12th | Retirement Of A Partner | Question No. 46 To 50 | Ts Grewal Solution 2023-2024

Liabilities		`	Assets		`
Creditors		10,800	Cash at Bank		13,000
Bills Payable		5,000	Debtors	10,000
Capital A/cs:			Less: Provision for Doubtful Debts	200	9,800
A	45,000		Stock		9,000
B	15,000		Machinery		24,000
C	30,000	90,000	Freehold Premises		50,000
		1,05,800			1,05,800

B retired on 1st April, 2023 and following adjustments were agreed to determine the amount payable to B:

(a) Out of the amount of insurance premium debited to Profit and Loss Account, `1,000 be carried forward as prepaid Insurance.

(b) Freehold Premises be appreciated by 10%.

(c) Provision for Doubtful Debts is brought up to 5% on Debtors.

(d) Machinery be reduced by 5%.

(e) Liability for Workmen Compensation to the extent of `1,500 would be created.

(f) Goodwill of the firm be fixed at `18,000 and B's share of the same be adjusted into the Capital Accounts of A and C, who will share future profits in the ratio of 3/4th and 1/4th.

(g)Total capital of the firm as newly constituted be fixed at `60,000 between A and C in the proportion of 3/4th and 1/4th after passing entries in their accounts for adjustments, i.e., actual cash to be paid or to be brought in by continuing partners as the case may be.

(h) B be paid `5,000 in cash and the balance be transferred to his Loan Account.

Prepare Capital Accounts of Partners and the Balance Sheet of the firm of A and C.

 

Revaluation a/c Dr.                                                                                                                                                Cr.
Particulars	`	Particulars	`
To provision for doubtful debts	300	By unexpired insurance	1,000
To Machinery	1,200	By freehold premises	5,000
To workers’ compensation liabilities	1,500
To capital a/c -profit transferred to :
A=3,000×3/6=1,500
B=3,000×2/6=1,000
C=3,000×1/6=500	3,000
	6,000		6,000

 

 

Partners’ Capital Accounts
Dr.									Cr.
Particulars		A	B	C	Particulars	A	B	C
To B’s capital a/c		4,500		1,500	By Balance b/d	45,000	30,000	15,000
To cash a/c			5,000		By A’s capital		4,500
To B’s loan a/c			32,000		By C’s Capital		1,500
To balance c/d		42,000		14,000	By Revaluation a/c	1,500	1,000	500
		46,500	37,000	15,500		46,500	37,000	15,500
To balance c/d		45,000		15,000	By Balance b/d	42,000		14,000
					By Bank a/c	3,000		1,000
		45,000		15,000		45,000		15,000

 

 

Balance Sheet as on April 01, 2023 after Z’s retirement
Liabilities		(`)	Assets		(`)
Creditors		10,800	Cash at bank		12,000
Bills payables		5,000	Debtors                      10,000
Workers’ Compensation liabilities		1,5000	Less; prov. For D.D.      500		9,500
Capital a/c
A	45,000
C	15,000	60,000	Stock		9,000
B’s loan		32,000	Unexpired insurance		1,000
			Machinery		22,800
			Freehold premises		55,000
		1,,09,300			1,,09,300

Working notes;

WN-1 Calculation of new and gaining ratio

Old ratio of A,B and C =45,0000:30,000:15,000=3:2:1

New ratio of A and C= 3:1

Gaining ratio= New ratio- Old ratio

A’s gain = ¾- 3/6 =18-12/24=6/24

C’s gain =1/4-1/6=6-4/24=2/24

Gaining ratio of A:C = 6:2=3:1

WN-2 treatment of Goodwill

Goodwill of the firm= 18,000

B will be compensated for 18,000×2/6=6,000

A will compensate =6,000×3/4=4,500

C will compensate =6,000×3/4=1,500

Condition for goodwill treatment: Remaining partner to retiring partner

WN-3 Capital adjustment

A’s capital = 60,000×3/4=45,000

C’s capital = 60,000×1/4=15,000

WN-4

Closing bank balance= 13,000-5,000+3,000+1,000=12,000

 

