# NCERT Solutions for Class 12 Accountancy Chapter 4 Reconstitution of Partnership Firm: Retirement / Death of a Partner

Detailed, Step-by-Step NCERT Solutions for 12 Accountancy Chapter 4 Reconstitution of Partnership Firm: Retirement / Death of a Partner Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.

## Reconstitution of Partnership Firm: Retirement / Death of a Partner NCERT Solutions for Class 12 Accountancy Chapter 4

### Reconstitution of Partnership Firm: Retirement / Death of a Partner Questions and Answers Class 12 Accountancy Chapter 4

[Page No. 187-188]

Choose the correct option in the following questions :

Question 1.
Abhishek, Rajat and Vivek are partners sharing profits in the ratio of 5:3:2. If Vivek retires, the New Profit Sharing Ratio,between Abhishek and Rajat will be –
(a) 3:2
(b) 5:3
(c) 5:2
(d) None of these
(b) 5 : 3

Question 2.
The old profit sharing ratio among Rajender, Satish and Tejpal were 2:2:1. The New Profit Sharing Ratio after Satish’s retirement is 3:2. The gaining ratio is-
(a) 3:2
(b) 2:1
(c) 1:1
(d) 2 : 2
(c) 1: 1

Question 3.
Anand, Bahadur and Chander are partners sharing profit equally. On Chander’s retirement, his share is acquired by Anand and Bahadur in the ratio of 3:2. The New Profit Sharing Ratio between Anand and Bahadur will be –
(a) 8: 7
(b) 4:5
(c) 3:2
(d) 2:3
(a) 8: 7

Question 4.
In the absence of any information! regarding the acquisition of share in profit of the retiring/deceased partner by the remaining partners, it is assumed that they will acquire his/her share:—
(a) Old Profit Sharing Ratio
(b) New Profit Sharing Ratio
(c) Equal Ratio
(d) None of these
(a) Old Profit Sharing Ratio.

[Page No. 191]

Choose the correct option in the following questipns :

Question 1.
On retirement/death of a partner, the retiring/deceased partner’s capital account will be credited with
(a) his/her share of goodwill.
(b) goodwill of the firm.
(c) shares of goodwill of remaining partners.
(d) none of these.
(a) his/her share of goodwill.

Question 2.
Gobind, Hari and Pratap are partners. On retirement of Gobind, the goodwill already appears in the Balance Sheet at Rs. 24,000. The goodwill will be written-off
(a) by debiting all partners’ capital accounts in their old profit sharing ratio.
(b) by debiting remaining partners’ capital accounts in their new profit sharing ratio.
(c) by debiting retiring partners’ capital accounts from his share of goodwill.
(d) none of these.
(a) by debiting all partner’s capital account in their old profit sharing ratio.

Question 3.
Chaman, Raman and Suman are partners sharing profits in the ratio of 5 : 3 : 2. Raman retires, the new profit sharing ratio between Chaman and Suman will be 1:1. The goodwill of the firm is valued at Rs. 1,00,000 Raman’s share of goodwill will be adjusted
(a) by debiting Chaman’s Capital Account and Suman’s Capital Account with Rs. 15,000 each.
(b) by debiting Chaman’s Capital Account’and Suman’s Capital Account with Rs. 21,429 and Rs. 8,571 respectively.
(c) by debiting only Suman’s Capital Account with Rs. 30,000.
(d) by debiting Raman’s Capital Account with Rs. 304)00.
(c) by debiting only Suman’s Capital Account with Rs. 30,000.

Question 4.
On retirement/death of a partner, the remaining partner(s) who have gained due to change in profit sharing ratio should compensate the
(a) retiring partners only.
(b) remaining partners (who have sacrificed) as well as retiring partners.
(c) remaining partners only (who have sacrificed).
(d) none of these.
(b) remaining partners (who have sacrificed) as well as retiring partner.

