital Accounts without raising Goodwill Account.
(b) Expenses Owing to be brought down to Rs 3,750.
(c) Machinery and Loose Tools are to be valued @ 10% less than their book value.
(d) Factory Premises are to be revalued at Rs 24,300.
Show Revaluation Account, Partners' Capital Accounts and prepare the Balance Sheet of the firm after the retirement of Y.
Answer 35:
Question 36: Pankaj, Naresh and Saurabh are partners sharing profits in the ratio of 3 : 2 : 1. On 31st March, 2019, Naresh and on that date, Balance Sheet of the firm was as follows:
Additional Information:
(a) Premises have appreciated by 20%, stock depreciated by 10% and provision for doubtful debts was to be made 5% on debtors. Further provision for legal damages is to be made for Rs 1,200 and furniture to be brought up to Rs 45,000.
(b) Goodwill of the firm be valued at Rs 42,000.
(c) Rs 26,000 from Naresh's Capital Account be transferred to his Loan Account and balance be paid through bank: if required , necessary loan may be obtained from bank.
(d) New profit-sharing ratio of Pankaj and Saurabh is decided to be 5 : 1 .
Give the necessary Ledger Accounts and Balance Sheet of the firm after Naresh's retirement
Answer 36:
Question 37: X, Y and Z are partners sharing profits in the ratio of 4 : 3 : 2 . Their Balance Sheet as at 31st March, 2019 stood as follows:
Y retired on 1st April, 2019 after giving due notice. Following adjustments in the books of the firm were agreed upon:
(a) Land and Building be appreciated by 10%.
(b) Provision for Doubtful Debts is no longer necessary since all the debtors are considered good.
(c) Stock be appreciated by 20%.
(d) Adjustment be made in the accounts to rectify a mistake previously committed whereby Y was credited in excess by Rs 810, while X and Z were debited in excess of Rs 420 and Rs 390 respectively.
(e) Goodwill of the firm be fixed at Rs 5,400 and Y's share of the same be adjusted to that of X and Z who were going to share in the ratio of 2 : 1.
(f) It was decided by X and Y to settle Y's account immediately on his retirement.
You are required to show:
(i) Revaluation Account
(ii) Partner's Capital Accounts and
(iii) Balance Sheet of the firm after Y's retirement.
Answer 37:
Points of Knowledge:
Note 1: Calculation of Gaining Ratio:
Old Ratio of X : Y : Z = 4:3:2
New Ratio of X : Z = 2:1
Gaining Ratio = New Ratio – Old Ratio
X’s Gain = 2/3 - 4/9 = (6-4)/9 = 2/9
Z’s Gain = 1/3 - 2/9 = (3-2)/9 = 1/9
Therefore Gaining Ratio of X : Z = 2:1
Note 2:
Goodwill of the firm = 5,400
Y’s share of Goodwill = 5,400 × 3/9 = 1,800
X will transfer for goodwill to Y = 1,800 × 2/3 = 1,200
Z will transfer for goodwill to Y = 1,800 × 1/3 = 600
Condition for goodwill treatment: Remaining Partner to Retiring partner
Note 3:
The adjustment be made in the accounts to rectify a mistake previously committed whereby Y was credited in excess by 810, while X and Z were debited in excess of 420 and 390 respectively.
The journal entry to rectify the above mistake is:
Y’s Capital Account Dr. 810
To X’s Capital Account 420
To Z’s Capital Account 390
Question 38: A, B and C are partners sharing profits and losses in the ratio of 4 : 3 : 3 respectively. Their Balance Sheet as at 31st March, 2019 is:
On 1st April, 2018, B retires from the firm on the following terms:
(a) Goodwill of the firm is to be valued at Rs 14,000.
(b) Stock, Land and Building are to be appreciated by 10%.
(c) Plant and Machinery and Electronic Typewriter are to be depreciated by 10%.
(d) Sundry Debtors are considered to be good.
(e) There is a liability of Rs 2,000 for the payment of outstanding salary to the employee of the firm . This liability has not been shown in the above Balance Sheet but the same is to be recorded now.