31st March, 2018 was as follows:

Liabilities		`	Assets		`
Sundry Creditors		16,600	Cash		15,000
Workmen's Compensation Fund		9,000	Debtors	21,000
General Reserve		6,000	Less: Provision for Doubtful Debts	(1,400)	19,600
Capitals:			Stock		19,000
X Y Z	90,000 60,000 30,000	1,80,000	Machinery Building		58,000 1,00,000
		2,11,600			2,11,600

On the above date, Y retired owing to ill health. The following adjustments were agreed upon for calculation of amount due to Y:

(a) Provision for Doubtful Debts to be increased to 10% of Debtors.

(b) Goodwill of the firm be valued at 36,000 and be adjusted into the Capital Accounts of X and Z, who will share profits in future in the ratio of 3 :1.

(c)Included in the value of Sundry Creditors was `2,500 for an outstanding legal claim, which will not arise.

(d) X and Z also decided that the total capital of the new firm will be `1,20,000 in their profit-sharing ratio. Actual cash to be brought in or to be paid off as the case may be.

(e) Y to be paid `9,000 immediately and balance to be transferred to his Loan Account.

Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm after Y's retirement.

(CBSE Sample Paper 2019)

 

Revaluation Account
Dr.						Cr.
Particulars		(`)	Particulars		(`)
To provision for doubtful debts		700	By sundry creditors		2,500
To capital a/c – Profit transferred;  X=1800×3/6=900
y=1800×2/6=600
Z=1800×1/6=300		1,800
		2,500			2,500

  

Partners’ Capital Accounts
Dr.								Cr.
Particulars		X	Y	Z	Particulars	X	Y		Z
To Y’s capital a/c		9,000	-	3,000	By Balance b/c	90,000	60,000		30,000
To Cash a/c		-	9,000	-	By X’s Capital a/c	-	9,000		-
To Y’s loan a/c		-	68,600	-	By Z’s Capital a/c	-	3,000		-
To  Balance C/d		89,400	-	29,800	By Workers’ compensation fund	4,500	3,000		1,500
					By General reserve	3,000	2,000		1,000
					By Revaluation a/c	900	600		300
		98,400	77,600	32,800		98,400	77,600		32,800
To  Balance C/d		90,000	-	30,000	By Balance b/d	89,400	-		29,800
					By Cash a/c	600	-		200
		90,000	-	30,000		90,000	-		30,000

 

 

Balance Sheet as on April 01, 2018 after Z’s retirement
Liabilities		(`)	Assets		(`)
Sundry creditors		14,100	Cash a/c (15,000-9000+600+200)		6,800
Capital a/c			Debtors                            21,000 Less; Prov. For D.D.        2,100		18,900
X= 90,000 Z= 30,000		1,20,000	Stock Machinery		19,000 58,000
Y’s loan a/c		68,600	Buildings		1,00,000
		2,02,700			2,02,700

Working notes;

WN-1 Calculation of new and gaining ratio

Old ratio of X,Y and Z =90,0000:60,000:30,000=3:2:1

New ratio of X and Z= 3:1

Gaining ratio= New ratio- Old ratio

X’s gain = ¾- 3/6 =18-12/24=6/24

Z’s gain =1/4-1/6=6-4/24=2/24

Gaining ratio of A:C = 6:2=3:1

WN-2 treatment of Goodwill

Goodwill of the firm= 36,000

Y will be compensated for 36,000×2/6=12,000

X will compensate =12,000×3/4=9,000

Z will compensate =12,000×1/4=3,000

 

Condition for goodwill treatment: Remaining partner to retiring partner

X’s capital     a/c	Dr.	9,000
Z’s capital     a/c	Dr.	3,000
To Y’s capital a/c			12,000

WN-3 Capital adjustment

X’s capital = 1,20,000×3/4=90,000

Z’s capital = 1,20,000×1/4=30,000

 

Amit, Balan and Chander were partners in a firm sharing profits in the proportion of 1/2, 1/3 and 1/6 respectively. Chander retired on 1st April, 2014. The Balance Sheet of the firm on the date of Chander's retirement was as follows:
 

