12th | Retirement of a Partner | Question No. 21 To 25 | Ts Grewal Solution 2022-2023

Question 21:

M, N and O are partners in a firm sharing profits in the ratio of 3 : 2 : 1. Goodwill has been valued at ` 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:

Journal
Date	Particulars		L.F.	Debit (`)	Credit (`)

	O’s Capital A/c	Dr.		20,000
	To N’s Capital A/c				20,000
	(Being Adjustment of N’s share of goodwill)

Working Notes:

WN1:Calculation of Gaining Ratio

M :N :O=3:2:1(Old ratio)

M :O =1:1(New ratio)

Gaining Ratio = New Ratio - Old Ratio

M's Gain =1/2−3/6=3−3/6=0

O's Gain=1/2−1/6=3−1/6=2/6

WN2: Calculation of Retiring Partner’s Share of Goodwill

N's share of goodwill=60,000×2/6=` 20,000

N's share of goodwill will be brought by O only.

Therefore, O's Capital A/c will be debited with ` 20,000

Question 22:

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 ` 1,80,000. A, B and D decide to share future profits equally. Pass the necessary Journal entry for the treatment of goodwill.

Answer:

Journal
Date	Particulars		L.F.	Debit (`)	Credit (`)
	B’s Capital A/c	Dr		30,000
	D’s Capital A/c	Dr.		30,000
	To C’s Capital A/c				60,000
	(Being Adjustment of C’s share of goodwill)

Working Notes:

WN1:Calculation of Gaining Ratio

A :B :C :D=2:1:2:1(Old ratio)

A :B :D =1:1:1(New ratio)

Gaining Ratio = New Ratio - Old Ratio

A's Gain =1/3−2/6=2−2/6=0

B's Gain =1/3−1/6=2−1/6=1/6

D's Gain =1/3−1/6=2−1/6=1/6

A:B:D=0:1:1

WN2: Calculation of Retiring Partner’s Share of Goodwill
C's share of goodwill=1,80,000×2/6=` 60,000

C's share of goodwill will be brought by B and D in their gaining ratio1:1

Therefore, B's Capital A/c will be debited with 60,000×1/2=` 30,000

And, D's Capital A/c will be debited with 60,000×1/2=` 30,000

Question 23

A, B and C were partners in a firm sharing profits in the ratio of 6 : 5 : 4. Their capitals were A − ` 1,00,000; B − ` 80,000 and C − ` 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 ` 1,80,000. Showing your calculations clearly, pass the necessary Journal entry for the treatment of goodwill on A's retirement.

Answer:

Journal
Date	Particulars		L.F.	Debit (`)	Credit (`)
	C’s Capital A/c	Dr.		96,000
	To A’s Capital A/c				72,000
	To B’s Capital A/c				24,000
	(Being Adjustment of A’s and B’s share of goodwill)

Working Notes:

WN1: Calculation of Gaining Ratio

A :B :C=6:5:4(Old ratio)

B :C=1:4 (New ratio)

Gaining Ratio = New Ratio - Old Ratio

B's Gain =1/5−5/15=3−5/15= −2/15(Sacrifice)

C's Gain =4/5−4/15=1/2−4/15=8/15

WN2: Calculation of Retiring Partner’s Share of Goodwill

A's share of goodwill=1,80,000×6/15=` 72,000

B's share of goodwill=1,80,000×2/15=` 24,000

A's and B's share of goodwill be brought by C only.Therefore, C's Capital A/c will be debited with 72,000+24,000 = ` 96,000

Question 24:

Sangeeta, Saroj and shanti are partners sharing profits and losses in the ratio of 5 : 3 : 2. Z retired and on the date of his retirement, following adjustments were agreed upon:
(a) The value of Furniture is to be increased by ` 12,000.
(b) The value of stock to be decreased by ` 10,000.
(c) Machinery of the book value of ` 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 ` 40,000.
(e) Unrecorded Investment worth ` 10,000.
(f) An item of ` 1,000 included in bills payable is not likely to be claimed, hence should be written back.
Pass necessary Journal entries.

Answer:

Revaluation Account
Dr.					Cr.
Particulars		`	Particulars	`
Stock A/c		10,000	Furniture A/c	12,000
Machinery A/c		5,000	Investments A/c	10,000
Provision for Doubtful Debts A/c		2,000	Bills Payable A/c	1,000
Profit transferred to:
X’s Capital A/c	3,000
Y’s Capital A/c	1,800
Z’s Capital A/c	1,200	6,000
		23,000		23,000

Journal
Date	Particulars		L.F.	Debit (`)	Credit (`)
(a)	Furniture A/c	Dr.		12,000
	To Revaluation A/c				12,000
	(Being Increase in value transferred to Revaluation Account)

(b)	Revaluation A/c	Dr.		10,000
	To Stock A/c				10,000
	(Being Decrease in Stock transferred to Revaluation Account)

(c)	Revaluation A/c	Dr.		5,000
	To Machinery A/c				5,000
	(Being Decrease in value of machinery transferred to Revaluation Account)

(d)	Revaluation A/c	Dr.		2,000
	To Provision for Doubtful Debts A/c				2,000
	(Being Increase in liabilities to Revaluation Account)

(e)	Investments A/c	Dr.		10,000
	To Revaluation A/c				10,000
	(Being Increase in value transferred to Revaluation Account)

(f)	Bills Payable A/c	Dr.		1,000
	To Revaluation A/c				1,000
	(Being Decrease in liabilities transferred to Revaluation Account)

(g)	Revaluation A/c	Dr.		6,000
	To X’s Capital A/c				3,000
	To Y’s Capital A/c				1,800
	To Z’s Capital A/c				1,200
	(Being Revaluation profit transferred to Partners’ Capital Accounts)

Question 25:

A, B and C were partners, sharing profits and losses in the ratio of 2 : 2 : 1. B decides to retire on 31st March, 2022. On the date of his retirement, some of the assets and liabilities appeared in the books as follows:
Creditors ` 70,000; Building ` 1,00,000; Plant and Machinery ` 40,000; Stock of Raw Materials ` 20,000; Stock of Finished Goods ` 30,000 and Debtors ` 20,000.
Following was agreed among the partners on B's retirement:
(a) Building to be appreciated by 20%.
(b) Plant and Machinery to be reduced by 10%.
(c) A Provision of 5% on Debtors to be created for Doubtful Debts.
(d) Stock of Raw Materials to be valued at ` 18,000 and Finished Goods at ` 35,000.
(e) An Old Computer previously written off was sold for ` 2,000 as scrap.
(f) Firm had to pay ` 5,000 to an injured employee.
Pass necessary Journal entries to record the above adjustments and prepare the Revaluation Account.

Answer:

Revaluation Account
Dr.					Cr.
Particulars		( `)	Particulars	( `)
Plant and Machinery (40,000 × 10%)		4,000	Building (1,00,000 × 20%)	20,000
Provision for Doubtful Debts		1,000	Stock of Finished Goods	5,000
Stock of Raw Materials		2,000	Computer	2,000
Workmen’s Compensation Claim		5,000
Profit transferred to:
A’s Capital A/c	6,000
B’s Capital A/c	6,000
C’s Capital A/c	3,000	15,000
		27,000		27,000

Journal
Particulars		L.F.	Debit ( `)	Credit ( `)
Building A/c	Dr.		20,000
Stock of Finished Good A/c	Dr.		5,000
Computer A/c	Dr.		2,000
To Revaluation A/c				27,000
(Being Increase in value Assets transferred to Revaluation Account)

Revaluation A/c	Dr.		12,000
To Plant and Machinery A/c				4,000
To Provision for Doubtful Debts A/c				1,000
To Stock of Raw Material A/c				2,000
To Workmen’s Compensation Claim A/c				5,000
((Being Decrease in value of Assets and increase in Liabilities transferred to Revaluation Account)

Revaluation A/c	Dr.		15,000
To A’s Capital A/c				6,000
To B’s Capital A/c				6,000
To C’s Capital A/c				3,000
((Being Revalution Profit transferred to Partners’ Capital accounts)