12th | Retirement of a partner  | Question No. 51 To 55 | Ts Grewal Solution 2024-2025

Suraj, Pawan and Kamal are partners in a firm sharing profits and losses in the ratio of 3:2:1. Their Balance

Sheet as at 31st March, 2024 is:

Liabilities	`	Assets	`
Creditors	46,000	Cash in Hand	18,000
General Reserve	12,000	Debtors              25,000
Capital A/cs:		Less: Provision for Doubtful Debts 3,000	22,000
Suraj 40,000		Stock	18,000
Pawan 40,000		Furniture	30,000
Kamal 30,000	1,10,000	Machinery	70,000
		Goodwill	10,000
	1,68,000		1,68,000

Pawan retired on 1st April, 2024 on the following terms:

(a) Provision for Doubtful Debts be raised by 1,000.

(b) Stock to be reduced by 10% and Furniture by 5%.

(c) There is an outstanding claim of damages of 1,100 and it is to be provided for.

(d) Creditors will be written back by 6,000.

(e) Goodwill of the firm is valued at ` 22,000.

(f) Pawan is paid in full with the cash brought in by Suraj and Kamal in such a manner that their capitals are in proportion to their profit-sharing ratio and Cash in Hand remains at 10,000.

Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of Suraj and Kamal.

Revaluation A/c
Particulars	`	Particulars	`
Provision for Doubtful Debts	1,000	Creditors	6,000
Stock	1,800
Furniture	1,500
outstanding claim of damages	1,100
Capital A/cs:
Suraj - 300
Pawan- 200
Kamal- 100	600
	6,000		6,000

 

Capital A/c
Particulars	Suraj	Pawan	Kamal	Particulars	Suraj	Pawan	Kamal
To Goodwill A/c	5,000	3,333	1,667	By Balance B/d	3,00,000	2,00,000	2,00,000
To Pawan 's Capital A/c	5,500	-	1,833	By Revaluation A/c	300	200	100
				By General Reserve	6,000	4,000	2,000
To Balance C/d	35,800	48,200	28,600	By Suraj 's Capital A/c	-	5,500	-
				By Kamal 's Capital A/c	-	1,833	-
	46,300	51,533	32,100		46,300	51,533	32,100
To Cash A/c	-	48,200	2,450	By Balance B/d	35,800	48,200	28,600
To Balance C/d	78,450	-	26,150	By Cash A/c	42,650	-	-
	78,450	48,200	28,600		78,450	48,200	28,600

 

Balance sheet of new firm
Liabilities	`	Assets	`
Creditors	40,000	Cash in Hand	10,000
outstanding claim of damages	1,100	Debtors              25,000
Capital A/cs:		Less: Provision for Doubtful Debts 4,000	21,000
Suraj 78,450		Stock (18,000-1,800)	16,200
Kamal 26,150	1,04,600	Furniture (30,000-1,500)	28,500
		Machinery	70,000
	1,45,700		1,45,700

 

The Balance Sheet of Asha, Deepa and Leta who were sharing profits in the ratio of 5 : 3 : 2 as at 31st March, 2024 is as follows:

Liabilities		`	Assets	`
Creditors		50,000	Cash at Bank	40,000
Employees' Provident Fund		10,000	Sundry Debtors	1,00,000
Profit and Loss A/c		85,000	Stock	80,000
Capital A/cs:			Fixed Assets	60,000
Asha	40,000
Deepa	62,000
Leta	33,000	1,35,000
		2,80,000		2,80,000

Asha retired on 1st April, 2024 and Deepa and Leta decided to share profits in future in the ratio of 3 : 2 respectively.
The other terms on retirement were:
(a) Goodwill of the firm is to be valued at  ` 80,000.
(b) Fixed Assets are to be depreciated to  ` 57,500.
(c) Make a Provision for Doubtful Debts at 5% on Debtors.
(d) A liability for claim, included in Creditors for  ` 10,000, is settled at  ` 8,000.
The amount to be paid to Asha by Deepa and Leta in such a way that their Capitals are proportionate to their profit-sharing ratio and leave a balance of  ` 15,000 in the Bank Account.
Prepare Profit and Loss Adjustment Account and Partners' Capital Accounts.