Do it Yourself
[Page No. 182]

Question 1.
Anita, Jaya and Nisha are partners sharing profits and losses in the ratio of 1:1 :1. Jaya retires from.the firm. Anita and Nisha decided to share the profit in future in the ratio 4:3. Calculate the gaining ratio.
Gaining Ratio = New Ratio – Old Ratio
Anita’s Gain = $$\frac{4}{7}-\frac{1}{3}$$

Question 2.
Azad, Vijay and Amit are partners sharing profits and losses in the proportion of $$\frac{1}{4}, \frac{1}{8} \text { and } \frac{10}{16}$$. Calculate the new profit sharing ratio between continuing partners if (a) Azad retires; (b) Vijay retires; (c) Amit retires.

New profit sharing ratio if
(b) Vijay retires = 2:5
(c) Amit retires = 2:1

Question 3.
Calculate the gaining ratio in each of the above situations.
Gaining Ratio = New Ratio – Old Ratio

Question 4.
Anu, Prabha and Milli are partners. Anu retires. Calculate the future profit sharing ratio of continuing partners and gaining ratio if they agree to acquire her share : (a) in the ratio of 5 : 3; (b) equally.
Old ratio of Anu, Prabha and Milli = 1:1:1
New profit sharing ratio :

Question 5.
Rahul, Robin and Rajesh are partners sharing profits in the ratio of 3 : 2 : 1. Calculate the new profit sharing ratio of the remaining partners if (i) Rahul retires; (ii) Robin retires; (iii) Rajesh retires.
Old ratio of Rahul, Robin and Rajesh = 3:2:1
New profit sharing ratio if
(i) Rahul retires = 2:1
(ii) Robin retires =3:1
(iii) Rajesh retires = 3:2

Question 6.
Puja, Priya, Pratistha are partners sharing profits and losses in the ratio of 5 : 3 : 2. Priya retires. Her share is taken by Priya and Pratistha in the ratio of 2 :1. Calculate the new profit sharing ratio.
Old ratio of Puja, Priya and Pratistha = 5:3:2

Question 7.
Ashok, Anil and Ajay are partners sharing profits and 13 losses in the ratio of $$\frac{1}{2}, \frac{3}{10} \text { and } \frac{1}{5}$$. Anil retires from the firm. Ashok and Ajay decide to share future profits and losses in the ratio of 3 : 2. Calculate the gaining ratio.

Do it Yourself
[Page No. 198-199]

Question 8.
Vijay, Ajay and Mohan are friends. They passed B. Com. (Hons.) from Delhi University in June, 2003. They decided to start the business of computer hardware. On 1st of August, 2003, they introduced the capital of Rs. 50,000, Rs. 30,000 and Rs. 20,000 respectively and started the business in partnership at Delhi. The profit sharing ratio decided between there was 4:2:1. The business was running successfully. But on 1st February, 2006, due to certain unavoidable circumstances and family circumstances, Ajay decided to settle in Pune and decided to retire from the partnership on 31st March, 2007; with the consent of partners, Ajay retires as on 31st March, 2007, the position of assets and liabilities are as follows:

On the date of retirement, the following adjustments were to be made:
1. Firm’s goodwill was valued at Rs. 1,48,000.
2. Assets and Liabilities are to be valued as under: Stock Rs. 72,000; Land and Buildings Rs. 1,35,600; Debtors Rs. 63,000; Machinery Rs. 1,50,000; Creditors Rs. 84,000.
3. Vijay to bring Rs. 1,20,000 and Mohan Rs. 30,000 as additional capital.
4. Ajay was to be paid Rs. 97,000 in cash and the balance of his Capital Account to be transferred to his Loan Account. Work out the amount due to Ajay and state how will you settle his account.

Do it Yourself
[Page No. 209-210]

Question 1.
The Balance Sheet of A, B and C who were sharing the profits in proportion to their capitals stood as on March 31,2007.

B retired on the date of Balance Sheet and the following adjustments were to be made:
(a) Stock was depreciated by 10%.
(b) Factory building was appreciated by 12%.
(c) Provision for doubtful debts to be created up to 5%.
(d) Provision for legal charges to be made at Rs. 265.
(e) The goodwill of the firm to be fixed at Rs. 10,000.
(f) The capital of the new firm to be fixed at Rs. 30,000. The continuing partners decide to keep their capitals in the new profit sharing ratio of 3:2.
Work out the final balances in capital accounts of the firm, and the amounts to be brought in and/or withdrawn by A and C to make their capitals proportionate to then new profit sharing ratio.

