12th | Retirement of a partner  | Question No. 46 To 50 | Ts Grewal Solution 2024-2025

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, 2024, 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, 2024, 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, 2024
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

 

Lal, Bal and Pal are partners sharing profits in the ratio of 5 : 3 : 7. Lal retired from the firm. Bal and Pal decided to share future profits in the ratio of 2 : 3. The adjusted Capital Accounts of Bal and Pal showed balance of ` 49,500 and ` 1,05,750 respectively. The total amount to be paid to X is  ` 1,35,750. This amount is to be paid by Bal and Pal in a manner that their capitals become proportionate to their new profit-sharing ratio. Calculate the amount to be brought in or to be paid to partners. 

 

New Capital = 49,500 + 1,05,750 + 1,35,750 = ` 2,91,000

Bal's New Capital=2,91,000×2/5=1,16,400

Pal's New Capital=2,91,000×3/5=1,74,600

Bal brings in ` 66,900 (1,16,400 – 49,500)

Pal brings in ` 68,850 (1,74,600 – 1,05,750)

 

Balance Sheet of X, Y and Z who shared profits in the ratio of 5 : 3 : 2, as on 31st March, 2024 was as follows:

Liabilities		`	Assets	`
Sundry Creditors		39,750	Bank (Minimum Balance)	15,000
Employees' Provident Fund		5,250	Debtors	97,500
Workmen Compensation Reserve		22,500	Stock	82,500
Capital A/cs:			Fixed Assets	1,87,500
X	1,65,000
Y	84,000
Z	66,000	3,15,000
		3,82,500		3,82,500

Y retired on 1st April, 2024 and it was agreed that:
(i) Goodwill of the firm is valued at  ` 1,12,500 and Y's share of it be adjusted into the accounts of X and Z who are going to share future profits in the ratio of 3 : 2.
(ii) Fixed Assets be appreciated by 20%.
(iii) Stock be reduced to  ` 75,000.
(iv) Y be paid amount brought in by X and Z so as to make their capitals proportionate to their new profit-sharing ratio.
Prepare Revaluation Account, Capital Accounts of all partners and the Balance Sheet of the New Firm.

Revaluation Account
Dr.					Cr.
Particulars			(`)	Particulars	(`)
Stock			7,500	Fixed Assets	37,500
Revaluation Profit
X’s Capital A/c		15,000
Y’s Capital A/c		9,000
Z’s Capital A/c		6,000	30,000
			37,500		37,500

 

Partners’ Capital Accounts
Dr.								Cr.
Particulars	X	Y	Z	Particulars	X	Y	Z
Y’s Capital A/c	11,250	-	22,500	Balance b/d	1,65,000	84,000	66,000
Bank	-	1,33,500	-	General Reserve	11,250	6,750	4500
Balance c/d	2,20,500	-	1,47,000	Revaluation (Profit)	15,000	9,000	6,000
				X’s Capital A/c	-	11,250	-
				Z’s Capital A/c	-	22,500	-
				Bank A/c	40,500	-	93,000
	2,31,750	1,33,500	1,69,500		2,31,750	1,33,500	1,69,500

 

Balance Sheet as on March 31, 2024
Liabilities		(`)	Assets	(`)
Sundry Creditors		39,750	Bank	15,000
Employees Provident Fund		5,250	Debtors	97,500
Capitals:			Stock	75,000
X	2,20,500		Fixed Assets	2,25,000
Z	1,47,000	72,000
		4,12,500		4,12,500

Working Notes:
New Capital = 1,80,000 + 54,000 + 1,33,500 = ` 3,67,500

X's New Capital=3,67,500×3/5=2,20,500

Z's New Capital=3,67,500×2/5=1,47,500

X brings in ` 40,500 (2,20,500 – 1,80,000)

Z brings in ` ` 93,000 (1,47,500 – 54,000)

 

Sushil, Satish and Samir are partners sharing profits in the ratio of 5 : 3 : 2. Satish retires on 1st April, 2024 from the firm, on which date capitals of Sushil, Satish and Samir after all adjustments are  ` 1,03,680,  ` 87,840 and  ` 26,880 respectively. The Cash and Bank Balance on that date was  ` 9,600. Satish is to be paid through amount brought in by Sushil and Samir in such a way as to make their capitals proportionate to their new profit-sharing ratio which will be Sushil 3/5 and Samir 2/5. Calculate the amount to be paid or to be brought in by the continuing partners assuming that a minimum Cash and Bank balance of  ` 7,200 was to be maintained and pass the necessary Journal entries.

 

Total capital of firm before retirement = 1,03,680+87,840+26,880 = ` 2,18,400

Availability of cash = 9,600-7,200 (Minimum Balance) = ` 2,400

Combined new capital of Sushil and Samir =` 2,16,000

Sushil's new capital = 2,16,000×3/5=` 1,29,600

Existing capital of Sushil= ` 1,03,680

So, Sushil has to bring = 1,29,600−1,03,680= ` 25,920

Samir's new capital = 2,16,000×2/5=` 86,400

Existing capital of Samir = ` 26,880

So, Samir has to bring = 86,400−26,880=` 59,520