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Important Questions Class 12 Accountancy Chapter 5 Retirement Death A Partner

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1: A, B and C are partners sharing profit and loss in the ratio of then on retirement of the gaining ratio/new, ratio will be Solution:  On A’s Retirement 2: 1 On B’s Retirement 3: 1 On C’ s retirement 3:1

 2: A, B, & C share profit in the ratio 3:2:1 on C’s death his taken by A & b in the rate of 2:1 Calculate new ratio. Solution:  in this case gaining ratio = 2:1 (given) A’s old share = 3/6 B’s old share = 2/6   & C’s share = 1/6 A’s gain =2/3 of c’s share 2/3 *1/6 =2/18 B’s gain = 1/3 of C’s share =1/3 *1/6 =1/18 A’s new share = A’s old + gain =2/6 +1/18 = 11/18 B, s new share = B’s old share + B’s gain =2/6 + 1/18= 7/18 New ratio =11:7

3:  A, B, C are partners in the ratio of 3:2:1 C retires & A & B decide to share future profit in the ratio of 5:3 Solution. A’s Gain  = 5/8 –  3/6 = 3/24 B’s gain   =3/8-3/6=3/24 Gaining ratio =3 :1 Distinction between the Sacrificing and Gaing Ratio

4:  M. N. & p are partners in a firm P retires & the goodwill of firm is valued at 30000. M & N  decide to share future profits in the ratio of pass necessary adjustment entries. 1.  if goodwill A/c already appears in books at 18000 2.   When no goodwill A/c appears in the books. Solution : Old ratio of M, n &p= 1:1:1 (sharing ratio in not given it true as equal) New ratio = 3:2 M’s gain                     = 3/5   1/3   = 4/15 N’s gain                      = 2/5 – 1/3   1/15 Gaining ratio              = 4:1 Ps share of goodwill =  = Rs. 10,000 Journal

Case 2 : When No goodwill already appears in the books then only second entry will be done.

5:  R, S & T are partners in a firm sharing profit & loss in the ratio of 2 : 2 : 1. T Retires and his balance in capital a/c after adjustment for reserve & revaluation of assets & liabilities comes out to be Rs. 50000. Rs. & S agree to pay him Rs. 60000. Give journal entry for the adjustment of goodwill. Solution : New ratio between R & S = gaining ratio = 2:2 or 1:1 T’s share of goodwill (hidden) = 60000- 50000 = 10000 Hence adjustment entry is Journal

6  :  X, Y and Z are partners in a firm sharing profits and losses in the ratio of 2:1:1, Y retires on 31 st  march, 2011. On that date, there was a balance Rs. 24,000 in general reserve and Rs. 16,000 in profit and loss A/c of the firm. Give Journal entries. Solution: Journal

7 :  P, Q and R are partner’s sharing profits and losses in the ratio 3:2:1. P retires and on that date there was workmen’s compensation fund amount Rs. 30,000. In the Balance Sheet. But actual liability on this account was for Rs. 12,000 on that date. Give Journal Entry. Solution:  Excess amount in Workmen’s Compensation Fund = Rs. 30,000 – Rs. 12,000 = Rs. 18,000 (Cr.)This will be transferred to all partner’s Capital A/c in old ratio Journal

 8 :  A, B and C are equal partners. A retires and on that date there was a debit balance of L 15,000 in P & L A/c. Give Journal entry. Solution :

10 :  A, B and C are partners in a firm. B  retires from the firm on the Jan 2015. On the date of his retirement Rs. 66,000 were due to him. It was decided that the payment will be done  in 3 equal yearly installments together with interest @ 10% p.a. on the unpaid balance, Prepare B’s Loan A/c. Solution : B’s Loan A/c

11:  X, Y and Z are partners in a firm sharing profits in the ratio of 2:2:1 X retires and after all adjustments the Capital A/cs of the Y and Z have a balance of Rs. 70,000 and Rs. 50,000 respectively. They decided to adjust their capitals in new profit sharing ratio by withdrawing or bringing cash. Give necessary Journal entries and show your working clearly. Solution: The capital of the new firm = Total Capital of Y and Z after adjustments = 70,000 + 50,000 = 1,20,000

12 :  A, B and C are partner sharing profits in the ratio of 3:2:1. A on 31 st  July 2015. The profits of the firm for the year ending 31 st  March 2015 year Rs. 42000. Calculate A’s share for the period from 1 st  April to 31 st  July 2015 on basis of last year’s profits. Pass necessary journal entry also. Solution :  A’s Profit = Preceding year’s profit  Proportionate Period   Share of A  Rs. 7,000

13 : If in the  – 1 given above the sales for the last year are Rs.        2,10,000 and for the current year upto 31 st  July are say Rs. 90,000 then Profits      from 3st April to 31 st  July 2015. Solution :  = 

 =  Rs.   18,000 A’s share = Rs. 

 =  9,000 Journal Entry will be

Problem 1: (Preparation of balance sheet of the reconstituted firm)  Vijay, Vivek and Vinay are partners in a firm sharing profits in 2:2:1 ratio, On 31.3.2015 Vivek retires from the firm. On the date of Vivek’s retirement the balance sheet the firm was as follows: Balance Sheet of Vijay, Vivek and Vinay

On Vivek’s retirement it was agreed that : i. Premises will be appreciated by 5% and furniture will be appreciated by Rs. 2,000 Stock will be depreciated by 10% ii. Provision for bad debts was to be made at 5% on debtors and provision legal damages to be made for Rs. 14,400. iii. Goodwill of the firm is valued at Rs. 48,000. iv. Rs. 50,000 from Vivek’s Capital A/c will be transferred to his Loan A/c and balance will be paid by cheque. Prepare revaluation a/c, partners Capital A/cs and Balance Sheet of Vijay Vinay after Vivek’s retirement. Solution : Revaluation Account

Balance Sheet As at 31 st  March 2015

Working Note : 1.  New Provision of bad debts on debtors (5%) = 5% of Rs. 12,000 = 600 provision Rs. 800 as given in the balance Sheet. Excess of Rs. 200 is profit transferred to revaluation A/c 2.  Goodwill of the firm = 48,000 Vivek share =  =Rs. 19,200 be given Vijay & Vinay in Gaining Ratio i.e. 2:1 Goodwill contributed by Vijay =  = Rs. 12,800. Goodwill contributed by Vijay =  = Rs. 6,400. 3.  Vivek’s total amount due on retirement = Rs 82,280 Less: amount transferred to his loan A/c = Rs. 50,000 Amount to be paid by cheque = Rs. 32,280

Problem 2: (Death of a partner) M, N and 0 were partners in a firm sharing profits and losses equally. Their Balance Sheet on 31-12-2014 was as follows:

N died on 14 th  March, 2015. According to the Partnership Dead, executers on the deceased partner are entitle to : (i) Balance of partner’s capital A/c (ii) Interest on capital @ 5% p.a. (iii) Share of goodwill calculated on the basis of twice the average of past there years profits. (iv) Share of profits from the closure of the last accounting year till the date of the death on the basis of twice the average of three completed year’s profit before death. Profits for 2012, 2013 and 2014 were Rs. 80,000, Rs. 90,000 and Rs. 1,00,000 respectively. Show the working for deceased partner’s share of goodwill and profits till the date of his death. Pass the necessary journal entries and prepare N’s Capital A/c to be renderer to his executers.  Solution : Journal

Working Note : 1.  Calculation of Goodwill Average profit for 3 years  = Rs. 90,000 Goodwill of the firm = Average Profit  No. Of year of Purchase =  = Rs. 1,80,000 Total N’s Share in Goodwill = 

=  60,000 2.  Time from the date of last balance Sheet (31 st  December, 2014) to the date of death (14 th  March, 2015) = 31 days of January + 28 days of Feb (2015 is not a leap year) + 14 days of March = 73 days Payment for deceased :  Partner payment for deceased partner either in lump sum or in installments. a.  When payment is made in full (lump sum) Accounting entry in this case will be Deceased Partner’s Executor A/c    Dr. To Bank A/c b.  When Payment is made in installments. When payment is made in installments interest is paid on installments at agreed price or @ 6% per annum. Journal entries are : (i)  When interest is allowed Interest A/c   Dr. To Deceased Partner’s Executor A/c (ii)  When installment is paid : Deceased partner’s Executors A/c  Dr. To Bank A/c   (interest & installment amount)

Problem 3 :  The balance sheet of PQ & R as 31 st  Dec.2012 was as follows.