(ii) Goodwill:
Goodwill of the firm = Rs. 10,000
B’s Share = Rs, 10,000 x $$\frac{3}{10}$$
Rs. 3,000 (Adjusted in the capital accounts of A and C in their gaining ratio i.e. 2:1)

Question 2.
R, S and M were carrying on business in partnership sharing profits in the ratio of 3 : 2 : 1, respectively. On March 31, 1999, Balance Sheet of the firm stood as follows :

Shyam retired on the above-mentioned date on the following terms:
(a) Buildings to be appreciated by Rs. 8,800
(b) Provision for doubtful debts to be made @ 5% on debtors.
(c) Goodwill of the firm to be valued at Rs. 9,000.
(d) Rs. 5,000 to be paid to S immediately and the balance due to him to be treated as a loan carrying interest @6% per annum.
Prepare the balance sheet of the reconstituted firm.

Do it Yourself
[Page No. 216]

On December 31,2007, the Balance Sheet of Pinki, Qureshi and Rakesh showed as under:

The partnership deed provides that the profit be shared in the ratio of 2:1:1 and that in the event of death of a partner, his executors be entitled to be paid out:
(a) The capital of his credit at the date of last Balance Sheet;
(b) His proportion of reserves at the date of last Balance Sheet;
(c) His proportion of profits to the date of death based on the average profits of the last three completed years, plus 10% and
(d) By way of goodwill, his proportion of the total profits for the three preceding years. The net profit for the last three years were:

Rakesh died on April 1, 2007. He had withdrawn Rs. 5,000 to the date of his death. The investment were sold at par and R’s Executors were paid off. Prepare Rakesh’s Capital Account that of his Executors

Working Notes:
Share of profits of Rakesh on the basis of average profits of three years to the date of death will be calculated as follows :
Average profits of the firm for three years :

Question 1.
What are the different ways in which a partner can retire from the firm?
According to Section 32 (1) of the Indian Partnership Act, 1932:
(i) A partner may retire from the firm with the consent of all the other partners of the firm.
(ii) A partner may retire in accordance with an express agreement by the partners.
(iii) In case of partnership at will, by giving notice in writing to all the other partners of his intention to retire.
(iv) A partner may retire by voluntarily surrender his share in the favour of existing partners and relinquish himself from the affairs of the firm in future.

Question 2.
Write the various matters that need adjustments at the time of retirement of a partners.
Various matters that need adjustment in the books of a firm at the time of retirement of a partner are as follows:
1. New profit sharing ratio.
2. Gaining ratio.
3. Calculation of goodwill and its accounting treatment.
4. Distribution of accumulated profits or losses and reserves.
5. Revaluation of assets and liabilities.
6. Adjustment of Joint Life Policy (in any).
7. Settlement of amount due to the retiring partner.
8. Adjustment of Capital Accounts in New Profit Sharing Ratio.

Question 3.
Distinguish between Sacrificing Ratio and Gaining Ratio.
Sacrificing Ratio—A sacrifice ratio may be defined as the ratio in which the existing partners have surrendered a part of their profit or loss sharing ratio in favour of the new partner. The sacrificing ratio may be calculated as:
Sacrificing Ratio = Old Ratio – New Ratio Gaining Ratio : The gaining ratio may be defined as the ratio in which the continuing partners acquire the share of retiring/deceased partner. Gaining Ratio may be calculated as:

Gaining Ratio = New Ratio – Old Ratio
There are the following points of difference between the two ratios:

Question 4.
Why do firm revaluate assets and reassess their liabilities on retirement or on the event of death of a partner?
At the time of retirement/ death some of assets may not have been shown at their current values. Similarly, there may be certain liabilities which have been shown at a different from the obligation to be met by the firm. Besides this, there may be unrecorded assets and liabilities which have to be recorded.

It is necessary that the retiring/deceased partner is given a share of all profits that have arisen till his retirement or death and is made to bear his share of losses that have occurred till that period. This necessitates revaluation of assets and liabilities.

