NCERT Solution For Class 12 Accountancy Chapter 4 - Reconstitution Of A Partnership Firm - Retirement/Death Of A Partner

NCERT Solutions are said to be an extremely helpful book while preparing for the CBSE Class 12 Accountancy examinations. This study material owns a deep knowledge and the Solutions collected by the subject matter wizards are no distinct.

NCERT Solution For Class 12 Accountancy Chapter 4 – Reconstitution Of A Partnership Firm – Retirement/Death Of A Partner furnishes us with an all-inclusive data to all the concepts. As the students would have learnt the basic fundamentals about the subject of accountancy in class 11, this curriculum for class 12 is a continual part of it; which explains the concepts in a great way.

Download PDF Of Ncert Solution For Class 12 Accountancy Chapter 4 – Reconstitution Of A Partnership Firm – Retirement/Death Of A Partner

 

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Access the solution for class 12 Accountancy Chapter 4 – Reconstitution Of A Partnership Firm – Retirement/Death Of A Partner

Short Questions for NCERT Accountancy Solutions Class 12 Part 1 Chapter 4

1. What are the different ways in which a partner can retire from the firm?

Here are the different ways:

1. For a partner to retire consent of firm’s co-partners is required. A partner can retire if all partners agree with the decision to retire.

2. A partner can express his desire to retire by issuing a notice to the firm in case there is a written agreement.

3. A partner can retire by giving a written notice to all other partners in absence.

2. Write the various matters that need adjustments at the time of retirement of partner/partners.

At the time of retirement of partner/partners, following matters needs adjustment:

1. Determining new gaining ratio of the partners who are remaining in the firm.

2. Determine new ratio of firms remaining partners.

3. Determine goodwill of the firm and ensure its proper accounting treatment

4. Revaluating liabilities and assets of the new firm.

5. Distributing among all the partners the accumulated profits and losses, along with reserves.

6. Retiring partner’s settlement

7. Revised calculation of capital accounts of remaining partners and their new and updated profit sharing ratio.

8. Joint life policy treatment.

3. Distinguish between sacrificing ratio and gaining ratio.

Basis of Difference

Sacrificing ratio

Gaining Ratio

1. Meaning

The ratio where a partner of a firm agree to sacrifice the profit share and make it available for new partner.

That ratio in which a partner obtains the profit share from the partner who is leaving the firm.

2. Calculation

Calculated as difference between old and new ratio

Calculated as difference between new and old ratio

3. Time

Calculation done at the admission of a new partner

Calculation done at the retirement/death of a partner.

4. Objective

It is used to determine the profit and loss share that is sacrificed by the current partners at the time of joining of new partner.

It is used to determine profit and loss share that is obtained by the existing partners when a partner retires/becomes deceased

5. Effect

Existing partners profit share is reduced

Continuing partner profit share is increased.

 

4. Why do firm revaluate assets and reassess their liabilities on retirement or on the event of death of a partner?

As a partner retires or is taken away by death, it becomes critical to determine the liabilities and assets value on the current date to get a fair idea about its true worth. Revaluation becomes essential as liabilities and assets may increase or decrease in value as time passes. It may also happen that certain liabilities and assets had remained unrecorded the last time books are updated. As a partner retires/ death happens, it may have a positive/negative impact on the value of firm’s liabilities and assets. Therefore, it is a good idea to revaluate the value so that the true profit/loss can be determined so that it can be share d among partners as per sharing ratio as determined at the time of setting up partnership.

5. Why a retiring/deceased partner is entitled to a share of goodwill of the firm?

A firm earns goodwill by the efforts of the partners and is regarded as one of the most important intangible asset. After a partner retires or is dead, the good work that was done by that partner should be acknowledged and hence a proper compensation should be provided to the partner in form of a part of goodwill of firm.

Long Questions for NCERT Accountancy Solutions Class 12 Part 1 Chapter 4

1. Explain the modes of payment to a retiring partner.

Payment modes are discussed below:

 

1. When amount due to retiring partner is paid back in a lump sum amount, on the day of retirement, journal entries are as mentioned below

 

Retiring Partner’s Capital A/c

Dr.

 

To Cash/Bank A/c

 

(Payment made to the retired partner)

 

 

2. Amount to be paid to retiring partner can be paid in installments to the loan account, which helps partner earn interest on loan.

Retiring Partner’s Capital A/c

Dr.

 

To Retiring Partner’s Loan A/c

 

(Capital account balance of Retiring partner transferred to account to the Loan account of retiring partner).

 

 

3. Part Payment: When the retiring partner needs to be paid some amount in cash and some as equal installments, then a certain sum of money is paid on day of retirement and rest of the sum is paid on a monthly basis to partners loan account. Following entries help show this type of transaction.

Retiring Partner’s Capital A/c (total due amount payable to partner) Dr.

To Retiring Partner’s Loan A/c (amount transferred to loan account)

To Cash A/c (part payment in form of cash)

(Part payment to retiring partner in cash as well as transfer to loan account)  

 

2. How will you compute the amount payable to a deceased partner?

To determine the amount payable to the deceased partner, the legal executor is entitled to calculate that. It is arrived at posting these items in debit and credit side respectively.

Items to be posted on debit side:

1. Credit balance of deceased partner’s capital account.

2. Profit share of the partner till his/her death

3. Share of goodwill of the partner.

4. Any gain on revaluation of liabilities and assets

5. Any salary or commission earned, till the date of demise.

6. Share in accumulated reserves and profit account

7. Any interest earned on capital

8. Share in life insurance policy

Items to be posted on credit side:

1. Deceased Partners debit balance from capital account.

2. Total drawings done till death of partner

3. Interest charged on drawings if any till the day of death.

4. Reduction in profit share or loss up to date of death.

5. Share of accumulated loss for the partner and firm

A legal executor balances excess of credit over the debit side of a deceased partner.

 

Deceased Partner’s Capital Account

Dr.

 

 

 

 

 

 

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

 

Revaluation A/c (Loss)

 

 

 

Balance b/d

 

 

 

Profit and Loss Suspense A/c

(Loss share till the date of death)

 

 

 

Profit and Loss Suspense A/c

(Share of profit up to the date of the death)

 

 

 

 

 

 

 

Goodwill

 

 

 

Accumulated Losses A/c

 

 

 

Reserves and Profits

 

 

 

Goodwill A/c (Written off)

 

 

 

Revaluation A/c (gain)

 

 

 

Partner Executor’s A/c

 

 

 

Joint Life Policy A/c

 

 

 

(Balancing Figure)

 

 

 

Interest on Capital A/c

 

 

 

 

 

 

 

Salary A/c

 

 

 

 

 

 

 

Commission A/c

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3. Explain the treatment of goodwill at the time of retirement or on the event of death of a partner?

Goodwill is subjected to treatment on these two conditions:

1. When goodwill is present in the books of firm.

2. When goodwill is not present in books of the firm

1. When goodwill is present in books

The first step is to write off the goodwill if it is present in the books and must be distributed among the partners in the firm in the agreed profit sharing ratio. The journal entry will be like:

All Partners’ Capital A/c Dr.

To Goodwill A/c

(Goodwill written off among partners)

The next step will be adjusting goodwill using partners’ capital account with the share of goodwill of the deceased or retired partner

Remaining Partner’s Capital A/c Dr.

To Retiring/Deceased Partner’s Capital A/c (partners’ capital account debited and retiring/deceased partners account credited)

2. When goodwill is not present in books of the firm

As goodwill is not present in the books of firm, it gets adjusted from the partners’ capital account along with the deceased/retired partners share. Following entry is passed:

Remaining Partner’s Capital A/c Dr.

To Retiring/Deceased Partner’s Capital A/c

(Partners’ capital account debited and retiring/deceased partners account credited)

 

 

4. Discuss the various methods of computing the share in profits in the event of death of a partner.

In the unlikely event of the death of a partner during the year, the executor is entitled for a profit sharing up to the date of death of the partner. Profit sharing can be calculated by two methods:

1. On Time Basis: In this method, profit earned till the date of partners death is considered for calculation on the basis of last year/year’s profit or average profit earned in last few years. It is assumed that profit will remain constant throughout the year and the deceased partner will be eligible for profit share which is proportionate till the date of partner’s death.

Share of Deceased Partner in Profit =

Chp 4-1

2) On the sale basis: Calculation of profit is based on last year’s sale as per this method and also it is assumed that net profit of current year is similar to last year’s profits.

Share of Deceased Partner’s Profit =
Chp 4-2×Sales counted from the beginning of the current year up to the date of death × Share of deceased partner

Numerical Questions for NCERT Accountancy Solutions Class 12 Part 1 Chapter 4

1. Aparna, Manisha and Sonia are partners sharing profits in the ratio of 3:2:1. Manisha retires and goodwill of the firm is valued at ₹ 1, 80,000. Aparna and Sonia decided to share future in the ratio of 3:2. Pass necessary Journal entries.

 

 Books of Aparna, and Sonia

 

Journal

 

 

Date

Particulars

L.F.

Amount

Amount

 

Aparna’s Capitals A/c

Dr.

 

18,000

 

 

Sonia’s Capital A/c

Dr.

 

42,000

 

 

To Manisha’s Capital A/c

 

 

 

60,000

 

(Manisha’s share of goodwill adjusted to Aparna’s and

Sonia’s Capital Account in their gaining ratio )

 

 

 

 

Working Notes:

1. Manisha’s share in goodwill:

Total goodwill of the firm × Retiring Partner’s Share =
Chp 4-3

2. Gaining Ratio = New Ratio − Old Ratio

Aparna Gaining share 
Chp 4-4

Chp 4-5

Gaining Ratio between Aparna and Sonia = 3: 7

3. Aparna’s share in goodwill
Chp 4-6

Sonia’s share in goodwill 
f

2. Sangeeta, Saroj and Shanti are partners sharing profits in the ratio of 2:3:5. Goodwill is appearing in the books at a value of ₹ 60,000. Sangeeta retires and goodwill is valued at ₹ 90,000. Saroj and Shanti decided to share future profits equally. Record necessary Journal entries.

 

 

 Books of Saroj and Shanti

 

Journal

 

 

Date

Particulars

L.F.

Amount

Amount

 

Sangeeta’s Capital A/c

Dr.

 

12,000

 

 

Saroj’s Capital A/c

Dr.

 

18,000

 

 

Shanti’s Capital A/c

Dr.

 

30,000

 

 

To Goodwill A/c

 

 

60,000

 

(Goodwill written off)

 

 

 

 

 

 

 

 

 

Saroj’s Capital A/c

Dr.

 

18,000

 

 

To Sangeeta’s Capital A/c

 

 

 

18,000

 

(Sangeeta’s share of goodwill adjusted to Saroj’s Capital

Account in her gaining ratio)

 

 

 

 

 

 

 

 

 

Working Notes:

 

1. Sangeeta’s share of goodwill.

Total goodwill of the firm ´ Retiring Partner’s share Chp 4-8

 

2. Gaining Ratio = New Ratio – Old Ratio

Saroj’s Gaining Share Chp 4-9

Shanti’s Gaining Share Chp 4-10

 

3. Himanshu, Gagan and Naman are partners sharing profits and losses in the ratio of 3:2:1. On March 31, 2017, Naman retires.

The various liabilities and assets of the firm on the date were as follows:

Cash ₹ 10,000, Building ₹ 1, 00,000, Plant and Machinery ₹ 40,000, Stock ₹ 20,000, Debtors ₹ 20,000 and Investments ₹ 30,000.

The following was agreed upon between the partners on Naman’s retirement:

(i)

Building to be appreciated by 20%.

(ii)

Plant and Machinery to be depreciated by 10%.

(iii)

A provision of 5% on debtors to be created for bad and doubtful debts.

(iv)

Stock was to be valued at ₹ 18,000 and Investment at ₹ 35,000.

Record the necessary journal entries to the above effect and prepare the Revaluation Account.

 

 Books of Himanshu and Gagan

 

Journal

 

Date

Particulars

L.F.

Amount

Amount

 

Building A/c

Dr.

 

20,000

 

 

Investment A/c

Dr.

 

5,000

 

 

To Revaluation A/c

Dr.

 

 

25,000

 

(Value of Building and Investment increased at the time

of Naman’s retirement)

 

 

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

7,000

 

 

To Plant and Machinery A/c

 

 

 

4,000

 

To Provision for Bad and Doubt Debts A/c

 

 

1,000

 

To Stock A/c

 

 

 

2,000

 

(Assets revalued and Provision for Bad and Doubtful Debts

made at the time of Naman’s retirement)

 

 

 

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

18,000

 

 

To Himanshu’s Capital A/c

 

 

 

9,000

 

To Gagan’s Capital A/c

 

 

 

6,000

 

To Naman’s Capital A/c

 

 

 

3,000

 

(Profit on revaluation transferred to all Partners’ Capital

Accounts in their old profit sharing ratio)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revaluation Account

 

Dr.

 

Cr.

 

Particular

Amount

Particular

Amount

Plant and Machinery

4,000

Building

20,000

Stock

2,000

Investment

5,000

Provision for Bad and Doubtful Debts

1,000

 

 

Profit transferred to Capital Account:

 

 

 

Himanshu

9,000

 

 

 

Gagan

6,000

 

 

 

Naman

3,000

18,000

 

 

 

 

25,000

 

25,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4. Naresh, Raj Kumar and Bishwajeet are equal partners. Raj Kumar decides to retire. On the date of his retirement, the Balance Sheet of the firm showed the following: General Reserve’s ₹ 36,000 and Profit and Loss Account (Dr.) ₹ 15,000.

Pass the necessary journal entries to the above effect.

 

 

 Books of Naresh and Bishwajeet

 

Journal

 

Date

Particulars

L.F.

Amount

Amount

 

General Reserve A/c

Dr.

 

36,000

 

 

To Naresh’s Capital A/c

 

 

 

12,000

 

To Raj Kumar’s Capital A/c

 

 

 

12,000

 

To Bishwajeet’s Capital A/c

 

 

 

12,000

 

(General Reserve distributed among old partner in old ratio)

 

 

 

 

 

 

 

 

 

 

 

Naresh’s Capital A/c

Dr.

 

5,000

 

 

Raj Kumar’s Capital A/c

Dr.

 

5,000

 

 

Bishwajeet’s Capital A/c

Dr.

 

5,000

 

 

To Profit and Loss A/c

 

 

 

15,000

 

(Debit balance of Profit and Loss Account written off)

 

 

 

 

 

 

 

 

 

5. Digvijay, Brijesh and Parakaram were partners in a firm sharing profits in the ratio of 2:2:1. Their Balance Sheet as on March 31, 2017 was as follows:

 

Liabilities

Amount

Assets

Amount

Creditors

49,000

Cash

8,000

Reserves

18,500

Debtors

19,000

Digvijay’s Capital

82,000

Stock

42,000

Brijesh’s Capital

60,000

Buildings

2,07,000

Parakaram’s Capital

75,500

Patents

9,000

 

2,85,000

 

2,85,000

 

 

 

 

 

Brijesh retired on March 31, 2017 on the following terms:

(i)    Goodwill of the firm was valued at ₹ 70,000 and was not to appear in the books.

(ii)   Bad debts amounting to ₹ 2,000 were to be written off.

(iii)  Patents were considered as valueless.

Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of Digvijay and Parakaram after Brijesh’s retirement.

 

 

 

 

 Books of Digvijay and Parakaram

 

Revaluation Account

 

Dr.

 

Cr.

 

Particular

Amount

Particular

Amount

Bad Debts

2,000

 

 

Patents

9,000

Loss transferred to Capital Account:

 

 

 

Digvijay

4,400

 

 

Brijesh

4,400

 

 

Parakaram

2,200

 

 

 

 

 

11,000

 

11,000

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ Capital Account

 

Dr.

 

Cr.

 

Particularss

Digvijay

Brijesh

Parakaram

Particularss

Digvijay

Brijesh

Parakaram

Brijesh’s Capital A/c

18,667

 

9,333

Balance b/d

82,000

60,000

75,500

Revaluation (Loss)

4,400

4,400

2,200

Digvijay’s Capital A/c

 

18,667

 

Brijesh’s Loan

 

91,000

 

Parakaram’s Capital A/c

 

9,333

 

Balance c/d

66,333

 

67,667

Reserves

7,400

7,400

3,700

 

89,400

95,400

79,200

 

89,400

95,400

79,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet as on March 31, 2017 

 

Liabilities

Amount

Assets

Amount

Creditors

49,000

Cash

8,000

Brijesh’s Loan

91,000

Debtors

19,000

 

 

 

Less: Bad Debts

2,000

17,000

Digvijay’s Capital A/c

66,333

Stock

42,000

Parakaram’s Capital A/c

67,667

Buildings

2,07,000

 

2,74,000

 

2,74,000

 

 

 

 

 

 

 

 

 

 

 

Note: As sufficient balance is not available to pay the amount due to Brijesh, the balance of his Capital Account transferred to his Loan Account.

 

Working Note:

 

1. Brijesh’s Share of Goodwill

Total goodwill of the firm ´ Retiring Partner’s Share Chp 4-11

 

2. Gaining Ratio = New Ratio – Old Ratio

 

Digvijay’s ShareChp 4-12

 

Parakaram’s ShareChp 4-13

 

Gaining ratio between Digvijay and Parakaram = 4: 2 or 2: 1

 

 

 

6. Radha, Sheela and Meena were in partnership sharing profits and losses in the proportion of 3:2:1. On April 1, 2017, Sheela retires from the firm. On that date, their Balance Sheet was as follows:

 

Liabilities

Amount

Assets

Amount

Trade Creditors

 

3,000

Cash-in-Hand

1,500

Bills Payable

 

4,500

Cash at Bank

7,500

Expenses Owing

 

4,500

Debtors

15,000

General Reserve

 

13,500

Stock

12,000

Capitals:

 

 

Factory Premises

22,500

Radha

15,000

 

Machinery

8,000

Sheela

15,000

 

Losse Tools

4,000

Meena

15,000

45,000

 

 

 

 

70,500

 

70,500

 

 

 

 

 

 

The terms were:

a) Goodwill of the firm was valued at ₹ 13,500.

b) Expenses owing to be brought down to ₹ 3,750.

c) Machinery and Loose Tools are to be valued at 10% less than their book value.

d) Factory premises are to be revalued at ₹ 24,300.

Prepare:

1. Revaluation account

2. Partner’s capital accounts and

3. Balance sheet of the firm after retirement of Sheela.

 

 

 

Books of Radha and Meena

 

Revaluation Account

 

Dr.

Cr.

 

Particulars

Amount

Particulars

Amount

Machinery

800

Expenses Owing

750

Loose Tools

400

Factory Premises

1,800

Profit transferred to Capital Account:

 

 

 

Meena

675

 

 

 

Radha

450

 

 

 

Sheela

225

1,350

 

 

 

2,550

 

2,550

 

 

 

 

 

 

 

 

 

 

  

Parters’ Capital Account

 

Dr.

Cr.

 

Particulars

Radha

Sheela

Meena

Particulars

Radha

Sheela

Meena

Sheela’s Capital A/c

3,375

 

1,125

Balance b/d

15,000

15,000

15,000

Sheela’s Loan A/c

 

24,450

 

General Reserve

6,750

4,500

2,250

Balance c/d

19,050

 

16,350

Revaluation (Profit)

675

450

225

 

 

 

 

Radha’s Capital A/c

 

3,375

 

 

 

 

 

Meena’s Capital A/c

 

1,125

 

 

22,425

24,450

17,475

 

22,425

24,450

17,475

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet as on April 01, 2017

 

 

Liabilities

Amount

Assets

Amount

Trade Creditors

 

3,000

Cash in Hand

1,500

Bills Payable

 

4,500

Cash at Bank

7,500

Expenses Owing

 

3,750

Debtors

15,000

Sheela’s Loan

 

24,450

Stock

12,000

 

 

 

Factory Premises

24,300

Capitals:

 

 

Machinery

8,000

 

Radha

19,050

 

Less: 10%

(800)

7,200

Meena

16,350

35,400

Loose Tools

4,000

 

 

 

 

Less: 10%

(400)

3,600

 

 

71,100

 

71,100

 

 

 

 

 

 

 

 

 

 

 

 

Working Notes:

Working Notes:

1) Sheela’s share of goodwill

Total goodwill of the firm × Retiring Partner’s share =13,500×26=4, 50013x, 500×26=4,500

2) Gaining Ratio = New Ratio − Old Ratio

Radha’s Share 
Chp 4-14

Meena’s Shares 
Chp 4-15

Gaining Ratio between Radha and Meena = 6 : 2 or 3 : 1

7. Pankaj, Naresh and Saurabh are partners sharing profits in the ratio of 3:2:1. Naresh retired from the firm due to his illness. On that date the Balance Sheet of the firm was as follows:

Books of Pankaj, Naresh and Saurabh

 

Balance Sheet as on March 31, 2017

 

Liabilities

Amount ₹

Assets

Amount ₹

General Reserve

12,000

Bank

7,600

Sundry Creditors

15,000

Debtors

6,000

 

Bills Payable

12,000

Less: Provision for Doubtful Debt

400

5,600

Outstanding Salary

2,200

 

 

Provision for Legal Damages

6,000

Stock

9,000

Capitals:

 

Furniture

41,000

Pankaj

46,000

 

Premises

80,000

Naresh

30,000

 

 

 

Saurabh

20,000

96,000

 

 

 

1,43,200

 

1,43,200

 

 

 

 

 

 

 

 

 

 

 

Additional Information

(i) Premises have appreciated by 20%, stock depreciated by 10% and provision for doubtful debts was to be made 5% on debtors. Further, provision for legal damages is to be made for ₹ 1,200 and furniture to be brought up to ₹ 45,000.

(ii) Goodwill of the firm be valued at ₹ 42,000.

(iii) ₹ 26,000 from Naresh’s Capital account be transferred to his loan account and balance be paid through bank; if required, necessary loan may be obtained from Bank.

(iv) New profit sharing ratio of Pankaj and Saurabh is decided to be 5:1.

Give the necessary ledger accounts and balance sheet of the firm after Naresh’s retirement.

Revaluation Account

 

Dr.

Cr.

 

Particulars

Amount

Particulars

Amount

Stock

900

Premises

16,000

Provision for Legal Damages

1,200

Provision for Doubtful Debts

100

Profit transferred to Capital:

 

Furniture

4,000

Pankaj

9,000

 

 

 

Naresh

6,000

 

 

 

Saurabh

3,000

18,000

 

 

 

20,100

 

20,100

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ Capital Accounts

 

Dr.

Cr.

 

Particulars

Pankaj

Naresh

Saurabh

Particulars

Pankaj

Naresh

Saurabh

Naresh’s Capital A/c

14,000

 

 

Balance b/d

46,000

30,000

20,000

Naresh’s Loan A/c

 

26,000

 

General Reserve

6,000

4,000

2,000

Bank

 

28,000

 

Revaluation (Profit)

9,000

6,000

3,000

Balance c/d

47,000

 

25,000

Pankaj’s Capital A/c

 

14,000

 

 

61,000

54,000

25,000

 

61,000

54,000

25,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank Account

 

Cr.

 

Particulars

Amount

Particulars

Amount

Balance b/d

7,600

Naresh’s Capital A/c

28,000

Bank Loan (Balancing Figure)

20,400

 

 

 

 

 

 

 

28,000

 

28,000

 

 

 

 

 

 

 

 

 

 

Balance Sheet as on March 31, 2017

 

Liabilities

Amount

Assets

Amount

Sundry Creditors

15,000

Debtors

6,000

 

Bills Payable

12,000

Less: Provision for Doubtful Debts

300

5,700

Bank Loan/overdraft

20,400

Stock

8,100

Outstanding Salaries

2,200

Furniture

45,000

Provision for Legal Damages

7,200

Premises

96,000

Naresh’s Loan

26,000

 

 

Capitals:

 

 

 

Pankaj

47,000

 

 

 

Saurabh

25,000

72,000

 

 

 

1,54,800

 

1,54,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8. Puneet, Pankaj and Pammy are partners in a business sharing profits and losses in the ratio of 2:2:1 respectively. Their balance sheet as on March 31, 2017 was as follows:

 

Books of Puneet, Pankaj and Pammy

 

 

Balance Sheet as on March 31, 2017

 

 

Liabilities

Amount

Assets

Amount

Sundry Creditors

1,00,000

Cash at Bank

20,000

Capital Accounts:

 

Stock

30,000

Puneet

60,000

 

Sundry Debtors

80,000

Pankaj

1,00,000

 

Investments

70,000

Pammy

40,000

2,00,000

Furniture

35,000

Reserve

 

50,000

Buildings

1,15,000

 

3,50,000

 

3,50,000

 

 

 

 

 

 

 

 

 

 

 

Mr. Pammy died on September 30, 2017. The partnership deed provided the following:

(i)

The deceased partner will be entitled to his share of profit up to the date of death calculated on the basis of previous year’s profit.

(ii)

He will be entitled to his share of goodwill of the firm calculated on the basis of 3 years’ purchase of average of last 4 years’ profit. The profits for the last four financial years are given below: for 2013–14; ₹ 80,000; for 2014–15, ₹ 50,000; for 2015–16, ₹ 40,000; for 2016–17, ₹ 30,000.

The drawings of the deceased partner up to the date of death amounted to ₹ 10,000. Interest on capital is to be allowed at 12% per annum.

Surviving partners agreed that ₹ 15,400 should be paid to the executors immediately and the balance in four equal yearly instalments with interest at 12% p.a. on outstanding balance.

Show Mr. Pammy’s Capital account, his Executor’s account till the settlement of the amount due.

 

 

 

 

Pammy’s Capital Account

 

 

Dr.

Cr.

 

Particulars

Amount

Particulars

Amount

Drawings

10,000

Balance b/d

40,000

Pammy Executor’s A/c

75,400

Profit and Loss (Suspense)

3,000

 

 

Puneet’s Capital A/c

15,000

 

 

Pankaj’s Capital A/c

15,000

 

 

Interest on Capital

2,400

 

 

Reserve

10,000

 

85,400

 

85,400

 

 

 

 

 

 

 

 

 

 

 

Pammy’s Executor Account

 

Dr.

Cr.

 

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2017-18

 

 

 

2017-18

 

 

 

Sep. 30

Bank

 

15,400

Sep. 30

Pammy’s Capital A/c

 

75,400

Mar. 31

Balance c/d

 

63,600

Mar. 31

Interest

 

3,600

 

 

 

79,000

 

 

 

79,000

 

 

 

 

 

 

 

 

2018-19

 

 

 

2018-19

 

 

 

Sep. 30

Bank

 

22,200

April 01

Balance b/d

 

63,600

 

(15,000+3,600+3,600)

 

 

Sep. 30

Interest

 

3,600

Mar. 31

Balance c/d

 

47,700

Mar. 31

Interest

 

2,700

 

 

 

69,900

 

 

 

69,900

 

 

 

 

 

 

 

 

2019-20

 

 

 

2019-20

 

 

 

Sep. 30

Bank

 

20,400

April 01

Balance b/d

 

47,700

Mar. 31

Balance c/d

 

31,800

Sep. 30

Interest

 

2,700

 

 

 

 

Mar. 31

Interest

 

1,800

 

 

 

52,200

 

 

 

52,200

 

 

 

 

 

 

 

 

2020-21

 

 

 

2020-21

 

 

 

Sep. 30

Bank

 

18,600

April 01

Balance b/d

 

31,800

 

(15,000+1,800+1,800)

 

 

Sep. 30

Interest

 

1,800

Mar. 31

Balance c/d

 

15,900

Mar. 31

Interest

 

900

 

 

 

34,500

 

 

 

34,500

 

 

 

 

 

 

 

 

2021-22

 

 

 

2021-22

 

 

 

Sep. 30

Bank

 

16,800

April 01

Balance b/d

 

15,900

 

(15,000+900+900)

 

 

Sep. 30

Interest

 

900

 

 

 

16,800

 

 

 

16,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working Notes:

 

1) Pammy’s Share of Profit

Previous Year’s Profit ´ Proportionate Period ´ Share of Deceased Partner Chp 4-17

 

2) Pammy’s Share of Goodwill

 

Goodwill of the firm = Average Profit ´ Numbers of Year’s Purchase

 

Average Profit Chp 4-18

 

Goodwill of the firm = 50,000 ´ 3 = ₹ 1,50,000

 

Chp 4-19

 

3) Gaining Ratio = New Ratio – Old Ratio

 

Puneet’s ShareChp 4-20

 

Pankaj’s ShareChp 4-21

 

Gaining Ratio between Puneet and Pankaj = 2 : 2 or 1 : 1

 

4) Interest on Capital for 6 months, i.e. from April 1, 2007 to September 30, 2007

 

Amount of Capital ´ Rate of Interest ´ Period Chp 4-22

 

5) Interest Amount

The firm closes its books every year on March 31, while instalments to Pammy’s Executor are paid on September 30 every year.

Amount outstanding on 30 September = 75,400 – 15,400 = ₹ 60,000

Chp 4-23

 

 9. Following is the Balance Sheet of Prateek, Rockey and Kushal as on March 31, 2017.

 

Books of Prateek, Rockey and Kushal

 

 

Balance Sheet as on March 31, 2017

 

 

Liabilities

Amount

Assets

Amount

Sundry Creditors

16,000

Bills Receivable

16,000

General Reserve

16,000

Furniture

22,600

Capital Accounts:

 

Stock

20,400

Prateek

30,000

 

Sundry Debtors

22,000

Rockey

20,000

 

Cash at Bank

18,000

Kushal

20,000

70,000

Cash in Hand

3,000

 

1,02,000

 

1,02,000

 

 

 

 

 

 

 

 

 

 

 

Rockey died on June 30, 2017. Under the terms of the partnership deed, the executors of a deceased partner were entitled to:

a) Amount standing to the credit of the Partner’s Capital account.

b) Interest on capital at 5% per annum.

c) Share of goodwill on the basis of twice the average of the past three years’ profit and

d) Share of profit from the closing date of the last financial year to the date of death on the basis of last year’s profit.

Profits for the year ending on March 31, 2015, March 31, 2016 and March 31, 2017 were ₹ 12,000, ₹ 16,000 and ₹ 14,000 respectively. Profits were shared in the ratio of capitals.

Pass the necessary journal entries and draw up Rockey’s capital account to be rendered to his executor.

 

 

 

 Books of Prateek and Kushal

 

Journal

 

Date

Particulars

L.F.

Amount

Amount

2017

 

 

 

 

 

June 30

Interest on Capital A/c

Dr.

 

250

 

 

Profit and Loss (Suspense) A/c

Dr.

 

1,000

 

 

General Reserve A/c

Dr.

 

4,571

 

 

To Rockey’s Capital A/c

 

 

 

5,821

 

(Share of profit, interest on capital and share of General

Reserve credited to Rockey’s Capital Account)

 

 

 

 

 

 

 

 

 

 

June 30

Prateek’s Capital A/c

Dr.

 

4,800

 

 

Kushal’s Capital A/c

Dr.

 

3,200

 

 

To Rockey’s Capital A/c

 

 

 

8,000

 

(Rockey’s share of goodwill adjusted to Prateek’s and

Kushal’s Capital Account in their gaining ratio, 3:2)

 

 

 

 

 

 

 

 

June 30

Rockey’s Capital A/c

Dr.

 

33,821

 

 

To Rockey Executor’s A/c

 

 

 

33,821

 

(Balance of Rockey’s Capital Account transferred to his

Executor’s Account)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rockey’s Capital Account

 

Dr.

Cr.

 

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2017

 

 

 

2017

 

 

 

April 1

Rockey’s Executor A/c

 

33,821

April 1

Balance b/d

 

20,000

 

 

 

 

 

Interest on Capital

 

250

 

 

 

 

 

Profit and Loss (Suspense) A/c

 

1,000

 

 

 

 

 

General Reserve

 

4,571

 

 

 

 

 

Prateek’s Capital

 

4,800

 

 

 

 

 

Kushal’s Capital

 

3,200

 

 

 

33,821

 

 

 

33,821

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working Notes:

1. Rockey’s Share of Profit = Previous year’s profit × Proportionate Period × Share of Deceased Partner


Chp 4-24

2. Rockey’s Share of Goodwill

Goodwill of a firm = Average profit × Numbers of year’s Purchase

Chp 4-25

Goodwill of a firm = 14,000 × 2 = ₹ 28,000

Chp 4-26

3. Gaining Ratio = New Ratio − Old Ratio

Chp 4-27

Chp 4-28

Gaining Ratio between Prateek and Kushal = 9:4 or 3:2

4. Interest on Capital for 3 months i.e. from April 1, 2017 to June 30, 2017

Amount of × Rate of Interest × Period 
Chp 4-29

 

10. Narang, Suri and Bajaj are partners in a firm sharing profits and losses in proportion of 1/2 , 1/6 and 1/3 respectively. The Balance Sheet on April 1, 2015 was as follows:

 

Books of Suri, Narang and Bajaj

 

Balance Sheet as on April 1, 2015

 

 

Liabilities

Amount

Assets

Amount

Bills Payable

12,000

Freehold Premises

40,000

Sundry Creditors

18,000

Machinery

30,000

Reserves

12,000

Furniture

12,000

Capital Accounts:

 

Stock

22,000

Narang

30,000

 

Sundry Debtors

20,000

 

Suri

20,000

 

Less: Reserve

1,000

19,000

Bajaj

28,000

88,000

for Bad Debt

 

 

 

 

Cash

7,000

 

1,30,000

 

1,30,000

 

 

 

 

 

 

 

 

 

 

 

 

Bajaj retires from the business 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 depreciated by 10% and 7% respectively.

c) Bad Debts reserve is to be increased to ₹ 1,500.

d) Goodwill is valued at ₹ 21,000 on Bajaj’s retirement.

e) The continuing partners have decided to adjust their capitals in their new profit sharing ratio after retirement of Bajaj. 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.

 

 

Revaluation Account

 

Dr.

Cr.

 

Particulars

Amount

Particulars

Amount

Machinery

3,000

Freehold Properties

8,000

Furniture

840

Stock

3,300

Reserve for Bad debts

500

 

 

Capitals:

 

 

 

Narang

3,480

 

 

 

Suri

1,160

 

 

 

Bajaj

2,320

6,960

 

 

 

11,300

 

11,300

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ Capital Account

 

Dr.

Cr.

 

Particulars

Narang

Suri

Bajaj

Particulars

Narang

Suri

Bajaj

Bajaj’s Capital A/c

5,250

1,750

 

Balance b/d

30,000

30,000

28,000

Bajaj’s Loan

 

 

41,320

Reserves

6,000

2,000

4,000

 

 

 

 

Revaluation (Profit)

3,480

1,160

2,320

Balance c/d

34,230

31,410

 

Narang’s Capital A/c

 

 

5,250

 

 

 

 

Suri’s Capital A/c

 

 

1,750

 

39,480

33,160

41,320

 

39,480

33,160

41,320

 

 

 

 

 

 

 

 

Suri’s Current A/c

 

15,000

 

Balance b/d

34,230

31,410

 

 

 

 

 

Narang’s Current A/c

15,000

 

 

Balance c/d

49,230

16,410

 

 

 

 

 

 

49,230

31,410

 

 

49,230

31,410

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet as on April 01, 2015

 

 

Liabilities

Amount

Assets

Amount

Bills Payable

12,000

Free hold Premises

48,000

Sundry Creditors

18,000

Machinery

 

27,000

Bajaj’s Loan

41,320

Furniture

 

11,160

Suri’s Current

15,000

Stock

25,300

Capital Account:

 

Sundry Debtors

20,000

 

Narang

49,230

 

Less: Reserve for Bad Debt

1,500

18,500

Suri

16,410

65,640

Cash

 

7,000

 

 

 

Narang’s Current Account

15,000

 

1,51,960

 

1,51,960

 

 

 

 

 

 

 

 

 

 

 

 

 

Working Notes:

 

1. Bajaj Share in Goodwill = Total Goodwill of the firm ´ Retiring Partner’s Share = Chp 4-30

 

2. Gaining Ratio = New Ratio – Old Ratio

 

Chp 4-31

 

Chp 4-32

 

Gaining Ratio between Narang and Suri = 3:1

 

3. Calculation of New Capitals of the existing partners.

 

Balance in Narang’s Capital

=

34,230

Balance in Suri’s Capital

=

31,410

Total Capital of the New firm after revaluation of assets and

 

 

liabilities and adjustment of  Goodwill and Reserves

=

₹ 65,640

 

Based on new profit sharing ratio of 3:1

Chp 4-33

Chp 4-34

NOTE:

i. In the given Question Suri’s Capital is ₹ 30,000 instead of ₹ 20,000.

ii. Due to insufficient balance in Bajaj’s Capital Account, the amount due to Bajaj is transferred to his Loan Account.

 

 

 

11. The Balance Sheet of Rajesh, Pramod and Nishant who were sharing profits in proportion to their capitals stood as on March 31, 2015:

 

Books of Rajesh, Pramod and Nishant

 

Balance Sheet as on March 31, 2015

 

 

Liabilities

Amount

Assets

Amount

Bills Payable

6,250

Factory Building

12,000

Sundry Creditors

10,000

Debtors

10,500

 

Reserve Fund

2,750

Less: Reserve

500

10,000

Capital Accounts:

 

Bills Receivable

7,000

Rajesh

20,000

 

Stock

15,500

Pramod

15,000

 

Plant and Machinery

11,500

Nishant

15,000

50,000

Bank Balance

13,000

 

69,000

 

69,000

 

 

 

 

 

 

 

 

 

 

 

 

Pramod retired on the date of Balance Sheet and the following adjustments were made:

a) Stock was valued at 10% less than the book value.

b) Factory buildings were appreciated by 12%.

c) Reserve for doubtful debts be created up to 5%.

d) Reserve for legal charges to be made at ₹ 265.

e) The goodwill of the firm be fixed at ₹ 10,000.

f) The capital of the new firm be fixed at ₹ 30,000. The continuing partners decide to keep their capitals in the new profit sharing ratio of 3:2.

Pass journal entries and prepare the balance sheet of the reconstituted firm after transferring the balance in Pramod’s Capital account to his loan account.

  

 

Journal

 

 

Date

Particulars

L.F.

Amount

Amount

2015

 

 

 

 

 

Mar. 31

Revaluation A/c

Dr.

 

1,840

 

 

To Stock A/c

 

 

 

1,550

 

To Reserve for Doubtful Debts A/c

 

 

 

25

 

To Reserve for Legal Charges A/c

 

 

 

265

 

(Assets and Liabilities are revalued)

 

 

 

 

 

 

 

 

 

 

Mar. 31

Factory Building A/c

Dr.

 

1,440

 

 

To Revaluation A/c

 

 

 

1,440

 

( Factory Building appreciated)

 

 

 

 

 

 

 

 

Mar. 31

Rajesh’s Capital A/c

Dr.

 

160

 

 

Pramod’s Capital A/c

Dr.

 

120

 

 

Nishant’s Capital A/c

Dr.

 

120

 

 

To Revaluation A/c

 

 

 

400

 

(Loss on Revaluation adjusted to Partners’ Capital Account)

 

 

 

 

 

 

 

 

Mar. 31

Rajesh’s Capital A/c

Dr.

 

2,000

 

 

Nishant’s Capital A/c

Dr.

 

1,000

 

 

To Pramod Capital’s A/c

 

 

 

3,000

 

(Pramod’s share of goodwill adjusted to Rajesh’s and Nishant’s Capital Account in their gaining ratio)

 

 

 

 

 

 

 

 

 

 

Mar. 31

Reserve Fund A/c

Dr.

 

2,750

 

 

To Rajesh’s Capital A/c

 

 

 

1,100

 

To Pramod’s Capital A/c

 

 

 

825

 

To Nishant’s Capital A/c

 

 

 

825

 

(Reserve Fund distributed all the partners)

 

 

 

 

 

 

 

 

 

 

 

Mar. 31

Pramod’s Capital A/c

Dr.

 

18,705

 

 

To Pramod’s Loan A/c

 

 

 

18,705

 

(Pramod’s Capital transferred to his Loan Account)

 

 

 

 

 

 

 

 

 

 

Mar. 31

Rajesh’s Capital A/c

Dr.

 

940

 

 

Nishant’s Capital A/c

Dr.

 

2,705

 

 

To Rajesh’s Current A/c

 

 

 

940

 

To Nishant’s Current A/c

 

 

 

2,705

 

(Excess in Capital Account is transferred to Current Account)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parters’ Capital Account

 

Dr.

Cr.

 

Particulars

Rajesh

Pramod

Nishant

Particulars

Rajesh

Pramod

Nishant

Revaluation (Loss)

160

120

120

Balance b/d

20,000

15,000

15,000

Pramod’s Capital A/c

2,000

 

1,000

Reserve Fund

1,100

825

825

Pramod’s Loan A/c

 

18,705

 

Rajesh’s Capital A/c

 

2,000

 

Rajesh’s Current A/c

940

 

 

Nishant’s Capital A/c

 

1,000

 

Nishant’s Current A/c

 

 

2,705

 

 

 

 

Balance c/d

18,000

 

12,000

 

 

 

 

 

21,100

18,825

15,825

 

21,100

18,825

15,825

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet as on March 31, 2015

 

 

Liabilities

Amount

Assets

Amount

Bills Payable

6,250

Plant and Machinery

11,500

Sundry Creditors

10,000

Debtors

10,500

 

Reserve for Legal Charges

265

Less: Reserve

(525)

9,975

Pramod’s Loan

18,705

Bills Receivable

7,000

Current Account:

 

Stock

15,500

 

Rajesh

940

 

Less: 10% Depreciation

(1,550)

13,950

Nishant

2,705

3,645

 

 

 

Capital Account:

 

Factory Building

12,000

13,440

Rajesh

18,000

 

Add: 12% Appreciation

1,440

 

Nishant

12,000

30,000

Bank Balance

13,000

 

68,865

 

68,865

 

 

 

 

 

 

 

 

 

 

 

 

Working Notes:

1) Pramod’s share of goodwill = Total goodwill of the firm × Retiring Partner’s Share = 
Chp 4-35

2) Gaining Ratio = New Ratio − Old Ratio

Chp 4-36

Chp 4-37

Gaining Ratio between Rajesh and Nishant = 2:1

NOTE: In the above solution, in order to adjust the capital of remaining partners in the new firm according to their new profit sharing ratio, the surplus or the deficit of Capital Account is transferred to their Current Account. But, in order to match the answer with that of given in the book, the surplus or the deficit amount of the Partners’ Capital Account, will either be withdrawn or brought in by the old partners. This treatment will be shown in the Partners’ Capital itself and no need to transfer the surplus or deficit capital balance to their Current Accounts. The following Journal entry is passed to record the withdrawal of surplus capital by the partners.

If existing partners withdraw their excess capital

Journal entry

 

Rajesh’s Capital A/c

Dr.

940

 

Nishant’s Capital A/c

Dr.

2,705

 

To Bank A/c

 

3,645

(Surplus Capital withdrawn)

 

 

 

Balance Sheet as on March 31, 2015

 

 

Liabilities

Amount

Assets

Amount

Bills Payable

6,250

Plant and Machinery

11,500

Sundry Creditors

10,000

Debtors

10,500

 

Reserve for Legal Charges

265

Less: Reserve

(525)

9,975

Pramod’s Loan

18,705

Bills Receivable

7,000

Capital:

 

Stock

15,500

 

Rajesh

18,000

 

Less: 10% Depreciation

(1,550)

13,950

Nishant

12,000

30,000

 

 

 

 

 

 

Factory Building

12,000

 

 

 

Add: 12% Appreciation

1,440

13,440

 

 

Bank Balance

9,355

 

65,220

 

65,220

 

 

 

 

 

 

 

 

 

 

 

 

 

12. Following is the Balance Sheet of Jain, Gupta and Malik as on March 31, 2016.

                                        

Books of Jain, Gupta and Malik

Balance Sheet as on March 31, 2016

 

 

Liabilities

Amount

Assets

Amount

Sundry Creditors

19,800

Land and Building

26,000

Telephone Bills Outstanding

300

Bonds

14,370

Accounts Payable

8,950

Cash

5,500

Accumulated Profits

16,750

Bills Receivable

23,450

 

 

Sundry Debtors

26,700

Capitals :

 

Stock

18,100

Jain

40,000

 

Office Furniture

18,250

Gupta

60,000

 

Plants and Machinery

20,230

Malik

20,000

1,20,000

Computers

13,200

 

1,65,800

 

1,65,800

 

 

 

 

 

 

 

 

 

 

 

The partners have been sharing profits in the ratio of 5:3:2. Malik decides to retire from business on April 1, 2016 and his share in the business is to be calculated as per the following terms of revaluation of liabilities and assets : Stock, ₹ 20,000; Office furniture, ₹ 14,250; Plant and Machinery ₹ 23,530; Land and Building ₹ 20,000.

A provision of ₹ 1,700 to be created for doubtful debts. The goodwill of the firm is valued at ₹ 9,000.

The continuing partners agreed to pay ₹ 16,500 as cash on retirement of Malik, to be contributed by continuing partners in the ratio of 3:2. The balance in the capital account of Malik will be treated as loan.

Prepare Revaluation account, capital accounts, and Balance Sheet of the reconstituted firm.

In the books of Jain and Gupta

 

Revaluation Account

 

Dr.

Cr.

 

Particulars

Amount

Particulars

Amount

Office Furniture

4,000

Stock

1,900

Land and Building

6,000

Plant and Machinery

3,300

Provision for Doubtful Debts

1,700

Loss transferred to

 

 

 

Jain’s Capital A/c

3,250

 

 

 

Gupta’s Capital A/c

1,950

 

 

 

Malik’s Capital A/c

1,300

6,500

 

11,700

 

11,700

 

 

 

 

 

 

 

 

 

 

 


 

Partners’ Capital Account

 

Dr.

Cr.

 

Particulars

Jain

Gupta

Malik

Particulars

Jain

Gupta

Malik

Revaluation (Loss)

3,250

1,950

1,300

Balance b/d

40,000

60,000

20,000

Malik’s Capital

1,125

675

 

Accumulated Profits

8,375

5,025

3,350

Cash

 

 

16,500

Jain’s Capital A/c

 

 

1,125

Malik’s Loan

 

 

7,350

Gupta’s Capital A/c

 

 

675

Balance c/d

53,900

69,000

 

Cash

9,900

6,600

 

 

58,275

71,625

25,150

 

58,275

71,625

25,150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

Liabilities

Amount

Assets

Amount

Sundry Creditors

19,800

Stock (18,100 + 1,900)

20,000

Telephone Bills Outstanding

300

Bonds

14,370

Accounts Payable

8,950

Cash

5,500

Malik’s Loan

7,350

Bills Receivable

23,450

 

 

Sundry Debtors

26,700

 

Partners’ Capital:

 

Less: Provision for Bad Debts

1,700

25,000

Jain

53,900

 

Land and Building (26,000 – 6,000)

20,000

Gupta

69,000

1,22,900

Office Furniture (18,250 – 4,000)

14,250

 

 

Plant and Machinery (20,230 + 3,300)

23,530

 

 

Computers

13,200

 

1,59,300

 

1,59,300

 

 

 

 

 

Working Note:

 

1) Malik’s share of goodwill = Total Goodwill × Retiring Partner Share = 
Chp 4-38

 

2) Gaining Ratio = New Ratio – Old Ratio

Chp 4-39

Chp 4-40

Gaining Ratio between Jain and Gupta = 10:6 or 5:3

13. Arti, Bharti and Seema are partners sharing profits in the proportion of 3:2:1 and their Balance Sheet as on March 31, 2016 stood as follows:

 

Books of Arti, Bharti and Seema

 

Balance Sheet as on March 31, 2016

 

 

Liabilities

Amount

Assets

Amount

Bills Payable

12,000

Buildings

21,000

Creditors

14,000

Cash in Hand

12,000

General Reserve

12,000

Bank

13,700

Capitals:

 

Debtors

12,000

Arti 20,000

 

Bills Receivable

4,300

Bharti

12,000

 

Stock

1,750

Seema

8,000

40,000

Investment

13,250

 

78,000

 

78,000

 

 

 

 

 

 

 

 

 

 

 

Bharti died on June 12, 2016 and according to the deed of the said partnership, her executors are entitled to be paid as under:

(a) The capital to her credit at the time of her death and interest thereon @ 10% per annum.

(b) Her proportionate share of reserve fund.

(c) Her share of profits for the intervening period will be based on the sales during that period, which were calculated as ₹ 1, 00,000. The rate of profit during past three years had been 10% on sales.

(d) Goodwill according to her share of profit to be calculated by taking twice the amount of the average profit of the last three years less 20%. The profits of the previous years were:

2013 – ₹ 8,200

2014 – ₹ 9,000

2015 – ₹ 9,800

The investments were sold for ₹ 16,200 and her executors were paid out. Pass the necessary journal entries and write the account of the executors of Bharti.

 

 

 

 Books of Arti and Seema

 

Journal

 

 

Date

Particulars

L.F.

Amount

Amount

2016

 

 

 

 

 

June 12

Interest on Capital A/c

Dr.

 

240

 

 

General Reserve A/c

Dr.

 

4,000

 

 

Profit and Loss (Suspense) A/c

Dr.

 

3,333

 

 

To Bharti’s Capital A/c

 

 

 

7,573

 

(Profit, interest and general reserve are in credited to

Bharti’s Capital account)

 

 

 

 

 

 

 

 

 

 

June 12

Arti’s Capital A/c

Dr.

 

3,600

 

 

Seema’s Capital A/c

Dr.

 

1,200

 

 

To Bharti’s Capital A/c

 

 

 

4,800

 

(Bharti’s share of goodwill adjusted to Arti’s and

Seema’s Capital Account in their gaining ratio, 3:1)

 

 

 

 

 

 

 

 

 

June 12

Bharti’s Capital A/c

Dr.

 

24,373

 

 

To Bharti’s Executor’s A/c

 

 

 

24,373

 

(Bharti’s capital account is transferred to her executor’s

account)

 

 

 

 

 

 

 

 

 

 

June 12

Bank A/c

Dr.

 

16,200

 

 

To Investment A/c

 

 

 

13,250

 

To Profit on Sale of Investment

 

 

 

2,950

 

(Investment sold)

 

 

 

 

 

 

 

 

 

 

 

June 12

Bharti’s Executor A/c

Dr.

 

24,373

 

 

To Bank A/c

 

 

 

24,373

 

(Bharti Executor paid)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bharti’s Capital Account

 

Dr.

Cr.

 

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2016

 

 

 

2016

 

 

 

June 12

Bharti’s Executor’s A/c

 

24,373

Mar. 31

Balance b/d

 

12,000

 

 

 

 

June 12

Interest on Capital

 

240

 

 

 

 

 

Profit and Loss (Suspense)

 

3,333

 

 

 

 

 

General Reserve

 

4,000

 

 

 

 

 

Arti’s Capital A/c

 

3,600

 

 

 

 

 

Seema’s Capital A/c

 

1,200

 

 

 

24,373

 

 

 

24,373

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bharti’s Executor’s Account

 

 

Dr.

Cr.

 

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2016

 

 

 

2016

 

 

 

June 12

Bank

 

24,373

June 12

Bharti’s Capital A/c

 

24,373

 

 

 

 

 

 

 

 

 

 

 

24,373

 

 

 

24,373

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working Notes:

1. Bharti’s share of profit = Profit is 10% of sales

Sales during the last year for that period were ₹ 1, 00,000

If sales are ₹ 1, 00,000, then the profit is ₹ 10,000

Chp 4-41

2. Bharti’s Share of Goodwill

Goodwill of the firm = Average Profit × Number of Years Purchase

Chp 4-42

Or, 9,000 − 20% of 9,000 = 9,000 − 1,800 = ₹ 7,200

Goodwill of the firm = 7,200 × 2 = ₹ 14,400

Chp 4-43

3. Gaining Ratio = New Ratio − Old Ratio

Chp 4-44

Chp 4-45

Gaining ratio between Arti and Seema = 3:1

4. Interest on Capital for 73 days, i.e. from April 1, 2016 to June 12, 2016

Interest on capital = Amount of Capital × Ratio of Interest × Period 
Chp 4-46

14. Nithya, Sathya and Mithya were partners sharing profits and losses in the ratio of 5:3:2. Their Balance Sheet as on March 31, 2015 was as follows:

 

Books of Nithya, Sathya and Mithya

 

Balance Sheet at March 31, 2015

 

 

Liabilities

Amount

Assets

Amount

Creditors

14,000

Investments

10,000

Reserve Fund

6,000

Goodwill

5,000

Capitals:

 

Premises

20,000

Nithya

30,000

 

Patents

6,000

Sathya

30,000

 

Machinery

30,000

Mithya

20,000

80,000

Stock

13,000

 

 

Debtors

8,000

 

 

Bank

8,000

 

1,00,000

 

1,00,000

 

 

 

 

 

 

 

 

 

 

 

Mithya dies on August 1, 2015. The agreement between the executors of Mithya and the partners stated that:

(a) Goodwill of the firm be valued at https://img-nm.mnimgs.com/img/study_content/editlive_ncert/75/2012_08_23_12_20_14/image3605571988781021547.jpg times the average profits of last four years. The profits of four years were : in 2011-12, ₹ 13,000; in 2012-13, ₹ 12,000; in 2013-14, ₹ 16,000; and in 2014-15, ₹ 15,000.