 

Revaluation Account
Dr.		Cr.
Particulars	(`)	Particulars		(`)
Fixed Assets A/c (60,000 – 57,500)	2,500	Creditors (10,000 – 8,000)		2,000
Provision for Doubtful Debts	5,000	Loss on Revaluation transferred to:
		Asha’s Capital a/c	2,750
		Deepa’s Capital a/c	1,650
		Leta’s Capital a/c	1,100	5,500
	7,500			7,500

 

Partners’ Capital Accounts
Dr.					Cr.
Particulars	Asha	Deepa	Leta	Particulars		Asha	Deepa	Leta
Revaluation A/c (Loss)	2,750	1,650	1,100	Balance b/d		40,000	62,000	33,000
Asha’s Capital A/c	–	24,000	16,000	Profit & Loss A/c		42,500	25,500	17,000
Balance c/d	1,19,750	61,850	32,900	Deepa’s Capital A/c		24,000	–	–
				Leta’s Capital A/c		16,000	–	–
	1,22,500	87,500	50,000			1,22,500	87,500	50,000
Bank A/c	1,19,750	–	–	Balance b/d		1,19,750	61,850	32,900
Balance c/d	–	1,18,500	79,000	Bank A/c		–	56,650	46,100
	1,19,750	1,18,500	79,000			1,19,750	1,18,500	79,000

 

Working Notes

 WN 1 Calculation of Gaining Ratio 

Old Ratio (Asha, Deepa and Leta) = 5:3:2

New Ratio (Deepa and Leta) = 3:2

Gaining Ratio = New Ratio – Old Ratio

Deepa’s	=3/5-3/10
	=3/10
Leta’s	=2/5-2/10
	=2/10

Hence, gaining ratio is 3: 2.

 

WN2 Adjustment of Goodwill

Total Goodwill of the Firm = 80,000

Asha’s Share of Goodwill = 80,000×5/10=40,000

To be borne by Gaining partners in their Gaining Ratio i.e. 3:2
Deepa’s Share = 40,000×3/5=24,000
Leta’s Share = 40,000×2/5=16,000

WN3 Adjustment of Capital

Asha’s Capital before adjustment = 1,19,750

Deepa’s Capital before adjustment = 61,850

Leta’s Capital before adjustment = 32,900

Total Capital of New Firm= Asha's Capital+Deepa's Capital+Leta's Capital+Closing balance of Bank Account-Available Bank Balance=1,19,750+61,850+32,900+15,000-32,000=`1,97,500

New profit sharing ratio=3:2

Deepa’s Share of Goodwill =1,97,500×3/5=1,18,500

Leta’s Share of Goodwill =1,97,500×2/5=79,000
 

Particulars	Deepa	Leta
New Capital Balance	1,18,500	79,000
Adjusted Old Capital Balance	61,850	32,900
Cash brought in by the Partner	56,650	46,100

WN4

Cash at Bank A/c
Dr.		Cr.
Particulars	(`)	Particulars	(`)
Balance b/d	40,000	Creditors	8,000
Deepa’s Capital A/c	56,650	Asha’s Capital A/c	1,19,750
Leta’s Capital A/c	46,100	Balance c/d	15,000
	1,42,750		1,42,750

 

Amrit, Bhanu and Charu were partners in a firm sharing profits equally. Bhanu retired on 30th September, 2023. Profit till the date of retirement was to be estimated based on last year's profit. Profit for the year ended 31st March, 2023, was ` 3,60,000.

Calculate Bhanu's share of profit till his retirement and pass Journal entry/entries for the same when:

(i) The profit-sharing ratio between Amrit and Charu does not change; and

(ii) The new profit-sharing ratio between Amrit and Charu changes to 3:2.