In other words, at the time of retirement or death of a partner, assets and liabilities of a firm are revalued on the reasons that they should be shown at current market value and the resultant profit and loss due to difference in the book value and market value be recofded in all partner’s capital accounts and the assets and liabilities comes at right value in the new balance sheet of the new firm.

Question 5.
Why a retiring/deceased partner is entitled to a share of goodwill of the firm?
The outgoing partner i.e. retiring/deceased partner is entitled to his share of goodwill at the time of retirement or death because the goodwill has been earned by the firm with the efforts of all the partners. Therefore goodwill is valued as per agreement, at the time of retirement/death.

Due to retirement/death of any partner, the remaining partners make a gain because the future profit will be shared only between the continuing partners. Therefore, the remaining partners should compensate the retiring/deceased partner for his share of goodwill in the gaining ratio.

Question 1.
Explain the modes of payment to a retiring partner.
The retiring partner is entitled for the amount due to him. It is settled as per the terms of partnership deed i.e. in lump sum immediately or in various instalments with or without interest as agreed or partly in cash immediately and partly in instalments.

In absence of any agreement, Section 37 of the Indian Partnership Act, 1932 is applicable, which states that the retiring partner has an option to receive either interest as the rate of 6% p.a. till the payment of his/her amount due or such share of profits which has been earned with his/her money i.e. based on the Capital ratio. The necessary journal entries are as follows:
1. If payment (full) is made in cash :
Retiring Partner’s Capital A/c – Dr.
To Cash/Bank PJc
(For the amount paid to retiring partner)

2. If the amount due to retiring partner is treated as loan :
Retiring Partner’s Capital A/c – Dr.
To Retiring Partner’s Loan A/c
(For the amount due to retiring partner transferred to his loan account)

3. When amount due to retiring partner is partly paid in cash and the remaining amount is treated as loan :
Retiring Partner’s Capital A/c – Dr.
(Total Amount due)
To Cash/Bank A/c (Amount paid)
To Retiring Partner’s Loan A/c (Amount of loan)
(For the amount due to retiring partner, partly paid in cash and remaining transferred to his loan account)

4. When loan account is settled by paying in instalment includes principal and interest:
(a) For interest due on loan :
Interest on Loan A/c – Dr.
To Retiring Partner’s Loan PJc (For the interest due on Loan of retiring partner)

(b) For payment of instalment of loan with interest:
Retiring Partner’s Loan A/c – Dr.
To Cash/Bank A/c
(For the amount paid (Instalment Interest) to retiring partner)
These entries i.e. (a) and (b) repeated till the loan is paid off.

Question 2.
How will you compute the amount payable to a deceased partner?
Whenever partner dies, a partnership will come to end immediately, although the firm may continue with the remaining partners by purchasing the share of the deceased partner. When a partner dies, his representatives or the executors of his estate are entitled to all the rights like s.hare of goodwill, share in the gain of the revaluation of assets and liabilities, share in joint life policy, share of undistributed profits, reserves of the deceased partner.

The executors of deceased partner are entitled to the following :

• Credit balance if deceased partner’s capital account;
• His share of got dwill;
• His share of profit till the date of death;
• His share of profit on revaluation of assets and liabilities;
• His share of accumulated profits and reserves
• His interest on capital if partnership provides till the date of death;
• His share of Joint Life Policy (if any)
• His salary and commission (if any).

The following deductions have to made from the above :

• His drawings, interest of drawings till the date of death;
• His share of loss till the date of death
• His share of loss on revaluation of assets and liabilities;
• His share of the reduction in the value of goodwill (if any).

The share of the deceased partner can be computed by preparing his capital account. The specimen of the deceased partner’s capital accoiint is as follows :

Payment to the Executors :
(i) When payment is made in full
Executor’s A/c – Dr.
To Bank A/c
(For the payment made to executor of deceased partner)

(ii) When payment is made in instalment: The executors are entitled to interest, when the payment is made in instalment. If partnership deed is silent about this, then 6% p.a. should be given as per Section 37 of the Indian Partnership Act, 1932.
When Interest is due :
Interest A/c – Dr.
To Executor’s A/c
When Instalment paid along with interest Executor’s A/c – Dr.
To Cash/Bank A/c

Question 3.
Explain the treatment of goodwill at the time of retirement or on the event of death of a partner?
The retiring/deceased partner is entitled to his share of goodwill at the time of retirement/death because the goodwill has been earned by the firm with the efforts of all the partners. Therefore, goodwill is valued as per agreement, at the time of retirement/death.