(f) Amount payable to B is to be transferred to his Loan Account.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of A and C after B's retirement.
Answer 38:
On 1st April, 2019, Y decided to retire from the firm on the following terms:
(a) Stock to be depreciated by Rs 12,000.
(b) Advertisements Suspense Account to be written off.
(c) Provision for Doubtful Debts to be increased to Rs 6,000.
(d) Fixed Assets be appreciated by 10%.
(e) Goodwill of the firm, valued at Rs 80,000 and the amount due to the retiring partners to be adjusted in X's and Z's Capital Accounts.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet to give effect to the above.
Answer 39:
Question 40: X, Y and Z are partners sharing profits and losses in the ratio of 3 : 2 : 1 . The Balance Sheet of the firm as at 31st March, 2018 stood as follows:
Z retired on the above date on the following terms:
(a) Goodwill of the firm is to be valued at Rs 34,800.
(b) Value of Patents is to be reduced by 20% and that of machinery to 90%.
(c) Provision for Doubtful Debts is to be created @ 6% on debtors.
(d) Z took over the investment at market value .
(e) Liability for Workmen Compensation to the extent of Rs 750 is to be created .
(f) A liability of Rs 4,000 included in creditors is not to be paid .
(g) Amount due to Z to be settled on the following basis: Rs 5,067 to be paid immediately , 50% of the balance within one year and the balance by a Bill of Exchange ( without interest ) at 3 Months.
Give necessary journal entries for the treatment of goodwill , prepare Revaluation Account , Capital Accounts and the Balance Sheet of the new firm.
Answer 40:
Answer 41:
On the date of retirement – Rs. 30,000
Balance in three yearly instalments − First two instalments being of Rs. 26,000, including interest; and Balance amount as last instalment.
Interest was payable @ 10 p.a. Prepare retiring Partners' Loan Account.
Answer 42:
Answer 43:
(a) Out of the amount of insurance premium which was debited to Profit and Loss Account, Rs 1,000 be carried forward for Unexpired insurance.
(b) Freehold Premises be appreciated by 10%.
(c) Provision for Doubtful Debts is brought up to 5% on Debtors.
(d) Machinery be depreciated by 5%.
(e) Liability for Workmen Compensation to the extent of Rs 1,500 would be created.
(f) That the goodwill of the entire firm be fixed at Rs 18,000 and B's share of the same be adjusted into the accounts of A and C who are going to share future profits in the proportion of 3/4th and 1/4th respectively.
(g) Total capital of the firm as newly constituted be fixed at Rs 60,000 between A and C in the proportion of 3/4th and 1/4th after passing entries in their accounts for adjustments , i.e., actual cash to be paid or to be brought in by continuing partners as the case may be .
(h) B be paid Rs 5,000 in cash and the balance be transferred to his Loan Account.
Prepare Capital Accounts of Partners and the Balance Sheet of the firm of A and C .
Answer 44:
New Ratio of A:C = 3 :1
Gaining Ratio = New Ratio – Old Ratio
A’s Gain = 3/4 - 3/6 = 18-12/24 = 6/24
C’s Gain = 1/4 - 1/6 = 6-4/24 = 2/24
Therefore, Gaining Ratio of A:C = 6 : 2 = 3 :1
Treatment of goodwill:
Goodwill of the firm = 18,000
B will be compensated for goodwill = 18,000 × 2/6 = 6,000
A will transfer for goodwill to B = 6,000 × ¾ = 4,500
C will transfer for goodwill to B = 6,000 × ¼ = 1,500
Condition for goodwill treatment: Remaining partner to Retiring partner
Note 2:
Capital Adjustment:
A’s Capital = 60,000 × ¾ = 45,000
C’s Capital = 60,000 × ¼ = 15,000
Note 3:
Closing Bank Balance = 13,000 – 5,000 + 3,000 + 1,000 = 12,000
When existing total capital of remaining partners is to be in New Ratio
Question 45: Amit, Balan and Chander were partners in a firm sharing profits in the proportion of 1/2, 1/3 and 1/6 respectively. Chander retired on 1st April, 2014. The Balance Sheet of the firm on the date of Chander's retirement was as follows:
(i) Goodwill be valued at Rs 27,000.
