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**CBSE accountancy class 12 chapter Reconstitution of a Partnership Firm – Retirement/Death of a Partner Numerical Questions Solutions**. You can find the questions/answers/solutions for the**chapter 4**of**CBSE class 12 accountancy**in this page. So is the case if you are looking for**CBSE class 12 Commerce**related topic**Reconstitution of a Partnership Firm – Retirement/Death of a Partner Numerical Questions Solutions**. This page contains numerical questions solutions. If you’re looking for theoretical questions answers or Test Your Understanding questions answers or Do It Yourself questions answers or Short Answer Questions Answers or Long Answer Questions answers, you can find them at Reconstitution of a Partnership Firm – Retirement/Death of a PartnerNumerical Questions

1. 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 ₹ 1,80,000. Aparna and Sonia decided to share future in the ratio of 3 : 2. Pass necessary journal entries.

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

Aparna’s Capital A/c

Dr.

18,000

Sonia’s Capital A/c

Dr.

42,000

To Manisha’s Capital A/c

60,000

(Being Manisha’s share of goodwill adjusted to Aparna and Sonia’s Capital accounts in their gaining ratio)

Working Notes:

Gain in Share

= New Share – Old Share

Aparna

{= \dfrac{3}{5} - \dfrac{3}{6}}

{= \dfrac{18 - 15}{30}}

{= \dfrac{3}{30}}

Sonia

{= \dfrac{2}{5} - \dfrac{1}{6}}

{= \dfrac{12 - 5}{30}}

{= \dfrac{7}{30}}

Gaining Ratio

{= \dfrac{3}{30}:\dfrac{7}{30}}

= 3:7

Goodwill Share:

Retiring partner Manisha

{= ₹~1,80,000 × \dfrac{2}{6}}

= ₹ 60,000

Contribution to Manisha’s Goodwill:

Aparna

{= ₹~60,000 × \dfrac{3}{10}}

= ₹ 18,000

Sonia

{= ₹~60,000 × \dfrac{7}{10}}

= ₹ 42,000

2. Sangeeta, Saroj and Shanti are partners sharing profits in the ratio of 2 : 3 : 5. Goodwill is appearing in the books at a value of ₹ 60,000. Sangeeta retires and goodwill is valued at ₹ 90,000. Saroj and Shanti decided to share future profits equally. Record necessary journal entries.

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

Sangeeta’s Capital A/c

Dr.

12,000

Saroj’s Capital A/c

Dr.

18,000

Shanti’s Capital A/c

Dr.

30,000

To Goodwill A/c

60,000

(Being goodwill appearning in the books written-off)

Saroj’s Capital A/c

Dr.

18,000

To Sangeeta’s Capital A/c

18,000

(Being Sangeeta’s share of goodwill adjusted to Saroj’s capital acccount in his gaining ratio)

Working Notes:

Gain in Share

New Share – Old Share

Saroj

{= \dfrac{1}{2} - \dfrac{3}{10}}

{= \dfrac{5 - 3}{10}}

{= \dfrac{1}{5}}

Shanti

{= \dfrac{1}{2} - \dfrac{5}{10}}

{= \dfrac{1}{2} - \dfrac{1}{2}}

= 0

Gaining Ratio:

{= \dfrac{1}{5}:0}

= 1:0

Goodwill appearing in books

= ₹ 60,000

Goodwill not appearing in books

= ₹ 90,000

Share of goodwill appearing in the books

Sangeeta

{= ₹~60,000 × \dfrac{2}{10}}

= ₹ 12,000

Saroj

{= ₹~60,000 × \dfrac{3}{10}}

= ₹ 18,000

Shanti

{= ₹~60,000 × \dfrac{5}{10}}

= ₹ 30,000

Share of goodwill not appearing in books

Retiring partner Sangeeta

{= ₹~90,000 × \dfrac{2}{10}}

= ₹ 18,000

Contribution to Sangeeta’s Goodwill:

Saroj

{= ₹~18,000 × \dfrac{1}{1}}

= ₹ 18,000

Shanti

{= ₹~18,000 × \dfrac{0}{1}}

= ₹ 0

Note: As the gain in Shanti’s share is 0, she doesn’t have to contribute to Sangeeta’s goodwill. All of Sangeeta’s share of goodwill should be contributed by Saroj.

3. Himanshu, Gagan and Naman are partners sharing profits and losses in the ratio of 3 : 2 : 1. On March 31, 2017, Naman retires.

The various assets and liabilities of the firm on the date were as follows:

Cash ₹ 10,000, Building ₹ 1,00,000, Plant and Machinery ₹ 40,000, Stock ₹ 20,000, Debtors ₹ 20,000 and Investments ₹ 30,000.

The following was agreed upon between the partners on Naman’s retirement:

(i)

Building to be appreciated by 20%.

(ii)

Plant and Machinery to be depreciated by 10%.

(iii)

A provision of 5% on debtors to be created for bad and doubtful debts.

(iv)

Stock was to be valued at Rs. 18,000 and Investment at Rs. 35,000.

Record the necessary journal entries to the above effect and prepare the revaluation account.

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

Building A/c

Dr.

20,000

Investment A/c

Dr.

5,000

To Revaluation A/c

25,000

(Being increase in the value of Building and Investment)

Revaluation A/c

Dr.

7,000

To Plant and Machinery A/c

4,000

To Provision for

bad and doubtful debts A/c

bad and doubtful debts A/c

1,000

To Stock A/c

2,000

(Being decrease in the value of plant and machinery, provision for bad and doubtful debts and stocks)

Revaluation A/c

Dr.

18,000

To Himanshu’s Capital A/c

9,000

To Gagan’s Capital A/c

6,000

To Naman’s Capital A/c

3,000

(Being profit on revaluation transferred to all the partners’ capital accounts in their old profit sharing ratio)

Revaluation A/c

Dr.

Cr.

Date

Particulars

J.F.

Amount

₹

₹

Date

Particulars

J.F.

Amount

₹

₹

To Plant and Machinery A/c

4,000

By Building A/c

20,000

To Stock A/c

2,000

By Investment A/c

5,000

To Provision for Bad Debts A/c

1,000

Profit Transferred:

To Himanshu’s Capital A/c

9,000

To Gagan’s Capital A/c

6,000

To Naman’s Capital A/c

3,000

18,000

25,000

25,000

Working Notes:

Appreciation on Revaluation:

Building

{= ₹~1,00,000 × \dfrac{20}{100}}

= ₹ 20,000

Investment

= ₹ 35,000 – ₹ 30,000

= ₹ 5,000

Total

= ₹ 20,000 + ₹ 5,000

= ₹ 25,000

Loss on Revaluation:

Plant and Machinery

{= ₹~40,000 × \dfrac{10}{100}}

= ₹ 4,000

Provision Debts

{= ₹~20,000 × \dfrac{5}{100}}

(Bad and Doubtful Debts)

= ₹ 1,000

Stock

= ₹ 20,000 – ₹ 18,000

= ₹ 2,000

Total

= ₹ 4,000 + ₹ 1,000 + ₹ 2,000

= ₹ 7,000

Total Profit

= ₹ 25,000 – ₹ 7,000

(on Revaluation)

= ₹ 18,000

Distribution of Revaluation Profit

Himanshu

{= ₹~18,000 × \dfrac{3}{6}}

= ₹ 9,000

Gagan

{= ₹~18,000 × \dfrac{2}{6}}

= ₹ 6,000

Naman

{= ₹~18,000 × \dfrac{1}{6}}

= ₹ 3,000

4. Naresh, Raj Kumar and Bishwajeet are equal partners. Raj Kumar decides to retire. On the date of his retirement, the Balance Sheet of the firm showed the following: General Reserves ₹ 36,000 and Profit and Loss Account (Dr.) ₹ 15,000.

Pass the necessary journal entries to the above effect.

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

General Reserve A/c

Dr.

36,000

To Naresh’s Capital A/c

12,000

To Raj Kumar’s Capital A/c

12,000

To Bishwajeet’s Capital A/c

12,000

(Being General Reserves distributed equally among the partners in their old profit sharing ratio)

Naresh’s Capital A/c

Dr.

5,000

Raj Kumar’s Capital A/c

Dr.

5,000

Bishwajeet’s Capital A/c

Dr.