Due. to retirement/death of any partner, the remaining partners makes a gain because the future profit will be shared only between the continuing partners. Therefore, the continuing partners should compensate the retiring/deceased partner for his share of goodwill in the gaining ratio.

The accounting treatment for goodwill depends upon whether the goodwill already appears in the books of the firm or not.
When goodwill does not appears in the books :
When goodwill does not appears in the books of the firm, there are four following ways to compensate the retiring/deceased partner for his share of goodwill :

(a) Goodwill is raised at its full value and retained in the books:
Goodwill A/c – Dr.
To All Partner’s Capital A/c’s (Individually)
(For the goodwill raised at its full value and credited to Capital A/c’s of all partners in their old profit sharing ratio)
The full value of goodwill appear in the new balance sheet.

(b) Goodwill is raised at its full value and written off immediately:
If it is decided that the goodwill will not appear in the balance sheet of the reconstituted firm, then following journal entries will pass:
(i) Goodwill A/c – Dr.
To All Partner’s Capital A/c’s (individually)
(For raising of Goodwill and credited to All Partner’s Capital A/c in their old profit sharing ratio)

(ii) Remaining Partner’s Capital A/c’s – Dr.
To Goodwill A/c
(For written off Goodwill between remaining partners in their new profit sharing ratio)

(c) Goodwill is raised to the extent of retired/deceased partner’s share and written off immediately:
(i) Goodwill A/c – Dr.
To Retiring/Deceased Partner’s Capital A/c (For the goodwill raised by share of 1 retiring/deceased partner)

(ii) Retiring/Deceased Partner’s Capital A/c – Dr.
To Goodwill A/c
(For the goodwill written off between the remaining partner’s in their gaining ratio)

(d) No Goodwill account is raised at all in firm’s books :
If the retiring/deceased partner’s share of goodwill is adjusted in the capital accounts of the remaining partners without opening a goodwill account, the following entry will required :

Remaining Partner’s Capital A/c – Dr.
To Retiring/Deceased Partner’s Capital A/c
(For the share of retiring/deceased partner in the goodwill adjusted through capital accounts in the gaining ratio)

When Goodwill is already appearing in the books:
(a) If the value of goodwill appearing is equal to the current value of goodwill of the firm :
Normally, no adjustment is required if both the amounts are same. Because goodwill stands credited in the accounts of all the partners including the retiring/deceased one.

(b) If the book value of goodwill is lower than its present value: if the book value is less than the current value, the difference will be debited to goodwill account and credited to Old Partner’s Capital Accounts in their old profit sharing ratio
Goodwill A/c – Dr.
To a All Pamter’s Capital A/c (individually)
(For goodwill raised to its present value)

(c) If the book value of Goodwill is more than the agreed or present value:
If the book value of goodwill is more than the present value, the difference will be debited to the All Partner’s Capital Account in their old profit sharing ratio and credited to the goodwill account.

All Partner’s Capital A/c (individually) – Dr.
To Goodwill A/c
(For goodwill brought down to its present value)

Alternatively:
1. First write off the existing goodwill appearing in the books:
All Partner’s Capital A/c (individually) – Dr.
To Goodwill A/c
(For write off goodwill to all partners in their old profit sharing ratio)

2. Adjust retiring/deceased partner’s share of goodwill through Capital Accounts:
Remaining Partner’s Capital A/c – Dr.
To Retiring/Deceased Partner’s Capital A/c
(For goodwill share of retiring/deceased partner adjusted to remaining partner’s capital Accounts in their gaining ratio)

Hidden Goodwill:
If the firm has agreed to settle the retiring/deceased partner by paying him a lump sum, then the amount paid to him in excess of what is due to him based on the capital accounts balance after making all adjustments like accumulated profits and losses and revaluation profit or loss etc. shall be treated as his share of goodwill known as hidden goodwill.