Date	Particulars		`	`
(Case)	Profit and Loss Suspense A/c	Dr.	60,000
1.	To Bhanu’s Capital A/c			60,000
	(Bhanu was compensated for his share of goodwill ) (W.N. – 1)
(Case)	Amrit’s Capital A/c	Dr.	48,000
2.	Charu’s Capital A/c	Dr.	12,000
	To Bhanu’s Capital A/c			60,000
	(Bhanu was compensated for his share of goodwill) (W.N. – 2)

 

Working notes:

 

W.N. – 1 ((i) The profit-sharing ratio between Amrit and Charu does not change)

Profit sharing ratio of Amrit, Bhanu and Charu was 1:1:1

Profit for the year ended 31st March, 2021, was ` 3,60,000

Bhanu's share of profit=3,60,000×1×6/3×12=60,000

 

W.N.-2 ((ii) The new profit-sharing ratio between Amrit and Charu changes to 3:2)

A= 1/3-3/5=5-9/15= -4/15 (Gain)

B=  1/3-2/5=5-6/15= -1/15 (Gain)

Share of A and B in 4:1

A=  60,000×4/5=48,000

A=  60,000×1/5=12,000

 

Calculate Bhuvi's share of loss till her retirement and pass Journal entry / entries for the same when:

(i) The profit-sharing ratio between Amar and Charan does not change; and

(ii) The new profit-sharing ratio between Amar and Charan changes to 3: 2.

 

 

Date	Particulars		`	`
(Case)	Bhuvi’s Capital A/c	Dr.	60,000
1.	To Profit and Loss Suspense A/c A/c			60,000
	(Bhavi was compensated for his share of goodwill ) (W.N. – 1)
(Case)	Bhuvi’s Capital A/c	Dr.	60,000
2.	To Amar’s Capital A/c			48,000
	To Charu’s Capital A/c			12,000
	(Bhavi was compensated for his share of goodwill) (W.N. – 2)

 

Working notes:

Loss for the year ended 31st March, 2022 was ` 1,80,000.

W.N. – 1 ((i) The profit-sharing ratio between Amar and Charan does not change)

Profit sharing ratio of Amrit, Bhanu and Charu was 1:1:1

Loss for the year ended 31st March, 2021 was ` 1,80,000.

Bhavi's share of profit = 1,80,000×1/3 = 60,000

 

W.N.-2 ((ii) The new profit-sharing ratio between Amar and Charan changes to 3: 2)

A= 1/3-3/5=5-9/15= -4/15 (Gain)

B=  1/3-2/5=5-6/15= -1/15 (Gain)

Share of A and B in 4:1

A=  60,000×4/5=48,000

B=  60,000×1/5=12,000

 

Yogesh, Naresh and Pavesh were partners in a firm sharing profits in the ratio of 2: 2: 1. Naresh retired on 1st October, 2023. In terms of the Partnership Deed, financial statements were prepared as on date of retirement and profit was determined as ` 7,20,000.

(i) Pass the Journal entries for distribution of profit for the period.

(ii) Pass the Journal entries if loss of ` 3,60,000 was incurred.

Date	Particulars		`	`
(Case)	Profit & Loss Appropriation A/c	Dr.	7,20,000
1.	To Yogesh’s Capital A/c			2,88,000
	To Naresh’s Capital A/c			2,88,000
	To Pavesh’s Capital A/c			1,44,000
	(Bhavi was compensated for his share of goodwill ) (W.N. – 1)
(Case)	Yogesh’s Capital A/c	Dr.	1,44,000
2.	Naresh’s Capital A/c	Dr.	1,44,000
	Pavesh’s Capital A/c	Dr.	72,000
	To Profit & Loss Appropriation A/c			3,60,000
	(Bhavi was compensated for his share of goodwill) (W.N. – 2)

Working Notes:

W.N. – 1 ((i) Pass the Journal entries for distribution of profit for the period.)

Profits sharing in the ratio of 2: 2: 1

Yogeshs = 7,20,000×2/5=2,88,000

Nareshs =  7,20,000×2/5=2,88,000

Pavesh =  7,20,000×1/5=1,44,000

 

W.N. – 2 ((ii) Pass the Journal entries if loss of ` 3,60,000 was incurred)

Profits sharing in the ratio of 2: 2: 1

Yogeshs = 3,60,000 ×2/5 = 1,44,000

Nareshs =  3,60,000 ×2/5 = 1,44,000

Pavesh =  3,60,000 ×1/5 = 72,000