5,000

To Profit and Loss A/c

15,000

(Being the loss from the profit and loss account adjusted to the old partners accounts in their old profit sharing ratio)

Working Notes:

Recall that the debit balance of Profit and Loss represents loss. As the partners are equal partners each of them will get ⅓ of the general reserve as well as the loss.

for each partner

Share of General Reserve

{= ₹~36,000 × \dfrac{1}{3}}

= ₹ 12,000

Share of loss

{= ₹~15,000 × \dfrac{1}{3}}

= ₹ 5,000

5. Digvijay, Brijesh and Parakaram were partners in a firm sharing profits in the ratio of 2 : 2 : 1. Their Balance Sheet as on March 31, 2017 was as follows:

Liabilities

Amount

₹

₹

Assets

Amount

₹

₹

Creditors

49,000

Cash

8,000

Reserves

18,500

Debtors

19,000

Digvijay’s Capital

82,000

Stock

42,000

Brijesh’s Capital

60,000

Buildings

2,07,000

Prakaram’s Capital

75,500

Patents

9,000

2,85,000

2,85,000

Brijesh retired on March 31, 2017 on the following terms:

(i)

Goodwill of the firm was valued at ₹ 70,000 and was not to appear in the books.

(ii)

Bad debts amounting to ₹ 2,000 were to be written off.

(iii)

Patents were considered as valueless.

Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of Digvijay and Parakaram after Brijesh’s retirement.

Revaluation A/c

Dr.

Cr.

Date

Particulars

J.F.

Amount

₹

₹

Date

Particulars

J.F.

Amount

₹

₹

To Bad Debts A/c

2,000

Loss Transferred

To Patents A/c

9,000

By Digvijay’s Capital A/c

4,400

By Brijesh’s Capital A/c

4,400

By Prakaram’s Capital A/c

2,200

11,000

11,000

Partners’ Capital A/c

Dr.

Cr.

Date

Particulars

J.F.

Digvijay

Amount

₹

Amount

₹

Brijesh

Amount

₹

Amount

₹

Parakaram

Amount

₹

Amount

₹

Date

Particulars

J.F.

Digvijay

Amount

₹

Amount

₹

Brijesh

Amount

₹

Amount

₹

Parakaram

Amount

₹

Amount

₹

To Brijesh’s Capital A/c

18,667

9,333

By Balance b/d

82,000

60,000

75,000

To Revaluation (Loss) A/c

4,400

4,400

2,200

By Digvijay’s Capital A/c

18,667

To Brijesh’s Loan A/c

91,000

By Parakaram’s Capital A/c

9,333

To Balance c/d

66,333

67,667

By Reserves A/c

7,400

7,400

3,700

89,400

95,400

79,200

89,400

95,400

79,200

Balance Sheet as on March 31, 2017

Liabilities

Amount

₹

₹

Assets

Amount

₹

₹

Creditors

49,000

Cash

8,000

Brijesh’s Loan

91,000

Debtors

19,000

Capital

Bad Debts

2,000

17,000

Digvijay

66,333

Stock

42,000

Parakaram

67,667

1,34,000

Building

2,07,000

2,74,000

2,74,000

Working Notes

Distribution of Reserves

Digvijay

{= ₹~18,500 × \dfrac{2}{5}}

= ₹ 7,400

Brijesh

{= ₹~18,500 × \dfrac{2}{5}}

= ₹ 7,400

Parakaram

{= ₹~18,500 × \dfrac{1}{5}}

= ₹ 3,700

Gain in Share

= New Share – Old Share

Digvijay

{= \dfrac{2}{3} - \dfrac{2}{5}}

{= \dfrac{10 - 6}{15}}

{= \dfrac{4}{15}}

Parakaram

{= \dfrac{1}{3} - \dfrac{1}{5}}

{= \dfrac{5 - 3}{15}}

{= \dfrac{2}{15}}

Gaining Ratio

{= \dfrac{4}{15}:\dfrac{2}{15}}

= 2:1

Goodwill

Goodwill Amount

= ₹ 70,000

Share of Brijesh

{= ₹~70,000 × \dfrac{2}{5}}

(retiring partner)

= ₹ 28,000

Adjustment by continuing partners

Digvijay

{= ₹~28,000 × \dfrac{2}{3}}

= ₹ 18,667

Parakaram

{= ₹~28,000 × \dfrac{1}{3}}

= ₹ 9,333

Revaluation Loss:

Bad Debts

= ₹ 2,000

Patents

= ₹ 9,000

Total

= ₹ 2,000 + ₹ 9,000

= ₹ 11,000

Revaluation Loss Distribution

Digvijay

{= ₹~11,000 × \dfrac{2}{5}}

= ₹ 4,400

Brijesh

{= ₹~11,000 × \dfrac{2}{5}}

= ₹ 4,400

Parakaram

{= ₹~11,000 × \dfrac{1}{5}}

= ₹ 2,200

6. Radha, Sheela and Meena were in partnership sharing profits and losses in the proportion of 3:2:1. On April 1, 2017, Sheela retires from the firm. On that date, their Balance Sheet was as follows:

Liabilities

Amount

₹

₹

Assets

Amount

₹

₹

Trade Creditors

3,000

Cash-in-Hand

1,500

Bills Payable

4,500

Cash at Bank

7,500

Expenses Owing

4,500

Debtors

15,000

General Reserve

13,500

Stock

12,000

Capitals

Factory Premises

22,500

Radha

15,000

Machinery

8,000

Sheela

15,000

Loose Tools

4,000

Meena

15,000

45,000

70,500

70,500

The terms were:

a)

Goodwill of the firm was valued at ₹ 13,500.

b)

Expenses owing to be brought down to ₹ 3,750.

c)

Machinery and Loose Tools are to be valued at 10% less than their book value.

d)

Factory premises are to be revalued at ₹ 24,300.

Prepare

1.

Revaluation account

2.

Partner’s capital accounts and

3.

Balance sheet of the firm after retirement of Sheela.

Revaluation A/c

Dr.

Cr.

Date

Particulars

J.F.

Amount

₹

₹

Date

Particulars

J.F.

Amount

₹

₹

To Machinery A/c

800

By Expenses Owing A/c

750

To Loose Tools A/c

400

By Factory Premises A/c

1,800

Profit Transferred

To Meena’s Capital A/c

675

To Radha’s Capital A/c

450

To Sheela’s Capital A/c

225

1,350

2,550

2,550

Partners’ Capital A/c

Dr.

Cr.

Date

Particulars

J.F.

Radha

Amount

₹

Amount

₹

Sheela

Amount

₹

Amount

₹

Meena

Amount

₹

Amount

₹

Date

Particulars

J.F.

Radha

Amount

₹

Amount

₹

Sheela

Amount

₹

Amount

₹

Meena

Amount

₹

Amount

₹

To Sheela’s Capital A/c

3,375

1,125

By Balance b/d

15,000

15,000

15,000

To Sheela’s Loan A/c

24,450

By General Reserves A/c

6,750

4,500

2,250

By Balance b/d

19,050

16,350

By Revaluation (Profit) A/c

675

450

225

By Radha’s Capital A/c

3,375

By Meena’s Capital A/c

1,125

22,425

24,450

17,475

22,425

24,450

17,475

Balance Sheet as on April 01, 2017

Liabilities

Amount

₹

₹

Assets

Amount

₹

₹

Trade Creditors

3,000

Cash-in-Hand

1,500

Bills Payable

4,500

Cash at Bank

7,500

Expenses Owing

3,750

Debtors

15,000

Sheela’s Loan

24,450

Stock

12,000

Capital

Factory Premises

24,300

Radha

19,050

Machinery

8,000

Meena

16,350

35,400

Loss on Revaluation

800

7,200

Loose Tools

4,000

Loss on Revaluation

400

3,600

71,100

71,100

Working Notes

Distribution of General Reserve

Radha

{= ₹~13,500 × \dfrac{3}{6}}

= ₹ 6,750

Sheela

{= ₹~13,500 × \dfrac{2}{6}}

= ₹ 4,500

Meena

{= ₹~13,500 × \dfrac{1}{6}}

= ₹ 2,250

Gain in Share

Radha

{= \dfrac{3}{4} - \dfrac{3}{6}}

{= \dfrac{9 - 6}{12}}

{= \dfrac{3}{12}}

Meena

{= \dfrac{1}{4} - \dfrac{1}{6}}

{= \dfrac{3 - 2}{12}}

{= \dfrac{1}{12}}

Gaining Ratio of continuing partners

{= \dfrac{3}{12}:\dfrac{1}{12}}

= 3:1

Goodwill share of retirning partner Sheela

{= ₹~13,500 × \dfrac{2}{6}}

= ₹ 4,500

Contribution to Meena’s goodwill by the remaining partners

Radha

{= ₹~4,500 × \dfrac{3}{4}}

= ₹ 3,375

Meena

{= ₹~4,500 × \dfrac{3}{4}}

= ₹ 1,125

Appreciation on Revaluation

Expenses Owing

= ₹ 4,500 – ₹ 3,750

= ₹ 750

Factory Premises

= ₹ 24,300 – ₹ 22,500

= ₹ 1,800

Total

= ₹ 750 + ₹ 1,800

= ₹ 2,550

Depreciation on Revaluation

Machinery

{= ₹~8,000 × \dfrac{10}{100}}

= ₹ 800

Factory Premises

{= ₹~4,000 × \dfrac{10}{100}}

= ₹ 400

Total

= ₹ 800 + ₹ 400

= ₹ 1,200

Revaluation Profit

= ₹ 2,550 – ₹ 1,200

= ₹ 1,350

Adjustment of Revaluation Profit

Radha

{= ₹~1,350 × \dfrac{3}{6}}

= ₹ 675

Sheela

{= ₹~1,350 × \dfrac{2}{6}}

= ₹ 450

Meena

{= ₹~1,350 × \dfrac{1}{6}}

= ₹ 225

7. Pankaj, Naresh and Saurabh are partners sharing profits in the ratio of 3 : 2 : 1. Naresh retired from the firm due to his illness on Septmber 30, 2017. On that date the Balance Sheet of the firm was as follows:

Books of Pankaj, Naresh and Saurabh Balance Sheet as on September 30, 2017

Liabilities

Amount

₹

₹

Assets

Amount

₹

₹

General Reserve

12,000

Bank

7,600

Sundry Creditors

15,000

Debtors

6,000

Bills Payable

12,000

Provision for

400

5,600

Outstanding Salary

2,200

Doubtful debts

Provision for

6,000

Stock

9,000

Legal Damages

Furniture

41,000

Capitals:

Premises

80,000

Pankaj

46,000

Naresh

30,000

Saurabh

20,000

96,000

1,43,000

1,43,000

Additional Information

(i)

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 ₹ 45,000.

(ii)

Goodwill of the firm be valued at ₹ 42,000.

(iii)

₹ 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 form Bank.

(iv)

Naresh share of profit till the date of retirement is to be calculated on the basis of last years’ profit, i.e., ₹ 60,000.

(v)

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.

Revaluation A/c

Dr.

Cr.

Date

Particulars

J.F.

Amount

₹

₹

Date

Particulars

J.F.

Amount

₹

₹

To Stock A/c

900

By Premises A/c

16,000

To Provision for

1,200

By Provision for

100

Legal Damages A/c

Doubtful Debts A/c

Profit transferred:

By Furniture A/c

4,000

To Pankaj’s Capital A/c

9,000

To Naresh’s Capital A/c

6,000

To Saurabh’s Capital A/c

3,000

20,100

20,100

Partners’ Capital A/c

Dr.

Cr.

Date

Particulars

J.F.

Pankaj

Amount

₹

Amount

₹

Naresh

Amount

₹

Amount

₹

Saurabh

Amount

₹

Amount

₹

Date

Particulars

J.F.

Pankaj

Amount

₹

Amount

₹

Naresh

Amount

₹

Amount

₹

Saurabh

Amount

₹

Amount

₹

To Naresh’s Capital A/c

1,000

By Balance b/d

46,000

30,000

20,000

To Naresh’s Loan A/c

26,000

By General Reserve A/c

6,000

4,000

2,000

To Bank A/c

28,000

By Revaluation (Profit) A/c

9,000

6,000

3,000

To Balance c/d

47,000

25,000

By Pankaj’s Capital A/c

14,000

61,000

54,000

25,000

61,000

54,000

25,000

Bank A/c

Dr.

Cr.

Date

Particulars

J.F.

Amount

₹

₹

Date

Particulars

J.F.

Amount

₹

₹

To Balance b/d

7,600

By Naresh’s Capital A/c

28,000

By Balance c/d

20,400

(Bank Overdraft)

28,000

28,000

Balance Sheet as on September 30, 2017

Liabilities

Amount

₹

₹

Assets

Amount

₹

₹

Sundry Creditors

15,000

Debtors

6,000

Bills Payable

12,000

Provision for

300

5,700

Bank Loan

20,400

Doubtful Debts

Outstanding Salaries

2,200

Stock

8,100

Provision for Legal Damages

7,200

Furniture

45,000

Naresh’s Loan

26,000

Premises

96,000

Capitals

Pankaj

47,000

Saurabh

25,000

72,000

1,54,800

1,54,800

Working Notes

Distribution of General Reserve:

Pankaj

{= ₹~12,000 × \dfrac{3}{6}}

= ₹ 6,000

Naresh

{= ₹~12,000 × \dfrac{2}{6}}

= ₹ 4,000

Saurabh

{= ₹~12,000 × \dfrac{1}{6}}

= ₹ 2,000

Gain in Share:

Pankaj

{= \dfrac{5}{6} - \dfrac{3}{6}}

{= \dfrac{5 - 3}{6}}

{= \dfrac{2}{6}}

{= \dfrac{1}{3}}

Saurabh

{= \dfrac{1}{6} - \dfrac{1}{6}}

= 0

As there is no gain in Saurabh’s share of profits (as Saurabh’s gain in share is 0), all the good contribution towards the retirning partner Naresh’s goodwill should be borne by Pankaj only.

Goodwill Share

Naresh

{= ₹~42,000 × \dfrac{2}{6}}

(retirning partner)

= ₹ 14,000

Appreciation on Revaluation

Premises

{= ₹~80,000 × \dfrac{20}{100}}

= ₹ 16,000

Provision for doubtful debts

Old

= ₹ 400

New

= ₹~6,000 × \dfrac{5}{100}

= ₹ 300

Gain

= ₹ 400 – ₹ 300

= ₹ 100

Furniture

= ₹ 45,000 – ₹ 41,000

= ₹ 4,000

Total Appreciation

= ₹ 16,000 + ₹ 100 + ₹ 4,000

= ₹ 20,100

Depreciation on Revaluation

Stock

{= ₹~9,000 × \dfrac{10}{100}}

= ₹ 900

Legal Damages

= ₹ 1,200

Loss on Revaluation

= ₹ 900 + ₹ 1,200

= ₹ 2,100

Revaluation Profit

= ₹ 20,100 – ₹ 2,100

= ₹ 18,000

Adjustment of Revaluation Profit

Pankaj

{= ₹~18,000 × \dfrac{3}{6}}

= ₹ 9,000

Naresh

{= ₹~18,000 × \dfrac{2}{6}}

= ₹ 6,000

Saurabh

{= ₹~18,000 × \dfrac{1}{6}}

= ₹ 3,000

8. Puneet, Pankaj and Pammy are partners in a business sharing profits and losses in the ratio of 2 : 2 : 1 respectively. Their balance sheet as on March 31, 2017 was as follows:

Books of Puneet, Pankaj and Pammy Balance Sheet as on March 31, 2017

Liabilities

Amount

₹

₹

Assets

Amount

₹

₹

Sundry Creditors

1,00,000

Cash at Bank

20,000

Capital Accounts:

Stock

30,000

Puneet

60,000

Sundry Debtors

80,000

Pankaj

1,00,000

Investments

70,000

Pammy

40,000

2,00,000

Furniture

35,000

Reserve

50,000

Buildings

1,15,000

3,50,000

3,50,000

Mr. Pammy died on September 30, 2017. The partnership deed provided the following:

(i)

The deceased partner will be entitled to his share of profit up to the date of death calculated on the basis of previous year’s profit.

(ii)

He will be entitled to his share of goodwill of the firm calculated on the basis of 3 years’ purchase of average of last 4 years’ profit. The profits for the last four financial years are given below:

for 2013–14; ₹ 80,000; for 2014–15, ₹ 50,000; for 2015–16, ₹ 40,000; for 2016–17, ₹ 30,000.

The drawings of the deceased partner up to the date of death amounted to Rs. 10,000. Interest on capital is to be allowed at 12% per annum.

Surviving partners agreed that ₹ 15,400 should be paid to the executors immediately and the balance in four equal yearly instalments with interest at 12% p.a. on outstanding balance.

Show Mr. Pammy’s Capital account, his Executor’s account till the settlement of the amount due.

Pammy’s Capital A/c

Dr.

Cr

Date

Particulars

J.F.

Amount

₹

₹

Date

Particulars

J.F.

Amount

₹

₹

To Drawings A/c

10,000

By Balance b/d

40,000

To Pammy’s

75,400

By Profit and Loss

3,000

Executor’s A/c

(Suspense) A/c

By Puneet’s Capital A/c

15,000

By Pankaj’s Capital A/c

15,000

By Interest on Capital A/c

15,000

By Reserve A/c

15,000

85,400

85,400

Pammy’s Executor’s A/c

Dr.

Cr.

Date

Particulars

J.F.

Amount

₹

₹

Date

Particulars

J.F.

Amount

₹

₹

2017-18

2017-18

Sep 30

To Bank A/c

15,400

Sep 30

By Pammy’s Capital A/c

75,400

Mar 31

To Balance c/d

63,600

Mar 31

By Interest A/c

3,600

79,000

79,000

2018-19

2018-19

Sep 30

To Bank A/c

22,200

Apr 01

By Balance b/d

63,600

(15,000 + 3,600 + 3,600)

Sep 30

By Interest A/c

3,600

Mar 31

To Balance c/d

47,700

Mar 31

By Interest A/c

2,700

69,900

69,900

2019-20

2019-20

Sep 30

To Bank A/c

20,400

Apr 01

By Balance b/d

47,700

(15,000 + 2,700 + 2,700)

Sep 30

By Interest A/c

2,700

Mar 31

To Balance c/d

31,800

Mar 31

By Interest A/c

1,800

52,200

52,200

2020-21

2020-21

Sep 30

To Bank A/c

18,600

Apr 01

By Balance b/d

31,800

(15,000 + 1,800 + 1,800)

Sep 30

By Interest A/c

1,800

Mar 31

To Balance c/d

15,900

Mar 31

By Interest A/c

900

34,500

34,500

2021-22

2021-22

Sep 30

To Bank A/c

16,800

Apr 01

By Balance b/d

15,900

(15,000 + 900 + 900)

Sep 30

By Interest A/c

900

16,800

16,800

Working Notes

a. The deceased partner Pammy’s share of profit:

Profit Share

= Previous Year’s Profit × Proportionate Period × Profit Sharing Ratio

{= ₹~30,000 × \dfrac{6}{12} × \dfrac{1}{5}}

= ₹ 3,000

b. The deceased Partner Pammy’s share of Goodwill:

The average profit is calculated based on the previous four years proft as follows:

Average Profit

{= \dfrac{₹~80,000 + ₹~50,000 + ₹~40,000 + ₹~30,000}{4}}

{= \dfrac{₹~2,00,000}{4}}

= ₹ 50,000

As given in the problem, the goodwill of the firm is calculated on the basis of 3 year’s purchase of average of last 4 years’ profit.

∴ Goodwill

= Average Profit × No. of Years of Purchase

= ₹ 50,000 × 3

= ₹ 1,50,000

Pammy’s share

{= ₹~1,50,000 × \dfrac{1}{5}}

= ₹ 30,000

c. Gain in share for continuing partners:

Gain in Share

= New Ratio – Old Ratio

Puneet

{= \dfrac{2}{4} - \dfrac{2}{5}}

{= \dfrac{10 - 8}{20}}

{= \dfrac{2}{20}}

{= \dfrac{1}{10}}

Pankaj

{= \dfrac{2}{4} - \dfrac{2}{5}}

{= \dfrac{10 - 8}{20}}

{= \dfrac{2}{20}}

{= \dfrac{1}{10}}

∴ Gaining Ratio

{= \dfrac{1}{10}:\dfrac{1}{10}}

= 1:1

d. Contribution to Pammy’s share goodwill by the continuing partners Puneet and Pankaj in their gaining ratio:

Contribution by Puneet

{= ₹~30,000 × \dfrac{1}{2}}

= ₹ 15,000

Contribution by Pankaj

{= ₹~30,000 × \dfrac{1}{2}}

= ₹ 15,000

e. Interest on Capital from April 1, 2017 to September 30, 2017

Duration

= 6 months

Interest

{= ₹~40,000 × \dfrac{6}{12} × \dfrac{12}{100}}

= ₹ 2,400

f. Reserves

Pammy’s Share

{= ₹~50,000 × \dfrac{1}{5}}

= ₹ 10,000

g. Outstanding Amount:

Amount to be paid to Pammy

= Capital + Profit + Goodwill + Interest on Capital + Reserve

= ₹ 40,000 + ₹ 3,000 + ₹ 30,000 + ₹ 2,400 + ₹ 10,000

= ₹ 85,400

Amount already paid

= ₹ 15,400

Amount yet to be paid

= ₹ 85,400 – ₹ 15,400

= ₹ 60,000

h. Installment amount:

No. of Installments

= 4

Amount paid in each installment

{= \dfrac{₹~60,000}{4}}

= ₹ 15,000

i. Interest on Outstanding Amount (every 6 months)

Year

Outstanding

Amount

₹

Amount

₹

Calculation

of

Interest

of

Interest

Interest

Amount

₹

Amount

₹

2017-18

60,000

{= 60,000 × \dfrac{6}{12} × \dfrac{12}{100}}

3,600

2018-19

45,000

{= 45,000 × \dfrac{6}{12} × \dfrac{12}{100}}

2,700

2019-20

30,000

{= 30,000 × \dfrac{6}{12} × \dfrac{12}{100}}

1,800

2020-21

60,000

{= 15,000 × \dfrac{6}{12} × \dfrac{12}{100}}

900

Note to Students/Learners: Place the cursor over the numbers in the Pammy’s Executor’s Account table. The tool tip will appear indicating what that number designates. For example, consider the text (15,000 + 900 + 900). If you place the cursor on the number “15,000”, the tool tip “4th Installment” will appear. If you place the cursor on the 1st “900”, the tool tip “Interest calculated on Mar 31, 2020” will appear and if you please the cursor over the second “900”, the tool tip “Interest calculated on Sep 30, 2021” will appear. Hope this will make the understanding of the solution more clear.

9. Following is the Balance Sheet of Prateek, Rockey and Kushal as on March 31, 2017.

Books of Prateek, Rockey and Kushal Balance Sheet as on March 31, 2017

Liabilities

Amount

₹

₹

Assets

Amount

₹

₹

Sundry Creditors

16,000

Bills Receivable

16,000

General Reserve

16,000

Furniture

22,600

Capital Accounts:

Stock

20,400

Prateek

30,000

Sundry Debtors

22,000

Rockey

20,000

Cash at Bank

18,000

Kushal

20,000

70,000

Cash in Hand

3,000

1,02,000

1,02,000

Rockey died on June 30, 2017. Under the terms of the partnership deed, the executors of a deceased partner were entitled to:

a)

Amount standing to the credit of the Partner’s Capital account.

b)

Interest on capital at 5% per annum.

c)

Share of goodwill on the basis of twice the average of the past three years’ profit and

d)

Share of profit from the closing date of the last financial year to the date of death on the basis of last year’s profit.

Profits for the year ending on March 31, 2015, March 31, 2016 and March 31, 2017 were ₹ 12,000, ₹ 16,000 and ₹ 14,000 respectively.

Profits were shared in the ratio of capitals.

Pass the necessary journal entries and draw up Rockey’s capital account to be rendered to his executor.

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

2017

Jun 30

Interest on Capital A/c

Dr.

250

Profit and Loss (Suspense) A/c

Dr.

1,000

General Reserve A/c

Dr.

4,571

To Rockey’s Capital A/c

5,821

(Being Interest on Capital, Profit and share of reserves credited to the deceased partner Rocky’s Capital account)

Jun 30

Prateek’s Capital A/c

Dr.

4,800

Kushal’s Capital A/c

Dr.

3,200

To Rockey’s Capital A/c

8,000

(Being Rockey’s share of goodwill adjusted to Prateek and Kushal’s capital accounts in their gaining ratio i.e. 3:2)

Jun 30

Rockey’s Capital A/c

Dr.

33,821

To Rockey’s Executor’s A/c

33,821

(Being Rockey’s final capital account transferred to his executor’s account)

Rockey’s Capital A/c

Dr.

Cr.

Date

Particulars

J.F.

Amount

₹

₹

Date

Particulars

J.F.

Amount

₹

₹

2017

2017

Apr 1

To Rockey’s Executor’s A/c

33,821

Apr 1

By Balance b/d

20,000

By Interest on Capital A/c

250

By Profit and Loss

1,000

(Suspense) A/c

By General Reserve A/c

4,571

By Prateek’s Capital A/c

4,800

By Kushal’s Capital A/c

3,200

33,821

33,821

Working Notes:

a. Profit Sharing Ratio

Profit Sharing Ratio

= 30,000 : 20,000 : 20,000

= 3 : 2 : 2

b. Interest on Rockey’s Capital

Time Period

= 3 months

Interest

{= ₹~20,000 × \dfrac{3}{12} × \dfrac{5}{100}}

= ₹ 250

c. Goodwill

Average Profit

{= \dfrac{₹~12,000 + ₹~16,000 + ₹~14,000}{3}}

{= \dfrac{₹~42,000}{3}}

= ₹ 14,000

Goodwill

= 2 × ₹ 14,000

= ₹ 28,000

Rockey’s Share

{= ₹~28,000 × \dfrac{2}{7}}

= ₹ 8,000

Rockey’s share of goodwill will be contributed by the continuing partners Prateek and Kushal in their gaining ratio. As there is no change in their profit sharing ratio, the gaining ratio will be equal to their profit sharing ratio i.e. 3:2. So, the goodwill contribution will be as follows:

Prateek

{= ₹~8,000 × \dfrac{3}{5}}

= ₹ 4,800

Kushal

{= ₹~8,000 × \dfrac{2}{5}}

= ₹ 3,200

d. General Reserves:

Rockey

{= ₹~16,000 × \dfrac{2}{7}}

= ₹ 4,571

e. Rockey’s Profit a period of 3 months

Profit Share

= Previous Year’s Profit × Proportionate Period × Profit Sharing Ratio

{= ₹~14,000 × \dfrac{3}{12} × \dfrac{2}{7}}

= ₹ 1,000

10. Narang, Suri and Bajaj are partners in a firm sharing profits and losses in proportion of \dfrac{1}{2}, \dfrac{1}{6} and \dfrac{1}{3} respectively. The Balance Sheet on April 1, 2015 was as follows:

Books of Narang, Suri and Bajaj Balance Sheet as on April 1, 2015

Liabilities

Amount

₹

₹

Assets

Amount

₹

₹

Bills Payable

12,000

Freehold Premises

40,000

Sundry Creditors

18,000

Machinery

30,000

Reserves

12,000

Furniture

12,000

Capital Accounts:

Stock

22,000

Narang

30,000

Sundry Debtors

20,000

Suri

30,000

Reserves for

1,000

19,000

Bajaj

28,000

88,000

Bad Debt

Cash

7,000

1,30,000

1,30,000

Bajaj retires from the business and the partners agree to the following:

a)

Freehold premises and stock are to be appreciated by 20% and 15% respectively.

b)

Machinery and furniture are to be reduced by 10% and 7% respectively.

c)

Bad Debts reserve is to be increased to ₹ 1,500.

d)

Goodwill is valued at ₹ 21,000 on Bajaj’s retirement.

e)

The continuing partners have decided to adjust their capitals in their new profit sharing ratio after retirement of Bajaj. 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.

Revaluation A/c

Dr.

Cr.

Date

Particulars

J.F.

Amount

₹

₹

Date

Particulars

J.F.

Amount

₹

₹

To Machinery A/c

3,000

By Freehold Premises A/c

8,000

To Furniture A/c

840

By Stock A/c

3,300

To Reserve for Bad Debts A/c

500

Capitals:

To Narang’s Capital A/c

3,480

To Suri’s Capital A/c

1,160

To Bajaj’s Capital A/c

2,320

6,960

11,300

11,300

Partners’ Capital A/c

Dr.

Cr.

Date

Particulars

J.F.

Narang

Amount

₹

Amount

₹

Suri

Amount

₹

Amount

₹

Bajaj

Amount

₹

Amount

₹

Date

Particulars

J.F.

Narang

Amount

₹

Amount

₹

Suri

Amount

₹

Amount

₹

Bajaj

Amount

₹

Amount

₹

To Bajaj’s Capital A/c

5,250

1,750

By Balance b/d

30,000

30,000

28,000

To Bajaj’s Loan A/c

41,320

By Reserve A/c

6,000

2,000

4,000

To Balance c/d

34,230

31,410

By Revaluation (Profit) A/c

3,480

1,160

2,320

By Narang’s Capital A/c

5,250

By Suri’s Capital A/c

1,750

39,480

33,160

41,320

39,480

33,160

41,320

To Suri’s Current A/c

15,000

By Balance b/d

34,230

31,410

To Balance c/d

49,230

16,410

By Narang’s Current A/c

15,000

49,230

31,410

49,230

31,410

Books of Narang, Suri and Bajaj Balance Sheet as on April 1, 2015

Liabilities

Amount

₹

₹

Assets

Amount

₹

₹

Bill Payable

12,000

Freehold Premises

48,000

Sundry Creditors

18,000

Machinery

27,000

Bajaj’s Loan

41,320

Furniture

12,000

Suri’s Current A/c

15,000

Depreciation

840

11,160

Capitals:

Sundry Debtors

20,000

Narang

49,230

Reserve for

1,500

18,500

Suri

16,410

65,640

Bad Debts

Cash

7,000

Narang’s Current A/c

15,000

1,23,080

1,23,080

Working Notes

a. Profit Sharing Ratio

Old

{= \dfrac{1}{2} : \dfrac{1}{6} : \dfrac{1}{3}}

= 3 : 1 : 2

New

3 : 1

As both Narang and Suri are sharing the profits in the same ratio as before, their gaining ratio will also be same as their profit sharing ratio i.e. 3 : 2

b. Share of reserves among all the partners:

Reserves Amount

= ₹ 12,000

Share of Narang

{= ₹~12,000 × \dfrac{3}{6}}

= ₹ 6,000

Share of Suri

{= ₹~12,000 × \dfrac{1}{6}}

= ₹ 2,000

Share of Bajaj

{= ₹~12,000 × \dfrac{2}{6}}

= ₹ 4,000

c. Appreciation on Revaluation

Freehold Premises

{= ₹~40,000 × \dfrac{20}{100}}

= ₹ 8,000

Stock

{= ₹~22,000 × \dfrac{15}{100}}

= ₹ 3,300

Total

= ₹ 11,300

d. Depreciation on Revaluation

Machinery

{= ₹~30,000 × \dfrac{10}{100}}

= ₹ 3,000

Furniture

{= ₹~12,000 × \dfrac{7}{100}}

= ₹ 840

Bad Debts

= ₹ 1,500 – ₹ 1,000

= ₹ 500

Total

= ₹ 4,340

e. Revaluation Profit distribution:

Revaluation Profit

= ₹ 11,300 – ₹ 4,340

= ₹ 6,960

Narang

{= ₹~6,960 × \dfrac{3}{6}}

= ₹ 3,480

Suri

{= ₹~6,960 × \dfrac{1}{6}}

= ₹ 1,160

Bajaj

{= ₹~6,960 × \dfrac{2}{6}}

= ₹ 2,320

f. Goodwill:

Goodwill amount

= ₹ 21,000

Goodwill share of Bajaj

{= ₹~21,000 × \dfrac{2}{6}}

= ₹ 7,000

Contribution to Bajaj’s goodwill by the continuing partners Narang and Suri in their gaining ratio i.e. 3 : 2:

Narang

{= ₹~7,000 × \dfrac{3}{5}}

= ₹ 4,200

Suri

{= ₹~7,000 × \dfrac{2}{5}}

= ₹ 2,800

Narang and Suri decided to adjust their capitals in their profit sharing ratio i.e. 3 : 1.

g. Capital Adjustments:

Total Capital

= Narang’s Capital + Suri’s Caital

= ₹ 30,000 + ₹ 30,000

= ₹ 60,000

Narang’s New Capital

{= ₹~60,000 × \dfrac{3}{4}}

= ₹ 45,000

Narang’s Old Capital

= ₹ 30,000

Additional Capital to be brought in

= ₹ 45,000 – ₹ 30,000

= ₹ 15,000

Suri’s New Capital

{= ₹~60,000 × \dfrac{1}{4}}

= ₹ 15,000

Suri’s Old Capital

= ₹ 30,000

Capital to be withdrawn

= ₹ 45,000 – ₹ 30,000

= ₹ 15,000

11. The Balance Sheet of Rajesh, Pramod and Nishant who were sharing profits in proportion to their capitals stood as on March 31, 2015:

Books of Rajesh, Pramod and Nishant Balance Sheet as on March 31, 2015

Liabilities

Amount

₹

₹

Assets

Amount

₹

₹

Bills Payable

6,250

Factory Building

12,000

Sundry Creditors

10,000

Debtors

10,500

General Reserves

2,750

Provision for

500

10,000

Capital Accounts:

doubtful debts

Rajesh

20,000

Bills Receivable

7,000

Pramod

15,000

Stock

15,500

Nishant

15,000

50,000

Plant and Machinery

11,500

Bank Balance

13,000

69,000

69,000

Pramod retired on the date of Balance Sheet and the following adjustments were made:

a)

Stock is to be reduced by 10%.

b)

Factory buildings were appreciated by 12%.

c)

Provision for doubtful debts be created up to 5%.

d)

Provision for legal charges to be made at ₹ 265.

e)

The goodwill of the firm be fixed at ₹ 10,000.

f)

The capital of the new firm be fixed at ₹ 30,000. The continuing partners decide to keep their capitals in the new profit sharing ratio of 3 : 2.

Pass journal entries and prepare the balance sheet of the reconstituted firm after transferring the balance in Pramod’s Capital account to his loan account.

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

2017

Mar 31

Revaluation A/c

Dr.

1,840

To Stock A/c

1,550

To Reserve for Doubtful Debts A/c

25

To Reserve for Legal Charges A/c

265

(Being depreciation in the assets and liabilities on revaluation)

Mar 31

Factory Building A/c

Dr.

1,840

To Revaluation A/c

1,440

(Being factory building appreciated on revaluation)

Mar 31

Rajesh’s Capital A/c

Dr.

160

Pramod’s Capital A/c

Dr.

120

Nishant’s Capital A/c

Dr.

120

To Pramod’s Capital A/c

400

(Being Pramod’s share of goodwill adjusted to the capital accounts of Rajesh and Nishant as per their gaining ratio i.e 2:1

Mar 31

Reserve Fund A/c

Dr.

2,000

To Rajesh’s Capital A/c

1,100

To Pramod’s Capital A/c

825

To Nishant’s Capital A/c

825

(Being reserve fund distributed among all the partners in their profit sharing ratio)

Mar 31

Pramod’s Capital A/c

Dr.

18,705

To Pramod’s Loan A/c

18,705

Being Pramod’s Capital transferred to his loan account

Mar 31

Rajesh’s Capital A/c

Dr.

940

Nishan’t Capital A/c

Dr.

2,705

To Bank A/c

3,645

(Being partners’ excess capitals withdrawn by them)

Partners’ Capital A/c

Dr.

Cr.

Date

Particulars

J.F.

Rajesh

Amount

₹

Amount

₹

Pramod

Amount

₹

Amount

₹

Nishant

Amount

₹

Amount

₹

Date

Particulars

J.F.

Rajesh

Amount

₹

Amount

₹

Pramod

Amount

₹

Amount

₹

Nishant

Amount

₹

Amount

₹

To Revaluation (Loss) A/c

160

120

120

By Balance b/d

20,000

15,000

15,000

To Pramod’s Capital A/c

2,000

1,000

By Reserve Fund

1,100

825

825

To Pramod’s Loan A/c

18,705

By Rajesh’s Capital A/c

2,000

To Bank A/c

940

2,705

By Nishant’s Capital A/c

1,000

To Balance b/d

18,000

12,000

21,100

18,825

15,825

21,100

18,825

15,825

Bank A/c

Dr.

Cr.

Date

Particulars

J.F.

Amount

₹

₹

Date

Particulars

J.F.

Amount

₹

₹

To Balance b/d

13,000

By Rajesh’s Capital A/c

940

By Nishant’s Capital A/c

2,705

By Balance c/d

9,355

13,000

13,000

Balance Sheet as on March 31, 2015

Liabilities

Amount

₹

₹

Assets

Amount

₹

₹

Bills Payable

6,250

Plant and Machinery

11,500

Sundry Creditors

10,000

Debtors

10,500

Reserve for Legal Charges

265

Provision for

525

9,975

Pramod’s Loan

18,705

Bad Debts

Capital Accounts:

Bills Receivable

7,000

Rajesh

18,000

Stock

15,500

Nishant

12,000

30,000

Depreciation

1,550

13,950

Factory Building

12,000

Depreciation

1,440

13,440

Bank Balance

9,355

65,220

65,220

Working Notes:

a. Profit Sharing Ratio:

Profit Sharing Ratio

= 20,000 : 15,000 : 15,000

= 4 : 3 : 3

b. Gaining Ratio:

Gain in Share

= New Share – Old Share

Rajesh

{= \dfrac{3}{5} = \dfrac{4}{10}}

{= \dfrac{6 - 4}{10}}

{= \dfrac{2}{10}}

Nishant

{= \dfrac{2}{5} = \dfrac{3}{10}}

{= \dfrac{4 - 3}{10}}

{= \dfrac{1}{10}}

Gaining Ratio

{= \dfrac{2}{10} : \dfrac{1}{10}}

= 2 : 1

c. Appreciation on Revaluation

Factory Building

{= ₹~12,000 × \dfrac{12}{100}}

= ₹ 1,440

d. Depreciation on Revaluation

Stock

{= ₹~15,500 × \dfrac{10}{100}}

= ₹ 1,550

Provision for doubtful debts

{= ₹~10,500 × \dfrac{5}{100}}

= ₹ 525

Provision for doubtful debts already in place

= ₹ 500

Additional provision on doubtful debts

= ₹ 525 – ₹ 500

= ₹ 25

Reserve for Legal Charges

= ₹ 265

Total

= ₹ 1,550 + ₹ 525 + ₹ 25 + ₹ 265

= ₹ 1,840

e. Adjustment of Revaluation Loss

Loss on Revaluation

= Total Loss – Total Profit

= ₹ 1,840 – ₹ 1,440

= ₹ 400

Rajesh’s Share

{= ₹~400 × \dfrac{4}{10}}

= ₹ 160

Pramod’s Share

{= ₹~400 × \dfrac{3}{10}}

= ₹ 120

Nishant’s Share

{= ₹~400 × \dfrac{3}{10}}

= ₹ 120

f. Distribution of General Reserves to all the partners:

Rajesh’s Share

{= ₹~2,750 × \dfrac{4}{10}}

= ₹ 1,100

Pramod’s Share

{= ₹~2,750 × \dfrac{3}{10}}

= ₹ 825

Nishant’s Share

{= ₹~2,750 × \dfrac{3}{10}}

= ₹ 825

g. Adjustment of Pramod’s Goodwill to Rajesh and Nishant’s capital accounts in their gaining ratio

Pramod’s share of Goodwill

{= ₹~10,000 × \dfrac{3}{10}}

= ₹ 3,000

Adjustment to Rajesh’s Capital A/c

{= ₹~3,000 × \dfrac{2}{3}}

= ₹ 2,000

Adjustment to Nishant’s Capital A/c

{= ₹~3,000 × \dfrac{1}{3}}

= ₹ 1,000

h. New Capitals (₹ 30,000 total capital in the profit sharing ratio of 3 : 2 among Rajesh and Nishant) and the surplus/deficit adjustment

New Capital of Rajesh

{= ₹~30,000 × \dfrac{3}{5}}

= ₹ 18,000

Old Capital of Rajesh

= ₹ 20,000

Excess of Rajesh’s Capital

= ₹ 20,000 – ₹ 18,000

= ₹ 2,000

New Capital of Nishant

{= ₹~30,000 × \dfrac{2}{5}}

= ₹ 12,000

Old Capital of Nishant

= ₹ 15,000

Excess of Nishant’s Capital

= ₹ 15,000 – ₹ 12,000

= ₹ 3,000

12. Following is the Balance Sheet of Jain, Gupta and Malik as on March 31, 2016.

Books of Jain, Gupta and Malik Balance Sheet as on March 31, 2016

Liabilities

Amount

₹

₹

Assets

Amount

₹

₹

Sundry Creditors

19,800

Land and Building

26,000

Telephone Bills

300

Bonds

14,370

Outstanding

Cash

5,500

Accounts Payable

8,950

Bills Receivable

23,450

P&L A/c

16,750

Sundry Debtors

26,700

Capitals :

Stock

18,100

Jain

40,000

Office Furniture

18,250

Gupta

60,000

Plants and Machinery

20,230

Malik

20,000

1,20,000

Computers

13,200

1,65,800

1,65,800

The partners have been sharing profits in the ratio of 5:3:2. Malik decides to retire from business on April 1, 2016 and his share in the business is to be calculated as per the following terms of revaluation of assets and liabilities :

Stock, ₹ 20,000; Office furniture, ₹ 14,250; Plant and Machinery ₹ 23,530; Land and Building ₹ 20,000.

A provision of ₹ 1,700 to be created for doubtful debts. The goodwill of the firm is valued at ₹ 9,000.

The continuing partners agreed to pay Rs.16,500 as cash on retirement of Malik, to be contributed by continuing partners in the ratio of 3:2. The balance in the capital account of Malik will be treated as loan.

Prepare Revaluation account, capital accounts, and Balance Sheet of the reconstituted firm.

Revaluation A/c

Dr.

Cr.

Date

Particulars

J.F.

Amount

₹

₹

Date

Particulars

J.F.

Amount

₹

₹

To Office Furniture A/c

4,000

By Stock A/c

1,900

To Land and Building

6,000

By Plant and Machinery

3,300

To Provision for

1,700

Loss Transferred:

doubtful debts

By Jain’s Capital A/c

3,250

By Gupta’s Capital A/c

1,950

By Malik’s Capital A/c

1,300

6,500

11,700

11,700

Partners’s Capital A/c

Dr.