Question 4.
Discuss he various methods of computing the share in profits in the event of death of a partners.
The executors of the deceased partner will be entitled to his share of profit accrued upto the date of death. To avoid the preparation. of final accounts on the date of death, it is provided in the partnership deed that, in the event of the death of a partner, his share of the accurring profit upto to the date of death is to calculated on the basis of profits of the last year or on the basis of profits of last few years or on the basis of sales.

Therefore it is calculated by any one of the following methods :
(i) On the basis of time
(ii) On the basis of turnover

(i) On the basis of time : Here, we have to assumed that profit was uniform throughout the year. According to this method, profit may be calculated by any one of following method :

(a) On the basis of last year’s profit:
Profit of the firm till the date of death of partner
$$=\frac{\text { Previous YearProfit }}{12}$$
Balance Sheet to the date of death
Share of Deceased Partner = Profit of the firm till the date of death x Deceased Partner’s Share.

(b) On the basis of average profits :
$$\text { Average Profit }=\frac{\text { Total Profit of given years }}{\text { No. of years }}$$
Profit of the firm till the daite of death of pamter
$$=\frac{\text { Average Profit }}{12} \times$$ Number of month ftom last.
Balance Sheet to the date of death Share of Deceased Partner = Profit of the firm till the date of
death of partner x Deceased Partner’s Share.

Example: Shubu, Shuchita and Puneeta were partners in a firm sharing profits and losses in the ratio 5:3:2. Shuchita dies on 30th June, 2006 i.e. six months after closing of the books. Profit for last three years:

Years —– Rs.
2003 —– 50,000
2004 —– 40,000
2005 —- 30,000

Compute the Shuchita’s share of profit on the date of death:
(i) On the basis of immediately preceding year’s profit.
(ii) On the basis of average profits of the preceding three years.
Solution :
(i) Profit of the firm till the date of death of partner
$$=\frac{\text { Previous Year Profit }}{12}$$ No. of months from last
Balance Sheet to the date of death

(ii) On the basis of turnover (or sales):
Profit of the firm till the date of death of partner

Average Profit of a given No. of years OR Previous Year’s Profit
$$=\frac{\times \text { Sale from the date of last Balance Sheet till the date of death }}{\text { Sale of Last Year }}$$

Share of Deceased Partner = Profit of the firm till the date of death x Deceased Partner’s Share

Example : A, B and C are partners sharing profit in the ratio of 3 :2 :1. B dies on 1 st July 2006, whereas books of accounts are closed on 31st March, every year. Sale of last year amount to Rs. 4,00,000 and that from 1st April to 30th June, 2006 to Rs. 1,50,000. The previous year profit amounted Rs. 40,000. Compute B’s share of profit in the firm from 31st March to 30th June, 2006 on the basis of sales.
Profit of the firm till the date of death of partner

Numerical Questions

Question 1.
Apama, 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. Apama and Sonia decided to share future in the ratio of 3 : 2. Pass necessary journal entries.

Working Notes:
(i) Old ratio of Apama, Manisha and Sonia = 3:2:1
New ratio of Apama and Sonia =3:2
Gaining ratio = New ratio – Old ratio

Question 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 Rs. 60,000. Sangeeta retires and goodwill is valued at Rs. 90,000, Saroj and Shanti decided to share future profits equally. Record necessary journal entries.

Question 3.
Himanshu, Gagan and Naman are partners sharing profits and losses in the ratio of 3 : 2 :1. On March 31, 2007 Naman retires.
The various assets and liabilities of the firm on the date were as follows:
Cash Rs. 10,000; Building Rs. 1,00,000; Plant and Machinery Rs. 40,000; Stock Rs. 20,000; Debtors Rs. 20,000 and Investments Rs. 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 t o 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.

Question 4.
Naresh, Raj Kumar and Bishwajeet are equal partners. Raj Kumar decides to retire. On the date of his retirerftent, the Balance Sheet of the firm showed the following: General Reserves Rs. 36,000 and Profit and Loss Account (Dr.) Rs. 15,000. Pass the necessary journal entries to the above effect.