(ii) Depreciation of 10% was to be provided on Machinery.
(iii) Patents were to be reduced by 20%.
(iv) Liability on account of Provident Fund was estimated at Rs 2,400.
(v) Chander took over Investments for Rs 15,800.
(vi) Amit and Balan decided to adjust their capitals in proportion of their profit-sharing ratio by opening Current Accounts.
Prepare Revaluation Account and Partners' Capital Accounts on Chander's retirement.
Answer 45:
(i) Goodwill of the firm was valued at Rs 1,02,000 .
(ii) There was a claim of Rs 8,000 for workmen's compensation.
(iii) Provision for bad debts was to be reduced by Rs 2,000.
(iv) H will be paid Rs 14,000 in cash and balance will be transferred in his Loan Account which will be paid in four equal yearly instalments together with interest @ 10% p.a.
(v) The new profit-sharing ratio between J and K will be 3 : 2 and their capitals will be in their new profit-sharing ratio . The capital adjustments will be done by opening Current Accounts.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.
(a) Freehold Premises and Stock are to be appreciated by 20% and 15% respectively.
(b) Machinery and Furniture are to be depreciated by 10% and 7% respectively.
(c) Provision for Doubtful Debts is to be increased to Rs 1,500.
(d) Goodwill of the firm is valued at Rs 21,000 on Z's retirement.
(e) The continuing partners have decided to adjust their capitals in their new profit-sharing ratio after retirement of Z . Surplus/deficit, if any, in their Capital Accounts will be adjusted through Current Accounts.
Prepare necessary Ledger Accounts and draw the Balance Sheet of the reconstituted firm.
Answer 47:
Z’s share of Goodwill = 21,000 × 2/6 = 7,000
X will transfer for goodwill to Z = 7,000 × ¾ = 5,250
Y will transfer for goodwill to Z = 7,000 × ¼ = 1,750
Condition for goodwill treatment: Gaining Partners to Retiring or Sacrificing Partner
Capital Adjustments:
Total Capital of the New Partnership firm of X and Y = 34,230 + 21,410 = 55,640
X’s New Capital Balance = 55,640 × ¾ = 41,730
Y’s New Capital Balance = 55,640 × ¼ = 13,910
When the Retiring Partner is to be paid through cash brought in by the remaining partners in a manner to make their Capital Proportionate to New Ratio
Answer 48:
(i) Goodwill of the firm is valued at Rs 1,12,500 and Y's share of it be adjusted into the accounts of X and Z who are going to share future profits in the ratio of 3 : 2.
(ii) Fixed Assets be appreciated by 20%.
(iv) Y be paid amount brought in by X and Z in such a way as to make their capitals proportionate to their new profit-sharing ratio.
Prepare Revaluation Account, Capital Accounts of all partners and the Balance Sheet of the New Firm.
Answer 50:
(a) Provision for Doubtful Debts be raised by Rs 1,000.
(b) Stock to be depreciated by 10% and Furniture by 5% .
(c) There is an outstanding claim of damages of Rs 1,100 and it is to be provided for.
(d) Creditors will be written back by Rs 6,000.
(e) Goodwill of the firm is valued at Rs 22,000.
(f) Bill paid in full with the cash brought in by A and C in such a manner that their capitals are in proportion to their profit-sharing ratio and Cash in Hand remains at Rs 10,000.
Prepare Revaluation Account , Partners' Capital Accounts and the Balance Sheet of A and C .