Liabilities		(`)	Assets		(`)
Sundry Creditors		12,600	Bank		4,100
Provident Fund		3,000	Debtors	30,000
General Reserve		9,000	Less: Provision	1,000	29,000
Capital A/cs:
Amit	40,000		Stock		25,000
Balan	36,500		Investments		10,000
Chander	20,000	96,500	Patents		5,000
			Machinery		48,000
		1,21,100			1,21,100

 
It was agreed that:
(i)  Goodwill will  be valued at  ` 27,000.
(ii) Depreciation of 10% was to be provided on Machinery.
(iii) Patents were to be reduced by 20%. 
(iv) Liability on account of Provident Fund was estimated at  ` 2,400.
(v) Chander took over Investments for  ` 15,800.
(vi) Amit and Balan decided to adjust their capitals in proportion of their profit-sharing ratio by opening Current Accounts.
Prepare Revaluation Account and Partners' Capital Accounts on Chander's retirement. 

(Delhi 2015, Modified)

 

Revaluation Account
Dr.						Cr.
Particulars			`	Particulars	`
Machinery			4,800	Investments A/c	5,800
Patents			1,000	Provident Fund A/c	600
Profit transferred to:
Amit’s Capital A/c		300
Balan’s Capital A/c		200
Chander’s Capital A/c		100	600
			6,400		6,400

 

Partners’ Capital Account
Dr.				Cr.
Particulars	Amit	Balan	Chander	Particulars	Amit	Balan	Chander
Investments A/c			15,800	Balance b/d	40,000	36,500	20,000
Chander’s Capital A/c	2,700	1,800		Revaluation A/c (Profit)	300	200	100
Loan A/c			10,300	General Reserve	4,500	3,000	1,500
Current A/c		5,900		Amit’s Capital A/c			2,700
Balance c/d	48,000	32,000		Balan’s Capital A/c			1,800
				Current A/c	5,900
	50,700	39,700	26,100		50,700	39,700	26,100

 

Working Notes:

WN1: Adjustment of Goodwill

Chander’s share of Goodwill =27,000 ×1/6=4,500

Amit wil pay=4,500×3/5=2,700

Balan wil pay=4,500×2/5=1,800

 

WN2 Adjustment of Capital
Adjusted Old Capital of Amit=44,800 (40,000+4,500+300)-2,700=` 42,100

Adjusted Old Capital of Balan=39,700 (36,500+3,000+200)-1,800=` 37,900

Total Adjusted Capital=42,100+37,900=` 80,000

New Profit Sharing Ratio=3:2

Amit's New Capital=80,000×3/5=` 48,000

Balan's New Capital=80,000×2/5=` 32,000

Note: Since, here no information is given regarding the share acquired by Amit and Balan, therefore, their gaining ratio is same as their new profit sharing ratio i.e. 3 : 2.

  

N, S and B are partners in a firm sharing profits and losses in the proportion of 1/2 : 1/6 : 1/3 respectively. The Balance Sheet of the firm as at On 31st March, 2017,was as follow:
 

BALANCE SHEET OF N,S AND B as at 31st march, 2017
Liabilities		(`)	Assets		(`)
Bills Payable		12,000	Freehold Premises		40,000
Sundry Creditors		18,000	Machinery		30,000
General Reserve		12,000	Furniture		12,000
Capital A/cs:			Stock		22,000
N	30,000		Sundry Debtors	20,000
S	30,000		Less: Provision for Doubtful Debts	1,000	19,000
B	28,000	88,000	Cash		7,000
		1,30,000			1,30,000

 
B retired from the business on the above date 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) Provision for Doubtful Debts is to be increased to ` 1,500.
(d) Goodwill of the firm is valued at ` 21,000 on B's retirement.
(e) Continuing partners to adjust their capitals in their new profit-sharing ratio after retirement of B. 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.