Question 5.
Digvi jay, Brijesh and Parakaram were partners in a firm sharing profits in the ratio of 2 : 2 : 1. Their Balance Sheet as on March 31, 2007 was as follows:

Brijesh retired on March 31, 2007 on the following terms:
(i) Goodwill of the firm was valued at Rs. 70,000 and was not to appear in the books.
(ii) Bad debts amounting to Rs. 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.
(Ans. Loss on Revaluation Rs. 11,000, Balance of Capital Accounts:Digvijay Rs. 66,333 and Parakaram Rs. 67,667, Balance Sheet Total Rs. 2,74,000)

Question 6.
Radha, Sheela and Meena were in partnership sharing profits and losses in the proportion of 3:2:1. On April 1,2007. Sheela retires from the firm. On that date, their Balance Sheet was as follows:

The terms were:
(a) Goodwill of the firm was valued at Rs. 13,000.
(b) Expenses owing to be brought down to Rs. 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 Rs. 24,300.
Prepare:
1. Revaluation Account;
2. Partner’s Capital Accounts; and
3. Balance Sheet of the firm after retirement of Sheela.
(Ans. Profit on revaluation Rs. 1,350, Balance of Capital Accounts: Radha Rs. 19,050 and Meena Rs. 16,350, Balance Sheet Total = Rs. 71,100)

Question 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 that date the Balance Sheet ot the firm was as follows :

(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 Rs. 450.
(ii) Goodwill of the firm be valued at Rs. 42,000.
(iii) 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.
(iv) 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.
(Ans.Profit on Revaluation Rs. 18,000, Balance of Capital Account of Pankaj, Rs. 47,000 and Saurabh, Rs. 25,000).
(Total amount at Credit in Naresh’s Capital = Rs. 54,000, Balance Sheet Total = Rs. 1,54,800)

Question 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 31,2007 was as follows :

Mr. Pammy died on September 30,2007. 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 the 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 2003-04, Rs. 80,000; for 2004-05, Rs. 50,000; for 2005-06, Rs. 40,000; for 2006-07, Rs. 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 Rs. 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.
(Ans. Total amount due is Rs. 75,400)

Working Notes:
(i) The date of closing the accounts in 31st March and date of payment of an instalment is 30th September.
(ii) Total amount due to Pammy’s Executor Rs. 60,000 is payable in four equal annual instalments.

Yearly Instalment = $$\text { Rs. } \frac{60,000}{4}$$
= Rs. 15,000 Plus Interest.

(iii) Interest on capital for 6 months i.e. from March 31st, 2007 to September 30th, 2007
= Rs. 40,000 $$\times \frac{12}{100} \times \frac{6}{12}$$
= Rs. 2,400,

(iv) Share in accurred profit for 6 months on the basis of previous year’s profit:
Last year’s Profit = Rs. 30,000

Pammy’s Share in Profit = Rs. 30,000 $$\frac{6}{12} \times \frac{1}{5}$$
= Rs. 3,000.

(v) Goodwill
Goodwill of the firm = Average Profit x 3
Total profit of last four years :

Goodwill of the firm = Rs. 50 ,000 x 3 = Rs. 1,50,000
Pammy’s Share = Rs. 1,50,000 $$\times \frac{1}{5}$$ = Rs. 30,000
(adjusted to Puneet’s and Pankaj’s Capital A/c in their gaining ratio 1: 1)

Question 9.
Following is the Balance Sheet of Prateek, Rockey and Kushal as on March 31, 2007:

Rockey died on June 30,2007. 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 6f last year’s profit.
Profits for the year ending on March 31, 2005; March 31, 2006 and March 31, 2007 were Rs. 12,000; Rs. 16,000 and Rs. 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.
(Ans. Rockey’s Executor Account is Rs. 33,821.)