Answer 51:
Goodwill of the firm = 22,000
B will be compensated for goodwill = 22,000 × 2/6 = 7,333
A will transfer for goodwill to B = 7,333 × ¾ = 5,500
C will transfer for goodwill to B = 7,333 × ¼ = 1,833
Condition for goodwill treatment: Remaining partner to Retiring partner
Note 3: Capital Adjustment:
A’s Capital = 1,04,600 × ¾ = 78,450
C’s Capital = 1,04,600 × ¼ = 26,150
Note 4: Closing Bank Balance = 18,000 + 42,650 – 48,200 – 2,450 = 10,000
Question 52: Following is the Balance Sheet of Kusum, Sneh and Usha as on 31st March, 2018, who have agreed to share profits and losses in proportion of their capitals :
It was agreed to revalue the assets and reassess the liabilities on that date , on the following basis:
(a) Land and Building be appreciated by 30%.
(b) Machinery be depreciated by 30%.
(c) There were Bad Debts of Rs 35,000.
(d) The claim against Workmen Compensation Reserve was estimated at Rs 15,000.
(e) Goodwill of the firm was valued at Rs 2,80,000 and Kusum's share of goodwill was adjusted against the Capital Accounts of the continuing partners Sneh and Usha who have decided to share future profits in the ratio of 3 : 4 respectively.
(f) Capital of the new firm in total will be the same as before the retirement of Kusum and will be in the new profit-sharing ratio of the continuing partners .
(g) Amount due to Kusum be settled by paying Rs 1,00,000 in cash and balance by transferring to her Loan Account which will be paid later on.
Prepare Revaluation Account , Capital Accounts of Partners and Balance Sheet of the new firm after Kusum's retirement.
Answer 52:
Therefore Gaining Ratio of Sneh : Usha = 0 : 2
Note 2: Treatment of goodwill:
Goodwill of the firm = 2,80,000
Kusum will be compensated for goodwill = 2,80,000 × 2/7 = 80,000 by usha only.
Condition for goodwill treatment: Gaining partner to Retiring partner.
Note 3: Capital Adjustment:
Total Capital of the new firm = 14,00,000
Sneh’s Capital = 14,00,000 × 3/7 = 6,00,000
Usha’s Capital = 14,00,000 × 4/7 = 8,00,000
Note 4 : Closing Bank Balance = 2,00,000 + 25,714 – 4,97,143 – 1,00,000 = 6,22,857
Question 53: The Balance Sheet of X, Y and Z who were sharing profits in the ratio of 5 : 3 : 2 as at 31st March, 2018 is as follows:
The other terms on retirement were:
(a) Goodwill of the firm is to be valued at Rs 80,000.
(b) Fixed Assets are to be depreciated to Rs 57,500.
(c) Make a Provision for Doubtful Debts at 5% on Debtors.
(d) A liability for claim , included in Creditors for Rs 10,000 , is settled at Rs 8,000.
The amount to be paid to X by Y and Z in such a way that their Capitals are proportionate to their profit-sharing ratio and leave a balance of Rs 15,000 in the Bank Account.
Prepare Profit and Loss Adjustment Account and Partners' Capital Accounts.
Answer 53:
Goodwill of the firm = 80,000
X will be compensated for goodwill = 80,000 × 5/10 = 40,000
Y will transfer for goodwill to X = 40,000 × 3/5 = 24,000
Z will transfer for goodwill to X = 40,000 × 2/5 = 16,000
Condition for goodwill treatment: Remaining partner to Retiring partner
Note 3: Capital Adjustment:
Total Capital of the new firm = 1,19,750 + 61,850 + 32,900 + (40,000-15,000) + 8000 = 1,97,500
Y’s Capital = 1,97,500 × 3/5 = 1,18,500
Z’s Capital = 1,97,500 × 2/5 = 79,000
(a) Building be valued at Rs 22,00,000.
(b) Investments to be valued at Rs 3,00,000.
(c) Stock be taken at Rs 8,00,000.
(d) Goodwill of the firm be valued at two years' purchase of the average profit of the past five years.
(e) C's share of profits up to the date of retirement be calculated on the basis of average profit of the preceding three years.
The profits of the preceding five years were as under:
(f) Amount payable to C to be transferred to his Loan Account carrying interest @ 10% p.a.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet as at 30th June, 2018.
Answer 54:
