Retirement of a partner

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.

 

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

 

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.

 

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)

 

A, B and C were partners, sharing profits and losses in the ratio of 2 : 2 : 1. B decides to retire on 31st March, 2024. 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.

 

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)

 

The book values and their revised values were as follows:

	Book Values (`)	Revised Values (`)
Land	5,50,000	8,50,000
Building	2,50,000	2,10,000
Computers	1,00,000	70,000
Computer Softwares	5,00,000	4,00,000
Sundry Creditors	70,000	60,000
Workmen Compensation Claim	-	5,000

Pass an adjustment entry.

	Punit		Ramit		Akshit
Old Ratio	1	:	1	:	1
New Ratio	3	:	2	:	Retired

 

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

Ramit = 1/3-2/5=5-6/15= -1/15 (Gain)

Akshat = 1/3-0/5=5-0/15= 5/15 =1/3 (Sacrifice)

 

SHARE OF SACRIFICE FOR AKSHAT, RETIRING PARNTER

Sacrificing ratio of Akshat is 1/3

Compensating amount =1,35,,000×1/3=45,000

 

Share of Compensating amount by Punit and Ramit in sacrificing ratio (4:1)

Punit= 45,000×4/5=36,000

Ramit= 45,000×1/5=9,000

 

An adjustment entry

Particulars	Dr. `	Cr. `
Punit’s Capital A/c          Dr. Ronit’s Capital A/c          Dr.     To Akshat’s Capital A/c	36,000 9,000	45,000

 

X, Y and Z are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. Z retires from the firm on 31st March, 2024. On the date of Z's retirement, the following balances appeared in the books of the firm:
   General Reserve  ` 1,80,000
   Profit and Loss Account (Dr.)  ` 30,000
   Workmen Compensation Reserve  ` 24,000 which was no more required
   Employees' Provident Fund  ` 20,000.
 Pass necessary Journal entries for the adjustment of these items on Z's retirement.

 

Journal
Date	Particulars		L.F.	Debit  (`)	Credit  (`)
2024 Mar.31	General Reserve A/c	Dr.		1,80,000
	Workmen Compensation Reserve A/c	Dr.		24,000
	To X’s Capital A/c				1,02,000
	To Y’s Capital A/c				68,000
	To Z’s Capital A/c				34,000
	((Being Accumulated profits distributed among partners in old ratio)
	X’s Capital A/c	Dr.		15,000
	Y’s Capital A/c	Dr.		10,000
	Z’s Capital A/c	Dr.		5,000
	To Profit and Loss A/c				30,000
	((Being Debit balance in Profit and Loss A/c distributed among partners in old ratio)

 

Working Notes:

WN1: Calculation of Share in Credit Balance of Reserves

Total Credit Balance of Reserves

= General Reserve + WCF = 1,80,000 + 24,000 = 2,04,000

X‘s share= 2,04,000××3/6 =1,02,000

Y‘s share= 2,04,000××2/6 =68,000

Z‘s share= 2,04,000××1/6 =34,000                     

 

WN2: Calculation of Share in Debit Balance of Profit and Loss A/c

X‘s share= 30,000××3/6 =15,000

Y‘s share= 30,000××2/6 =10,000

Z‘s share= 30,000××1/6 =5,000                

 

Note: Employees’ Provident Fund will not be distributed as it is a liability and not accumulated profit.