Cr.

Date

Particulars

J.F.

Jain

Amount

₹

Amount

₹

Gupta

Amount

₹

Amount

₹

Malik

Amount

₹

Amount

₹

Date

Particulars

J.F.

Jain

Amount

₹

Amount

₹

Gupta

Amount

₹

Amount

₹

Malik

Amount

₹

Amount

₹

To Revaluation (Loss) A/c

3,250

1,950

1,300

By Balance b/d

40,000

60,000

20,000

To Malik’s Capital A/c

1,125

675

By Accumulated Profits A/c

8,375

5,025

3,350

To Cash A/c

16,500

By Jain’s Capital A/c

1,125

To Mali’s Loan A/c

7,350

By Gupta’s Capital A/c

675

To Balance c/d

53,900

69,000

By Cash A/c

9,900

6,600

58,275

71,625

25,150

58,275

71,625

25,150

Balance Sheet as on March 31, 2016

Liabilities

Amount

₹

₹

Assets

Amount

₹

₹

Sundry Creditors

1,800

Stock

18,100

Telephone Bills

300

Appreciation

1,900

20,000

Outstanding

Bonds

14,370

Accounts Payable

8,950

Cash

5,500

Malik’s Loan

7,350

Bills Receivables

23,450

Partners’ Capitals:

Sundry Debtors

26,700

Jain

53,900

Provision for

1,700

25,000

Gupta

69,000

1,22,900

Bad Debts

Land and Buildings

26,000

Depreciation

6,000

20,000

Office Furniture

18,250

Depreciation

4,000

14,250

Plants and Machinery

20,230

Appreciation

3,300

23,530

Computers

13,200

1,59,300

1,59,300

a. Adjustment of goodwill share of the retiring partner to the continuing partners capital accounts in their gaining ratio

As the continuing partners share the prfits in the same ratio as before, their gaining ratio will be same as their new profit sharing ratio i.e. 5 : 3

Gain in share

= New Share – Old Share

Malik’s share of goodwill

{= ₹~9,000 × \dfrac{2}{10}}

= ₹ 1,800

Jain’s contribution to Malik’s share of goodwill

{= ₹~1,800 × \dfrac{5}{8}}

= ₹ 1,125

Gupta’s contribution to Malik’s share of goodwill

{= ₹~1,800 × \dfrac{3}{8}}

= ₹ 675

b. Distribution of accumulated profits:

Jain’s Share

{= ₹~16,750 × \dfrac{5}{10}}

= ₹ 8,375

Gupta’s Share

{= ₹~16,750 × \dfrac{3}{10}}

= ₹ 5,025

Malik’s Share

{= ₹~16,750 × \dfrac{2}{10}}

= ₹ 3,350

c. Appreciation on Revaluation:

Stock

= ₹ 20,000 – ₹ 18,100

= ₹ 1,900

Plant and Machinery

= ₹ 23,530 – ₹ 20,230

= ₹ 3,300

Total

= ₹ 1,900 + ₹ 3,300

= ₹ 5,200

c. Depreciation on Revaluation:

Office Furniture

= ₹ 18,250 – ₹ 14,250

= ₹ 4,000

Land and Building

= ₹ 26,000 – ₹ 20,000

= ₹ 6,000

Provision for Doubtful Debts

= ₹ 1,700

Total

= ₹ 4,000 + ₹ 6,000 + ₹ 1,700

= ₹ 11,700

d. Transferring Revaluation Loss to the partners’ capital accounts in their profit sharing ratio:

Loss

= Total Loss = Total Profit

= ₹ 11,700 – ₹ 5,200

= ₹ 6,500

Jain’s share

{= ₹~6,500 × \dfrac{5}{10}}

= ₹ 3,250

Gupta’s share

{= ₹~6,500 × \dfrac{3}{10}}

= ₹ 1,950

Gupta’s share

{= ₹~6,500 × \dfrac{2}{10}}

= ₹ 1,300

13. Arti, Bharti and Seema are partners sharing profits in the proportion of 3:2:1 and their Balance Sheet as on March 31, 2016 stood as follows :

Books of Arti, Bharti and Seema Balance Sheet as on March 31, 2016

Liabilities

Amount

₹

₹

Assets

Amount

₹

₹

Bills Payable

12,000

Buildings

21,000

Creditors

14,000

Cash in Hand

12,000

General Reserve

12,000

Bank

13,700

Capitals:

Debtors

12,000

Arti

20,000

Bills Receivable

4,300

Bharti

12,000

Stock

1,750

Seema

8,000

40,000

Bills Receivable

4,300

78,000

78,000

Bharti died on June 12, 2016 and according to the deed of the said partnership, her executors are entitled to be paid as under :

(a)

The capital to her credit at the time of her death and interest thereon @ 10% per annum.

(b)

Her proportionate share of reserve fund.

(c)

Her share of profits for the intervening period will be based on the sales during that period, which were calculated as ₹ 1,00,000. The rate of profit during past three years had been 10% on sales.

(d)

Goodwill according to her share of profit to be calculated by taking twice the amount of the average profit of the last three years less 20%. The profits of the previous years were :

2013

– ₹ 8,200

2014

– ₹ 9,000

2015

– ₹ 9,800

The investments were sold for Rs.16,200 and her executors were paid out. Pass the necessary journal entries and write the account of the executors of Bharti.

Books of Arti and Seema Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

2016

Jun 12

Interest on Capital A/c

Dr.

240

General Reserves A/c

Dr.

4,000

Profit and Loss (Suspense) A/c

Dr.

3,333

To Bharti’s Capital A/c

7,573

(Being Interest on capital, profit and reserves credited to Bhart’s capital account)

Jun 12

Arti’s Capital A/c

Dr.

3,600

Seema’s Capital A/c

Dr.

1,200

To Bharti’s Capital A/c

4,800

(Being Bharti’s share of goodwill adjusted to the other partners’ capital accounts in their gaining ratio)

Jun 12

Bharti’s Capital A/c

Dr.

24,373

To Bharti’s Executor’s A/c

24,373

(Being Bharti’s capital account transferred to her executor’s account)

Jun 12

Bank A/c

Dr.

16,200

To Investment A/c

13,250

To Profit on Sale of Investment A/c

2,950

(Being investment sold for profit and amount is deposited in the bank)

Jun 12

Bharti’s Executor’s A/c

Dr.

24,373

To Bank A/c

24,374

(Being Bharti’s executor paid through bank)

Bharti’s A/c

Dr.

Cr.

Date

Particulars

J.F.

Amount

₹

₹

Date

Particulars

J.F.

Amount

₹

₹

2016

2016

Jun 12

To Bharti’s

24,373

Mar 31

By Balance b/d

12,000

Executor’s A/c

By Interest on Capital A/c

240

By Profit and Loss

3,333

(Suspense) A/c

By General Reserve A/c

4,000

By Arti’s Capital A/c

3,600

By Seema’s Capital A/c

1,200

24,373

24,373

Bharti’s Executor’s A/c

Dr.

Cr.

Date

Particulars

J.F.

Amount

₹

₹

Date

Particulars

J.F.

Amount

₹

₹

2016

2016

Jun 12

To Bank A/c

24,373

Jun 12

By Bharti’s Capital A/c

24,373

24,373

24,373

Working Notes:

a. Interest on Capital for the effective period

Effective Period

= 73 days

Interest

{= ₹~12,000 × \dfrac{10}{100} × \dfrac{73}{365}}

= ₹ 240

b. Distribution of reserve fund to all the partners in their old profit sharing ratio i.e. 3:2:1

Bharti

{= ₹~12,000 × \dfrac{2}{6}}

= ₹ 4,000

c. Share of profit based on sales done last year during that period (from last accounting period upto the date of Bharti’s death):

Total Sales

= ₹ 1,00,000

Profit on Sales

{= ₹~1,00,000 × \dfrac{10}{100}}

= ₹ 10,000

Bharti’s share

{= ₹~10,000 × \dfrac{2}{6}}

= ₹ 3,333

d. Bharti’s goodwill and adjustment of Bharti’s goodwill to the other partners’ capital accounts:

Note that as the continuing partners continue to share the profits in their old profit sharing ratio, their gaining ratio will be same as their profit sharing ratio i.e. 3:1

Average Profit (of last 3 years)

{= \dfrac{₹~8,200 + ₹~9,000 + ₹~9,800}{3}}

{= \dfrac{₹~27,000}{3}}

= ₹ 9,000

Goodwill

= 2 × (Average profit – 20% of average profit)