The profit ratio was 3:2:1 R died on 30 th  April 2013. The partnership deed provides that : a. Goodwill is to be calculate on the basis of 3 years purchase of preceding 5 years average profits. The profits were 2012. Rs. 2,40,000, 2011 Rs. 1,60,000, 2010 Rs. 2,00,000 2009 Rs. 1,00,000 and 2008. Rs. 50,000. b. Deceased partner should be given share of profits upto the date of death on the basis of previous your profits. c. The assets have been revalued as under Stock Rs. 1,00,000 Debtors Rs. 3,50,000. A bill for Rs. 6000 was found worthless. d. A sum of Rs. 72,333 was paid immediately to R’s executor & balance is paid in two equal installments (annual) with interest of 10% p.a. on outstanding amount. 1st installment was paid on 30 th  April 2014. Prepare Revolution account & R’s Executor account till it is finally settled. Accounts are closed on 31 st  December each year. Solution : Revaluation Account

Working Note : Average Profit = 2,40,000 + 1,60,000+2,00,000+1,00,000+50,000 = Rs. 1,50,000 Goodwill =  = Rs. 4,50,000 R’s share =  Contribution by P&Q in ratio 3:2 P’s share =  = 45000 Q’s share  Rs. 30,000 R’s share of profits =  = Rs. 13,333

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It is the ratio in which the old partners surrender a part of their share of profits in favour of a new partner.

It is the ratio in which the remaining partners acquire the outgoing partner’s share of profit

At the time of admission of new partner

At the time retirement or death of a partner.

Sacrificing Ratio = Old Ratio – New ratio

Gaining Ratio = New Ratio – Old Ratio

New partners share of goodwill is divide between old partners in this ratio.

Retiring or deceased partner’s share of goodwill is paid by the continuing partners in the ratio.

M’s capital A/c                                                         Dr.  N’s capital A/c                                                     Dr. P’s capital A/c                                                    Dr. To Goodwill A/c (Being the existing goodwill written off in old ratio i.e. 1:1:1)

9000  6,000 6,000       8,000 2,000

M’s capital A/c                                                         Dr.  N’s capital A/c                                                     Dr. To P’s Capital A/c (Being adjustment made for goodwill on retirement in giving ratio i.e., 4 : 1)

R’s capital A/c                                                         Dr.  To T’s capital A/c                                                Dr. To T’s capital A/c (T’s share of goodwill adjustment in gaining  ratio i.e. 1:1)

General Reserve  A/c                                              Dr.  P & L A/c                                                             Dr. To X’s capital A/c                                           Dr. To Y’s capital A/c To Z’s capital A/c (Reserve & Surplus amount distributed in old ratio on Y’s retirement)

Workmen Compensation Fund A/c                   Dr.  To P’s capital A/c To Q’s capital A/c To R’s capital A/c To Claim for workmen compensation fund A/c (Excess amount in Workmen Compensation Fund capital A/cs in old ratio) is transferred to parties

A’s capital A/c                                                                 Dr.  B’s capital A/c                                                    Dr. C’s capital A/c                                                    Dr. To P & L A/c (Loss in P&L A/c written off (in old ratio) on A’s retirement)

2015  Dec 31   2016 Dec 31     2017 Dec 31      

Bank A/c (22,000+6600) Balance c/d    Bank  A/c Balance c/d   Bank A/c (Final Payment)  

2015  Dec 31   2015 Jan 1   2017 Jan 1   Dec 31

B’s Capital A/c  By Interest A/c (10% of 66,000)   Balance b/d Br. Interest A/c (10% of 44,000)   Balance b/d Interest A/c (10% of 22,000)  

New Capital based on New Ratio i.e. 2:1 (total being 1,20,000)  Existing capital after adjustments Cash is being brought or paid off

Bank A/c                                                               Dr.  To Y’s Capital A/c (Amount to be brought in by Y)

Z’s Capital A/c                                                      Dr.  To Bank A/c (Amount to be withdrawn by Y)

