12th | Retirement of a Partner | Question No.  36 To 40 | Ts Grewal Solution 2022-2023

Pankaj, Naresh and Saurabh are partners sharing profits in the ratio of 3 : 2 : 1. On 1st April, 2022, Naresh retired on that date, Balance Sheet of the firm was as follows:

Liabilities		( `)	Assets		( `)
General Reserve		12,000	Bank		7,600
Sundry Creditors		15,000	Debtors	6,000
Bills Payable		12,000	Less: Provision for Doubtful Debts	400	5,600
Outstanding Salary		2,200	Stock		9,000
Provision for Legal Damages		6,000	Furniture		41,000
Capital A/cs:			Premises		80,000
Pankaj	46,000
Naresh	30,000
Saurabh	20,000	96,000
		1,43,200			1,43,200

Additional Information: (a) Premises have appreciated by 20%, stock depreciated by 10% and provision for doubtful debts was to be made 5% on debtors. Further, provision for legal damages is to be made for  ` 1,200 and furniture to be brought up to  ` 45,000. (b) Goodwill of the firm be valued at  ` 42,000. (c)  ` 26,000 from Naresh’s Capital Account be transferred to his Loan Account and balance be paid through bank: if required, necessary loan may be obtained from bank. (d) New profit-sharing ratio of Pankaj and Saurabh is decided to be 5 : 1. Give the necessary Ledger Accounts and Balance Sheet of the firm after Naresh’s retirement. (NCERT Modified)

Revaluation Account
Dr.	Cr.
Particulars			( `)	Particulars	( `)
Stock			900	Premises	16,000
Provision for Legal Damages			1,200	Provision for Doubtful Debts	100
Revaluation Profit				Furniture	4,000
Pankaj’s Capital A/c		9,000
Naresh’s Capital A/c		6,000
Saurabh’s Capital A/c		3,000	18,000
			20,100		20,100

Partners’ Capital Accounts
Dr.					Cr.
Particulars	Pankaj	Naresh	Saurabh	Particulars		Pankaj	Naresh	Saurabh
Naresh’s Capital A/c	14,000	–	–	Balance b/d		46,000	30,000	20,000
Naresh’s Loan A/c	–	26,000	–	General Reserve		6,000	4,000	2,000
Bank	–	28,000	–	Revaluation (Profit)		9,000	6,000	3,000
Balance c/d	47,000	–	25,000	Pankaj’s Capital A/c		–	14,000	–
	61,000	54,000	25,000			61,000	54,000	25,000

Bank Account
Dr.				Cr.
Particulars	( `)	Particulars	( `)
Balance b/d	7,600	Naresh’s Capital A/c	28,000
Bank Loan (Balancing Figure)	20,400
	28,000		28,000

Balance Sheet as on March 31, 2022
Liabilities		( `)	Assets		( `)
Sundry Creditors		15,000	Debtors	6,000
Bills Payable		12,000	Less: Provision for Doubtful Debts	300	5,700
Bank Loan		20,400	Stock		8,100
Outstanding Salaries		2,200	Furniture		45,000
Provision for Legal Damages		7,200	Premises		96,000
Naresh’s Loan		26,000
Capitals:
Pankaj	47,000
Saurabh	25,000	72,000
		1,54,800			1,54,800

 

A, B and C are partners sharing profits and losses in the ratio of 4 : 3 : 3. Their Balance Sheet as at 31st March, 2022 is:

Liabilities		( `)	Assets		( `)
Creditors		7,000	Land and Building		36,000
Bills Payable		3,000	Plant and Machinery		28,000
Reserves		20,000	Computer Printer		8,000
Capital A/cs:			Stock		20,000
A	32,000		Sundry Debtors	14,000
B	24,000		Less: Provision for Doubtful Debts	2,000	12,000
C	20,000	76,000	Bank		2,000
		1,06,000			1,06,000

On 1st April, 2022, B retired from the firm on the following terms: (a) Goodwill of the firm is to be valued at  ` 14,000. (b) Stock, Land and Building are to be appreciated by 10%. (c) Plant and Machinery and Computer Printer are to be reduced by 10%. (d) Sundry Debtors are considered to be good. (e) There is a liability of  ` 2,000 for the payment of outstanding salary to the employees of the firm. This liability was not provided in the Balance Sheet but the same is to be recorded now. (f) Amount payable to B is to be transferred to his Loan Account. Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of A and C after B’s retirement.

Revaluation Account
Dr.					Cr.
Particulars			( `)	Particulars	( `)
Plant and Machinery (28,000 × 10%)			2,800	Stock (20,000 × 10%)	2,000
Electronic Typewriter (8,000 × 10%)			800	Land and Building (36,000 × 10%)	3,600
Outstanding Salary			2,000	Provision for Doubtful Debts	2,000
Profit transferred to:
A’s Capital A/c		800
B’s Capital A/c		600
C’s Capital A/c		600	2,000
			7,600		7,600

Partners’ Capital Accounts
Dr.							Cr.
Particulars	A	B	C	Particulars	A	B	C
B’s Capital A/c	2,400		1,800	Balance b/d	32,000	24,000	20,000
B’s Loan A/c		34,800		Reserves	8,000	6,000	6,000
Balance c/d	38,400		24,800	Revaluation A/c	800	600	600
				A’s Capital A/c		2,400
				C’s Capital A/c		1,800
	40,800	34,800	26,600		40,800	34,800	26,600

Balance Sheet
an on April 01, 2022 (after B’s Retirement)
Liabilities	( `)	Assets	( `)
Creditors	7,000	Land and Building (36,000 + 3,600)	39,600
Bills Payable	3,000	Plant and Machinery (28,000 – 2,800)	25,200
B’s Loan	34,800	Electronic Typewriter 8000 – 800)	7,200
Capital A/c:		Stock (20,000 + 2,000)	22,000
A	38,400	Sundry Debtors	14,000
C	24,800	Bank	2000
Outstanding Salary	2,000
	1,10,000		1,10,000

  Working Note: Adjustment of Goodwill Old Ratio (A, B and C) = 4 : 3 : 3 B retires from the firm. ∴ Gaining Ratio = 4 : 3 Goodwill of the firm = ` 14,000 B’s Share of Goodwill = 14,000×3/10=42,000 This share of goodwill is to be distributed between A and C in their gaining ratio (i.e. 4 : 3). A‘s share= 4,200×4/7=2,400 C‘s share= 4,200×3/7=1,800

X, Y and Z are partners sharing profits and losses in the ratio of 3 : 2 : 1. Balance Sheet of the firm as at 31st March, 2022 was as follows:

Liabilities		( `)	Assets		( `)
Creditors		21,000	Cash at Bank		5,750
Workmen Compensation Reserve		12,000	Debtors	40,000
Investments Fluctuation Reserve		6,000	Less: Provision for Doubtful Debts	2,000	38,000
Capital A/cs:			Stock		30,000
X	68,000		Investment (Market Value  ` 17,600)		15,000
Y	32,000		Patents		10,000
Z	21,000	1,21,000	Machinery		50,000
			Goodwill		6,000
			Advertisement Expenditure		5,250
		1,60,000			1,60,000

Z retired on 1st April, 2022 on the following terms: (a) Goodwill of the firm is to be valued at  ` 34,800. (b) Value of Patents is to be reduced by 20% and that of machinery to 90%. (c) Provision for doubtful debts is to be created @ 6% on debtors. (d) Z took over the investment at market value. (e) Liability for Workmen Compensation to the extent of  ` 750 is to be created. (f) A liability of  ` 4,000 included in creditors is not to be paid. (g) Amount due to Z to be paid as follows:  ` 5,067 immediately, 50% of the balance within one year and the balance by a draft for 3 Months. Give necessary Journal entries for the treatment of goodwill, prepare Revaluation Account, Capital Accounts and the Balance Sheet of the new firm.

Journal
Date	Particulars		L.F.	Debit  ( `)	Credit  ( `)
2022
April 01	X’s Capital A/c	Dr.		3,000
	Y’s Capital A/c	Dr.		2,000
	Z’s Capital A/c	Dr.		1,000
	To Goodwill A/c				6,000
	(Existing goodwill written off)
April 01	X’s Capital A/c	Dr.		3,480
	Y’s Capital A/c	Dr.		2,320
	To Z’s Capital A/c				5,800
	(Z’s share of goodwill credited to him and gaining partners debited in gaining ratio)

Revaluation Account
Dr.						Cr.
Particulars		Amount ( `)	Particulars		Amount ( `)
Patents		2,000	Investments (17,600 – 15,000)		2,600
Machinery		5,000	Creditors		4,000
Prov. for Doubtful Debts		400	Loss on Revaluation transferred
			X’s Capital A/c	400
			Y’s Capital A/c	267
			Z’s Capital A/c	133	800
		7,400			7,400