{= 2 × (₹~9,000 - ₹~9,000 × \dfrac{20}{100})}

= 2 × (₹ 9,000 – ₹ 1,800)

= 2 × ₹ 7,200

= ₹ 14,400

Bharti’s goodwill share

{= ₹~14,400 × \dfrac{2}{6}}

= ₹ 4,800

Adjustment to Bharti’s goodwill

from Arti’s capital

{= ₹~4,800 × \dfrac{3}{4}}

= ₹ 3,600

from Seema’s capital

{= ₹~4,800 × \dfrac{1}{4}}

= ₹ 1,200

14. Nithya, Sathya and Mithya were partners sharing profits and losses in the ratio of 5:3:2. Their Balance Sheet as on March 31, 2015 was as follows :

Books of Nithya, Sathya and Mithya Balance Sheet at March 31, 2015

Liabilities

Amount

₹

₹

Assets

Amount

₹

₹

Creditos

14,000

Investments

10,000

Reserve Fund

6,000

Goodwill

5,000

Capitals:

Premises

20,000

Nithya

30,000

Patents

6,000

Sathya

30,000

Machinery

30,000

Mithya

20,000

80,000

Stock

13,000

Debtors

8,000

Bank

8,000

1,00,000

1,00,000

Mithya dies on August 1, 2015. The agreement between the executors of Mithya and the partners stated that :

(a)

Goodwill of the firm be valued at {2\dfrac{1}{2}} times the average profits of last four years. The profits of four years were : in 2011-12, ₹ 13,000; in 2012-13, ₹ 12,000; in 2013-14, ₹ 16,000; and in 2014-15, ₹ 15,000.

(b)

The patents are to be valued at ₹ 8,000, Machinery at ₹ 25,000 and Premises at ₹ 25,000.

(c)

The share of profit of Mithya should be calculated on the basis of the profit of 2014-15.

(d)

₹ 4,200 should be paid immediately and the balance should be paid in 4 equal half-yearly instalments carrying interest @ 10%.

Record the necessary journal entries to give effect to the above and write the executor’s account till the amount is fully paid. Also prepare the Balance Sheet of Nithya and Sathya as it would appear on August 1, 2015 after giving effect to the adjustments.

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

2015

Aug 1

Nithya’s Capital A/c

Dr.

2,500

Sathya’s Capital A/c

Dr.

1,500

Mithya’s Capital A/c

Dr.

1,000

To Goodwill A/c

5,000

(Being goodwill in the books written off amongh all the partners)

Aug 1

Patents A/c

Dr.

2,000

Premises A/c

Dr.

7,000

To Revaluation A/c

7,000

(Being increase in the value of patents and premises after revaluation)

Aug 1

Revaluation A/c

Dr.

5,000

To Machinery A/c

5,000

(Being increase in the value of machinery after revaluation)

Aug 1

Revaluation A/c

Dr.

2,000

To Nithya’s Capital A/c

1,000

To Sathya’s Capital A/c

600

To Mithya’s Capital A/c

400

(Being profit on revalution of assets transferred to partners capital accounts)

Aug 1

Reserve Fund A/c

Dr.

6,000

To Nithya’s Capital A/c

3,000

To Sathya’s Capital A/c

1,800

To Nithya’s Capital A/c

1,200

(Being Reserve Fund transferred to all the partners’ capital accounts in their profit sharing ratio)

Aug 1

Nithya’s Capital A/c

Dr.

4,375

Sathya’s Capital A/c

Dr.

2,625

To Mithya’s Capital A/c

7,000

(Being share Mithya’s goodwill adjusted to the continuing partners’s capital accounts in their gaining ratio)

Aug 1

Profit and Loss (Suspense) A/c

Dr.

1,000

To Mithya’s Capital A/c

1,000

(Being profit from the beginning of the accounting period till the date of Mithya’s death is credited to his capital account)

Aug 1

Mithya’s Capital A/c

Dr.

28,600

To Mithya’s Executioner’s A/c

28,600

(Being Mithya’s capital amount tranferred to his executioner’s account)

Aug 1

Mithya’s Executioner’s A/c

Dr.

4,200

To Cash A/c

4,200

(Being cash paid to Mithya’s executioner)

Mithya’s Executioner’s A/c

Dr.

Cr.

Date

Particulars

J.F.

Amount

₹

₹

Date

Particulars

J.F.

Amount

₹

₹

2015

2015

Aug 1

To Bank A/c

4,200

Aug 1

By Mithya’s Capital A/c

28,600

2016

2016

Jan 31

To Bank A/c

24,400

Jan 31

By Interest A/c

1,220

(6,100 + 1,220)

{(24,400 × \dfrac{10}{100} × \dfrac{6}{2})}

Mar 31

To Balance c/d

18,605

Mar 31

By Interest A/c

305

{(18,300 × \dfrac{10}{100} × \dfrac{2}{12})}

30,125

30,125

2016

2016

Jul 31

To Bank A/c

7,015

Apr 01

By Balance b/d

18,605

(6,100 + 305 + 610)

Jul 31

By Interest A/c

610

{(18,300 × \dfrac{10}{100} × \dfrac{4}{12})}

2017

2017

Jan 31

To Bank A/c

6,710

Jan 31

By Interest A/c

610

(6,100 + 610)

{(12,200 × \dfrac{10}{100} × \dfrac{6}{100})}

Mar 31

To Balance c/d

6,202

Mar 31

By Interest A/c

102

{(6,100 × \dfrac{10}{100} × \dfrac{2}{12})}

19,927

19,927

2017

2017

Jul 31

To Bank A/c

6,405

Apr 01

By Balance c/d

6,202

(6,100 + 102 + 203)

Jul 31

By Interest A/c

203

{(6,100 × \dfrac{10}{100} × \dfrac{4}{12})}

6,405

6,405

Working Notes:

a. Writing off existing goodwill by ditributing it among all the partners in their old profit sharing ratio:

Nithya’s share

{= ₹~5,000 × \dfrac{5}{10}}

= ₹ 2,500

Sathya’s share

{= ₹~5,000 × \dfrac{3}{10}}

= ₹ 1,500

Mithya’s share

{= ₹~5,000 × \dfrac{2}{10}}

= ₹ 1,000

b. Increase in the value of the assets on revaluation:

Patents

= ₹ 8,000 – ₹ 6,000

= ₹ 2,000

Premises

= ₹ 25,000 – ₹ 20,000

= ₹ 5,000

Total

= ₹ 2,000 + ₹ 5,000

= ₹ 7,000

c. Decrease in the value of the assets on revaluation:

Machinery

= ₹ 30,000 – ₹ 25,000

= ₹ 5,000

d. Profit on Revaluation:

Revaluation Profit

= ₹ 7,000 – ₹ 5,000

= ₹ 2,000

e. Distribution of revaluation profit among all the partners in their old profit sharing ratio i.e. 5:3:2

Nithya

{= ₹~2,000 × \dfrac{5}{10}}

= ₹ 1,000

Sathya

{= ₹~2,000 × \dfrac{3}{10}}

= ₹ 600

Mithya

{= ₹~2,000 × \dfrac{2}{10}}

= ₹ 400

f. Adjustment of Mithya’s share of goodwill among the continuing partners’ capital accounts in their gaining ratio:

As both Nithya and Sathya continue to share the profit and losses in their old profit sharing ratio i.e. 5:3, their gaining ratio will also be same as their new profit sharing ration i.e. 5:3

Average Profits

{\dfrac{₹~13,000 + ₹~12,000 + ₹~16,000 + ₹~15,000}{4}}

= ₹ 14,000

Goodwill

= {2\dfrac{1}{2}} times average profit

{= ₹~14,000 × \dfrac{5}{2}}

= ₹ 35,000

Mithya’s share of goodwill

{= ₹~35,000 × \dfrac{2}{10}}

= ₹ 7,000

Adjustment to Nithya’s capital

{= ₹~7,000 × \dfrac{5}{8}}

= ₹ 4,375

Adjustment to Sathya’s capital

{= ₹~7,000 × \dfrac{3}{8}}

= ₹ 2,625

g. Distribution of reserves among all the partners:

Nithya

{= ₹~6,000 × \dfrac{5}{10}}

= ₹ 3,000

Sathya

{= ₹~6,000 × \dfrac{3}{10}}

= ₹ 1,800

Mithya

{= ₹~6,000 × \dfrac{2}{10}}

= ₹ 1,200

h. Mithya’s share of profit for the proportionate period (From April 1 to August 1):

Effective period

= 4 months

Total Profit

= ₹ 15,000

Mithya’s share

{= ₹~15,000 × \dfrac{4}{12}}

= ₹ 5,000