(CBSE 2019)

Revaluation Account
Dr.					Cr.
Particulars			(`)	Particulars	(`)
Machinery (30,000 × 10%) Furniture (12,000 × 7%)			3,000 840	Freehold Premises (40,000 × 20%)	8,000
Provision for Doubtful Debts			1,500	Stock (22,000 × 15%)	3,300
Profit transferred to:
N’s Capital A/c		2,980
S’s Capital A/c		993
B’s Capital A/c		1,987	6,960
			11,300		11,300

 

Partner’s Capital Accounts
Dr.							Cr.
Particulars	N	S	B	Particulars	N	S	B
B’s Capital A/c	5,250	1,750	-	Balance b/d	30,000	30,000	28,000
B’s Loan A/c	-	-	40,987	General Reserve	6,000	2,000	4,000
Balance c/d	33,730	31,243	40,987	N’s Capital A/c (Goodwill)	-	-	5,250
				B’s Capital A/c (Goodwill)	-	-	1,750
				Revaluation A/c (Profit)	2,980	993	1,987
	38,980	32,993	40,987		38,980	32,993	40,987
Y’s Current A/c	-	7,500	-	Balance b/d	33,730	31,243	-
Balance c/d	48,730	16,243	-	X’s Current A/c	15,000	-	-
	48,730	31,243	-		48,730	31,243	-

 

Balance Sheet as on 1st April, 2017
Liabilities		(`)	Assets		(`)
Bills Payable		12,000	Freehold Premises (40,000 + 8,000)		48,000
Sundry Creditors		18,000	Machinery (30,000 – 3,000)		27,000
B’s Loan		40,987	Furniture (12,000 – 840)		11,160
Capital A/cs:			Stock (22,000 + 3,300)		25,300
N	48,730		Sundry Debtors	20,000
S	16,243	64,973	Less: Provision for Doubtful Debts	(2,500)	18,500
S’s Current A/c		15,000	Cash		7,000
			N’s Current A/c		15,000
		1,50,960			1,50,960

Working Notes: 

WN 1 Calculation of Profit Sharing Ratio
Old Ratio (N, S and B) = 3 : 1 : 2
B retires from the firm.
∴ New Ratio (N and S) = 3 : 1 and
Gaining Ratio = 3 : 1

WN 2 Adjustment of Goodwill
Goodwill of the firm = ` 21,000
B’s Share of Goodwill = = 21,000×2/6=7,000

 

This share of goodwill is to be distributed between N and S in their gaining ratio (i.e. 3 : 1).
N‘s share= 7,000×3/4=5,250

S‘s share= 7,000×1/4=1,750

 

Condition for goodwill treatment; gaining partner to retiring partner

N’s capital a/c	Dr.	5,250	-
S’s Capital a/c	Dr.	1,750	-
To B’s Capital a/c		-	7,000

 

WN 3 Adjustment of Partners’ Capital after B’s Retirement
Combined Capital of N and S after all adjustments = 33,730 + 31243 = `. 64,973

New Ratio = 3 : 1

N‘s new capital = 64,973×3/4=48,730

S‘s new capital = 64,973×1/4=16,243

 

Following is the Balance Sheet of Kusum, Sneh and Usha as on 31st March, 2023, who have agreed to share profits and losses in proportion of their capitals:

Liabilities		`	Assets		`
Capital A/cs:			Land and Building		4,00,000
Kusum	4,00,000		Machinery		6,00,000
Sneh	6,00,000		Closing Stock		2,00,000
Usha	4,00,000	14,00,000	Sundry Debtors	2,20,000
Employees' Provident Fund		70,000	Less: Provision for Doubtful Debts	20,000
Workmen Compensation Reserve		30,000	Cash at Bank		2,00,000
Sundry Creditors		1,00,000			2,00,000
		16,00,000			16,00,000