(b) The patents are to be valued at ₹ 8,000, Machinery at ₹ 25,000 and Premises at ₹ 25,000.

(c) The share of profit of Mithya should be calculated on the basis of the profit of 2014-15.

(d) ₹ 4,200 should be paid immediately and the balance should be paid in 4 equal half-yearly instalments carrying interest @ 10%.

Record the necessary journal entries to give effect to the above and write the executor’s account till the amount is fully paid. Also prepare the Balance Sheet of Nithya and Sathya as it would appear on August 1, 2015 after giving effect to the adjustments.

 Books of Nithya and Sathya

 

Journal

 

 

Date

Particulars

L.F.

Amount

Amount

2015

 

 

 

 

 

Aug. 1

Nithya’s Capital A/c

Dr.

 

2,500

 

 

Sathya’s Capital A/c

Dr.

 

1,500

 

 

Mithya’s Capital A/c

Dr.

 

1,000

 

 

To Goodwill A/c

 

 

 

5,000

 

(Goodwill written off among all the partners)

 

 

 

 

 

 

 

 

 

 

Aug. 1

Patents A/c

Dr.

 

2,000

 

 

Premises A/c

Dr.

 

5,000

 

 

To Revaluation A/c

 

 

 

7,000

 

(Increase in the value of patents and premises)

 

 

 

 

 

 

 

 

 

Aug. 1

Revaluation A/c

Dr.

 

5,000

 

 

To Machinery A/c

 

 

 

5,000

 

(Decrease in the value of machinery)

 

 

 

 

 

 

 

 

 

 

 

Aug. 1

Revaluation A/c

Dr.

 

2,000

 

 

To Nithya’s Capital A/c

 

 

 

1,000

 

To Sathya’s Capital A/c

 

 

 

600

 

To Mithya’s Capital A/c

 

 

 

400

 

(Profit on revaluation of liabilities and assets transferred

to Partners’ Capital Account)

 

 

 

 

 

 

 

 

 

 

Aug. 1

Reserve Fund A/c

Dr.

 

6,000

 

 

To Nithya’s Capital A/c

 

 

 

3,000

 

To Sathya’s Capital A/c

 

 

 

1,800

 

To Mithya’s Capital A/c

 

 

 

1,200

 

(Reserve Fund transferred to Partners’ Capital Account)

 

 

 

 

 

 

 

 

 

 

Aug. 1

Nithya’s Capital A/c

Dr.

 

4,375

 

 

Sathya’s Capital A/c

Dr.

 

2,625

 

 

To Mithya’s Capital A/c

 

 

 

7,000

 

(Mithya’s share of goodwill adjusted to Nithya’s and

Sathya’s Capital Account in their gaining ratio, 5:3)

 

 

 

 

 

 

 

 

 

 

Aug. 1

Profit and Loss A/c (Suspense)

Dr.

 

1,000

 

 

To Mithya’s Capital A/c

 

 

 

1,000

 

(Profit till date of death credited to Mithya’s Capital

Account)

 

 

 

 

 

 

 

 

 

 

Aug. 1

Mithya’s Capital A/c

Dr.

 

28,600

 

 

To Mithya Executors A/c

 

 

 

28,600

 

(Mithya’s Capital Account transferred to her executor

account)

 

 

 

 

 

 

 

 

 

 

Aug. 1

Mithya Executor’s A/c

Dr.

 

4,200

 

 

To Cash A/c

 

 

 

4,200

 

(Cash paid to Mithya’s executor)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mithya Executor’s Account

 

Dr.

Cr.

 

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2015

 

 

 

2015

 

 

 

Aug. 1

2016

Bank

 

4,200

Aug. 1

2016

Mithya’s Capital A/c

 

28,600

Jan. 31

Bank (6,100 + 1220)

 

7,320

Jan. 31

Interest (24,400×10100×612)(24,400×10100×612)

 

 

1,220

Mar. 31

Balance c/d

 

18,605

Mar. 31

Interest (18,300×10100×212)(18,300×10100×212)

 

305

 

 

 

30,125

 

 

 

 

30,125

 

 

 

 

 

 

 

 

2016

 

 

 

2016

 

 

 

July 31

2017

Bank (6,100 + 305 + 610)

 

7,015

April 01

July 31

2017

Balance b/d

Interest (18,300×10100×412)(18,300×10100×412)

 

18,605

610


Jan. 31

 

                                            

Bank (6,100 + 610)

 

 

6,710

Jan. 31

Interest (12,200×10100×612)(12,200×10100×612)

 

610

Mar. 31

Balance c/d

 

6202

Mar. 31

Interest (6,100×10100×212)(6,100×10100×212)

 

102

 

 

 

 

 

 

 

 

 

 

 

19,927

 

 

 

19,927

 

 

 

 

 

 

 

 

2017

 

 

 

2017

 

 

 

July 31

Bank (6,100 + 102 + 203)

 

6,405

April 01

Balance b/d

 

6,202

 

 

 

 

July 31

Interest (6,100×10100×412)(6,100×10100×412)

 

203

 

 

 

6,405

 

 

 

 

6,405

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

As on August 31, 2015

Liabilities

Amount

Assets

Amount

Creditors

14,000

Investments

10,000

Mithya’s Executor’s Loan A/c

24,400

Premises

25,000

Partners’ Capital A/c

 

Machinery

25,000

Nithya

27,125

 

Stock

13,000

Sathya

28,275

55,400

Debtors

8,000

 

 

Patents

8,000

 

 

Bank (8,000 – 4,200)

3,800

 

 

Profit and Loss (Suspense)

1,000

 

 

 

 

 

93,800

 

93,800

 

 

 

 

 

Working Notes:

 

1.

Partners’ Capital Accounts

 

Dr.

Cr.

 

Particulars

Nithya

Sathya

Mithya

Particulars

Nithya

Sathya

Mithya

Goodwill

2,500

1,500

1,000

Balance b/d

30,000

30,000

20,000

Mithya’s Capital A/c

4,375

2,625

 

Revaluation A/c

1,000

600

400

Mithya’s Executor’s A/c

 

 

28,600

Reserve Fund

3,000

1,800

1,200

Balance c/d

27,125

28,275

 

Profit and Loss A/c (Suspense)

 

 

1,000

 

 

 

 

Nithya’s Capital A/c

 

 

4,375

 

 

 

 

Sathya’s Capital A/c

 

 

2,625

 

34,000

32,400

29,600

 

34,000

32,400

29,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2. Mithya’s Share of Profit:

Previous year’s profit × Proportionate Period × Share of Profit 
Chp 4-48

 

3. Mithya’s share of Goodwill

Goodwill of a firm = Average Profit × Number of Year’s Purchase

Chp 4-49

Chp 4-50

Chp 4-51

 

4. Gaining Ratio = New Ratio – Old Ratio

Chp 4-52

Chp 4-53

Gaining Ratio between Nithya and Sathya = 5:3

Concepts covered in this chapter –

  • Ascertaining the amount due to retiring or deceased partner
  • New profit sharing ratio
  • Gaining ratio
  • Treatment of Goodwill
  • Adjustment of partner’s capital
  • Death of a partner

Conclusion

NCERT solutions for class 12 Accountancy chapter 4 provides a wide degree of illustrative examples; which assists the students to comprehend and learn quickly. The above mentioned are the illustrations for class 12 CBSE syllabus. For more solutions and study materials of NCERT solutions for class 12 Accountancy visit BYJU’S or download the app for more information.

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