Partners’ Capital Accounts
Dr.									Cr.
Particulars		X	Y	Z	Particulars	X	Y	Z
Goodwill A/c		3,000	2,000	1,000	Balance b/d	68,000	32,000	21,000
Revaluation A/c		400	267	133	X’s Capital A/c	–	–	3,480
Z’s Capital A/c		3,480	2,320	–	Y’s Capital A/c	–	–	2,320
Advertisement Expenditure A/c		2,625	1,750	875	Workmen Compensation Reserve A/c*	5,625	3,750	1,875
Investments A/c		–	–	17,600	Investment Fluctuation Reserve A/c*	3,000	2,000	1,000
Bank A/c		–	–	5,067
Z’s Loan A/c		–	–	2,500
Bills Payable A/c		–	–	2,500
Balance c/d		67,120	31,413	–
		76,625	37,750	29,625		76,625	37,750	29,625

Balance Sheet as on April 01, 2022 after Z’s retirement
Liabilities		Amount ( `)	Assets		Amount ( `)
Creditors		17,000	Cash at Bank (5,750 – 5,067)		683
Workmen Compensation Claim		750	Stock		30,000
Bills Payable		2,500	Patents		8,000
Capital A/c’s:			Debtors A/c	40,000
X	67,120		Less: Prov. for D/D	2,400	37,600
Y	31,413	98,533	Machinery		45,000
Z’s Loan		2,500
		1,21,283			1,21,283

Working Note: Amount due to Z = (21,000+3,480+2,320+1,875+1,000) – (1,000+133+875+17,600) =10,067 Amout paid on Retirement immediately: ` 5,067 Amount paid within one year: 50% of 5,000 = ` 2,500 Amount payable by Bills of Exchange: ` 2,500 (balance 50%)

Ashok, Bhaskar and Chaman were in partnership sharing profits and losses equally. ‘Chaman’ retires from the firm. After adjustments, his Capital Account shows a credit balance of  ` 3,00,000 as on 1st April, 2019. Balance due to ‘Chaman‘ is to be paid in three equal annual instalments along with interest @ 10% p.a. Prepare Chaman‘s Loan Account until he is paid the amount due to him. The firm closes its books on 31st March every year.

Dr.	Chaman’s Loan A/c						Cr.
Date		Particulars	( `)	Date	Particulars	( `)
2020				2019
March 31		To Bank A/c (1,00,000 + 30,000)	1,30,000	April 01	By Chaman’s Capital A/c	3,00,000
March 31		To balance c/d	2,00,000	2020
				March 31	By Interest on Loan A/c	30,000
					(3,00,000 × 10/100)
			3,30,000			3,30,000
2021				2020
March 31		To Bank A/c (1,00,000 + 20,000)	1,20,000	April 01	By balance b/d	2,00,000
March 31		To balance c/d	1,00,000	2021
				March 31	By Interest on Loan A/c	20,000
					(2,00,000 × 10/100)
			2,20,000			2,20,000
2022				2021
March 31		To Bank A/c (1,00,000 + 10,000)	1,10,000	April 01	By balance b/d	1,00,000
				2022
				March 31	By Interest on Loan A/c	10,000
					(1,00,000 × 10/100)
			1,10,000			1,10,000

Working Notes:   Amount payable per Installment =  ` (3,00,000/3) =  ` 1,00,000

Rakesh retired from the firm. The amount due to him was determined at  ` 90,000. It was decided to pay the due amount as follows: On the date of retirement −  ` 30,000 Balance in three yearly instalments − First two instalments being of  ` 26,000, including interest; and Balance amount as last instalment. Interest was payable @ 10 p.a. Prepare retiring Partners’ Loan Account.

Dr.	Rakesh’s Loan A/c					Cr.
Date	Particulars	( `)	Date	Particulars	( `)
Year I	To Bank A/c (20,000 + 6,000)	26,000	Year I	By Y’s Capital A/c	60,000
	To balance c/d	40,000
				By Interest on Loan A/c	6,000
				(60,000 × 10/100)
		66,000			66,000
Year II	To Bank A/c (22,000 + 4,000)	26,000	Year II	By balance b/d	40,000
	To balance c/d	18,000
				By Interest on Loan A/c	4,000
				(40,000 × 10/100)
		44,000			44,000
Year III	To Bank A/c (18,000 + 1,800)	19,800	Year III	By balance b/d	18,000
				By Interest on Loan A/c	1,800
				(18,000 × 10/100)
		19,800			19,800