On 1st April, 2023, Kusum retired from the firm and the remaining partners decided to carry on the business. It was agreed to revalue the assets and reassess the liabilities on that date, on the following basis:
(a) Land and Building be appreciated by 30%.
(b) Machinery be depreciated by 30%.
(c) There were Bad Debts of  ` 35,000.
(d) The claim against Workmen Compensation Reserve was estimated at  ` 15,000.
(e) Goodwill of the firm was valued at  ` 2,80,000 and Kusum's share of goodwill was adjusted against the Capital Accounts of the continuing partners Sneh and Usha who have decided to share future profits in the ratio of 3 : 4 respectively.
(f) Capital of the new firm in total will be the same as before the retirement of Kusum and will be in the new profit-sharing ratio of the continuing partners.
(g) Amount due to Kusum be settled by paying  ` 1,00,000 in cash and balance by transferring to her Loan Account which will be paid later on.
Prepare Revaluation Account, Capital Accounts of Partners and Balance Sheet of the new firm after Kusum's retirement.

(AI 2012 C, Modified)

Revaluation Account
Dr.		Cr.
Particulars	(`)	Particulars		(`)
Machinery A/c	1,80,000	Land and Building A/c		1,20,000
Bad Debts A/c (35,000 – 20,000)	15,000	Loss on Revaluation transferred to:
		Kusum	21,429
		Sneh	32,142
		Usha	21,429	75,000
	1,95,000			1,95,000

 

Partners’ Capital Account
Dr.				Cr.
Particulars	Kusum	Sneh	Usha	Particulars	Kusum	Sneh	Usha
Revaluation A/c (Loss)	21,429	32,142	21,429	Balance b/d	4,00,000	6,00,000	4,00,000
Usha’s Capital A/c	–	–	80,000	Workmen Compensation Fund	4,286	6,428	4,286
Bank A/c	1,00,000	–	–	Usha’s Capital A/c	80,000	–	–
Kusum’s Loan A/c	3,62,857	–	–
Balance c/d	–	5,74,286	3,02,857
	4,84,286	6,06,428	4,04,286		4,84,286	6,06,428	4,04,286
Balance c/d	–	6,00,000	8,00,000	Balance b/d	–	5,74,286	3,02,857
				Bank A/c (WN3)	–	25,714	4,97,143
	–	6,00,000	8,00,000		–	6,00,000	8,00,000

 

Balance Sheet as at March 31, 2023
Liabilities		(`)	Assets	(`)
Creditors		1,00,000	Land & Building	5,20,000
Employee’s Provident Fund		70,000	Machinery (6,00,000 – 1,80,000)	4,20,000
Workmen’s Compensation Claim		15,000	Stock	2,00,000
Kusum’s Loan		3,62,857	Sundry Debtors (2,20,000 – 35,000)	1,85,000
Capital A/c :			Bank	6,22,857
Sneh	6,00,000
Usha	8,00,000	14,00,000
		19,47,857		19,47,857

 

Working Notes

 

WN 1 Calculation of Gaining Ratio 

Old Ratio (Kusum, Sneh and Usha) = 2:3:2

New Ratio (Sneh and Usha) = 3:4

Gaining Ratio = New Ratio – Old Ratio

Sneh‘s share= 3/7-3/7=nil

Usha‘s share= 4/7-2/7=2/7

WN2 Adjustment of Goodwill

Total Goodwill of the Firm = 2,80,000

Kusum’s Share of Goodwill = 2,80,000×2/7=80,000

It is to be adjusted by the Gaining partners i.e. only by Usha

 

WN3 Adjustment of Capital

Tatal capital of the firm before kusum’s retirement =14,00,000

New Ratio (Sneh and Usha) = 3:4

Sneha‘s new captial= 14,00,000×3/7=6,00,000

Usha‘s new capital= 14,00,000×4/7=8,00,000

 

Particulars	Sneh	Usha
New Capital Balance	6,00,000	8,00,000
Adjusted Old Capital Balance	5,74,286	3,02,857
Cash brought in by the Partner	25,714	4,97,143

 

WN4

Cash at Bank A/c
Dr.		Cr.
Particulars	(`)	Particulars	(`)
Balance b/d	2,00,000	Kusum’s Capital A/c	1,00,000
Sneh’s Capital A/c	25,714	Balance c/d	6,22,857
Usha’s Capital A/c	4,97,143
	7,22,857		7,22,857