Question 10.
Narang, Suri and Bajaj are partners in a firm sharing profits and losses in proportion of 1/2,1/6 and 1/3 respectively. The Balance Sheet on April 1, 2007 was as follows:

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 depreciated by 10% and 7% respectively.
(c) Bad Debts reserve is to be increased to- Rs. 1,500.
(d) Goodwill is valued at Rs. 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.
(Ans. Profit on Revaluation, Rs. 6,960; Balance in Capital Accounts of Narang, Rs. 49,230; and that of Suri, Rs. 16,410. Amount at Credit in Bajaj Capital is Rs. 41,320.)

New Capital in ratio i.e. 3: 1
Narangs Capital Rs. 65640 x $$\frac{3}{4}$$
Rs. 49,230
Suris Capital = Rs. 65,6443 x $$\frac{1}{4}$$
= Rs. 16,410

Question 11.
The Balance Sheet of Rajesh, Pramod and Nishant who were sharing profits in proportion to their capitals stood as on March 31, 2007.

Pramod retired on the date of Balance Sheet and the following adjustments were made:
(i) Stock was valued at 10% less than the book value.
(ii) Factory buildings were appreciated by 12%.
(iii) Reserve for doubtful debts be created up to 5%.
(iv) Reserve for legal charges to be made at Rs. 265.
(v) The goodwill of the firm be fixed at Rs. 10,000
(vi) The capital of the new firm be fixed at Rs. 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.
(Ans. Loss on Revaluation, Rs. 400; Balance in Capital Accounts of Rajesh, Rs. 18,940; and of Nishant, Rs. 14,705; Pramod’s Loan Rs. 18,705, Balance Sheet Total = Rs. 65,220.)

(adjusted in the Capital Accounts of Rajesh and Nishant ¡ri their gaining ratio i.e. 2:1.)

Question 12.
Following is the Balance Sheet of Jam, Gupta and Matik as on March 31, 2002:

The partners have been sharing profits in the ratio of 5:3:2. Malik decides to retire from business on April 1, 2002 and his share in the business is to be calculated as per the following terms of revaluation of assets and liabilities: Stock, Rs. 20,000; Office furniture, Rs. 14,250; Plant and Machinery, Rs. 23,530; Land and Building, Rs. 20,000.

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

(ii) Goodwill :
Goodwill of the firm = Rs. 9,000
Maliks share = Rs. 9,000 x $$\frac{2}{10}$$
= Rs. 1,800
(adjusted to Capital A/c’s of Jair and Gupta in their gaining ratio i.e. 1:3)

(iii) The amount of Rs. 16,500 payable to Malik on his retirement will be shared by Jain and Gupta in their new profit sharing ratio i.e. 3 : 2, assuming that there will be no change in the amount of cash of Rs. 5,500 shown in the balance sheet as required for working capital. Therefore the contribution made by the continuing partners are as follows.

Question 13.
Arti, Bharti and Seema are partners sharing profits in the proportion of 3 : 2 :1 and their Balance Sheet as on March 31, 2003 stood as follows:

Bharti died on June 12, 2003 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 Rs. 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:
2001 — Rs. 8,200
2002 — Rs. 9,000
2003 — Rs. 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.

Question 14.
Nithya, Sathya and Mithya were partners sharing profits and losses in the ratio of 5:3:2. Their Balance Sheet as on December 31,2002 was as follows :

Mithya dies on May 1, 2002. The agreement between the executors of Mithya and the partners stated that:
(a) Goodwill of the firm be valued at 2 Vitimes the average profits of last four years. The profits of four years were: in 1998, Rs. 13,000; in 1999, Rs. 12,000; in 2000, Rs. 16,000; and in 2001, Rs. 15,000.

(b) The patents are to be valued at Rs. 8,000, Machinery at Rs. 25,000 and Premises at Rs. 25,000.
(c) The share of profit of Mithya should be calculated on the basis of the profit of 2002.
(d) Rs. 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 May 1, 2002 after giving effect to the adjustments.

Mithyas Share = Rs. 35,000 x $$\frac{2}{10}$$ = Rs. 7000
His share of goodwill is adjusted in capital A/c’s of Nithya and Sathya in their gaining ratio i.e. 5 : 3.

(ii) Share of Profit
Last year profit = Rs. 15,000
Mithya’s Share = Rs. 15,000 x $$\frac{4}{12} \times \frac{2}{10}$$
= Rs. 1,000

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