Profit and Loss Suspense a/c                                  Dr.  To A’s Capital A/c (A’s share of profit transferred to his capital A/c

P&L Suspense A/c                                                    Dr.  To A’s Capital A/c (Being A’s share of profit till date of his death transferred to his capital A/c

Creditors  Bill Payable Outstanding Rent Provision for Legal Cluim Capital : Vijay                        92,000 Vivek                       60,000 Vinay                           40,000  

54,000  24,000 4,400 12,000         1,92,000

Bank  Debtor                                12,000 Less: Provision for Doubtful                                 800 Stock Furniture Premises

55,000      11,200 18,000 8,200 1,94,000    

To Stock  To Provision for legal Claim To Profit Transferred Vijay                          3,080 Vivek                         3,080 Vinay                             1,540  

By  Premises  By Furniture By Provision For doubtful debts

Vivek’s Capital  Vivek’s Loan Bank     Balance c/d  

By Balance  b/d  By Revaluation A/c By Vijay’s Capital By Vinay’s Capital    

Creditors  Bill Payable Outstanding Rent Provision for legal claims Vijay’s Vivek’s Vinay’s  

54,400  24,000 4,400 14,400 50,000 82,280 35,140

Bank  Debtors                           12,000 Less provision                         600 Stock Furniture Premises

22,920    11,400 16,200 10,000 2,03,700

Capitals :  M                             70,000 N                              70,000 O                                 70,000 General Reserve Creditors    

Plant and machinery  Stock Sundry Debtors Cash at Bank Cash in Hand

60,000  30,000 95,000 40,000 35,000

General Reserve  A/c                                           Dr.  To N’s Capital A/c (Being transfer of N’s share of general reserve of his Capital A/c)

10,000        700       30,000 30,000     12,000       1,52,700

  10,000       700         60,000     12,000       1,52,700

Interest on Capital A/c                                        Dr.  To N’s Capital A/c (Being interest 5% p.a. credited to N’s Capital A/c upto 14/03.2010)

M’s Capital A/c                                                     Dr.  O’s Capital A/c                                                     Dr. To N’s Capital A/c (Being goodwill adjusted in gaining ratio i.e. 1:1)

Profit and Loss Suspense’s  A/c                         Dr.  To N’s Capital A/c (Being  the transfer to N’s share of profit to his capital A/c)

N’s Capital A/c                                                     Dr.  To N’s Executor A/c (Being the transfer of amount due to N’s executor A/c)

By  Balance b/d  By General Reserve A/c By Interest on Capital A/c

By  M’s Capital A/c By  O’s Capital A/c By Profit & Loss


70,000  10,000   700 30,000 30,000         12,000

Bill Payable  Employees Provident Fund Workmen compensation reserve Loan Capitals Accounts: P                           2,27,500 Q                           1,52,500 R                              1,20,000    

20,000  50,000 90,000 1,71,000       5,00,000

Cash at Bank  Bills Receivable Stock Sundry Debtors Furniture Plant & Machinery Building Advertisement Suspense  

1,58,000  8,000 90,000 1,60,000 20,000 65,000 3,00,000 30,000

To provision for Doubtful debts  To Furniture To Plant & Machinery To Bill Receivable To Profits transferred to P’s capital A/c                     12,000 Q’s capital A/c                      8,000 R’s capital A/c                          4000  

10,000  5,000 15,000 6,000       24,000

To advertisement    A/c 

To R’s Executor A/c

By Balance b/d  By workmen Compensation reserve By Revaluation A/c By P’s Capital A/c (goodwill) By Q’s capital A/c (goodwill) By P&L Suspense  A/c

1,20,000    15,000 4,000   45,000   30,000 13,333

3.4.13  31.12.13     30.4.14     31.12.14         30.4.15

To Bank A/c  To Balance c/d     To Bank A/c  75000 15,000   To Balance c/d       To Bank A/c 75,000 Add Interest         7,500    

30.4.13  31.12.13   1.1.14   30.4.14             1.1.15 30.4.15

By R’s capital A/c  By interest A/c

By Balance b/d By interest A/c

   5000 Add

      5000 By Balance b/d By interest A/c