2nd Puc Accountancy Chapter 4 Reconstitution Of A Partnership Firm – Retirement/Death Of A Partner Part – 1 Notes | ದ್ವಿತೀಯ ಪಿ.ಯು.ಸಿ ಲೆಕ್ಕಶಾಸ್ತ್ರ ಅಧ್ಯಾಯ – 4 ನೋಟ್ಸ್

ದ್ವಿತೀಯ ಪಿ.ಯು.ಸಿ ಲೆಕ್ಕಶಾಸ್ತ್ರ ಪಾಠ – 4 ನೋಟ್ಸ್ 2nd Puc Accountancy Chapter 4 Reconstitution Of A Partnership Firm Retirement/Death Of A Partner Notes Karnataka Kannada Question Answer Mcq Pdf Download 2024 Accountancy Class 12 Chapter 4 Pdf Reconstitution Of A Partnership Firm Retirement/Death Of A Partner Solution Reconstitution Of A Partnership Firm Retirement/Death Of A Partner Notes Kseeb Solution For Class 12 Accountancy Chapter 4 Notes

2nd Puc Accountancy Chapter 4 Notes

2nd Puc Accountancy Chapter 4

Short Question Answer

Q1. Write the various matters that need adjustments at the time of retirement of partner/partners.

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

• Determining the new gaining ratio of the partners who are remaining in the firm.
• Determine the new ratio of the firm’s remaining partners.
• Determine the goodwill of the firm and ensure its proper accounting treatment
• Revaluating liabilities and assets of the new firm.
• Distributing among all the partners the accumulated profits and losses, along with reserves.
• Retiring partner’s settlement
• A revised calculation of capital accounts of remaining partners and their new and updated profit-sharing ratio.
• Joint life policy treatment.

Q2. What are the different ways in which a partner can retire from the firm?

A: Here are the different ways:

• For a partner to retire consent of the firm’s co-partners is required. A partner can retire if all partners agree with the decision to retire.
• A partner can express his desire to retire by issuing a notice to the firm in case there is a written agreement.
• A partner can retire by giving written notice to all other partners in absence.

Q3. Why a retiring/deceased partner is entitled to a share of goodwill of the firm?

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

Q4. Distinguish between sacrificing ratio and gaining ratio.

Basis of Difference	Sacrificing ratio	Gaining Ratio
1. Meaning	The ratio is where a partner of a firm agrees to sacrifice the profit share and make it available for a new partner.	That ratio in which a partner obtains the profit share from the partner who is leaving the firm.
2. Calculation	Calculated as the difference between the old and new ratio	Calculated as the difference between a new and old ratio
3. Time	The calculation is done at the admission of a new partner	The calculation is 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 a new partner.	It is used to determine the profit and loss share that is obtained by the existing partners when a partner retires/becomes deceased
5. Effect	The existing partner’s profit share is reduced	Continuing partner profit share is increased.

Q5. Why do firms revaluate assets and reassess their liabilities on retirement or on the event of the death of a partner?

A: 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 the 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 shared among partners as per sharing ratio as determined at the time of setting up a partnership.

Karnataka 2nd PUC Accountancy Chapter 4 Reconstitution of a Partnership Firm – Retirement/Death of a Partner

Long Questions And Practical Problem With Solution

Q1. 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 the debit side:

• The credit balance of the deceased partner’s capital account.
• The profit share of the partner till his/her death
• Share of goodwill of the partner.
• Any gain on revaluation of liabilities and assets
• Any salary or commission earned, till the date of demise.
• Share in accumulated reserves and profit account
• Any interest earned on capital
• Share in life insurance policy

Items to be posted on the credit side:

• Deceased Partner’s debit balance from the capital account.
• Total drawings were done till the death of a partner
• Interest is charged on drawings if any till the day of death.
• Reduction in profit share or loss up to date of death.
• 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

Q2. Explain the modes of payment to a retiring partner.

Payment modes are discussed below:

1. When the amount due to the 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 the retiring partner can be paid in installments to the loan account, which helps the partner earn interest on the 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 the day of retirement, and rest of the sum is paid on a monthly basis to partner’s loan account. The 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)

Q3. 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 to a profit sharing up to the date of the 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 partner’s death is considered for calculation on the basis of last year/year’s profit or average profit earned in the 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 the partner’s death.

Share of Deceased Partner in Profit =

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

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

Q4. Explain the treatment of goodwill at the time of retirement or in the event of the death of a partner.

Goodwill is subjected to treatment on these two conditions:

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

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

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

Q5. Aparna, Manisha, and Sonia are partners sharing profits in the ratio of 3:2:1. Manisha retires and the goodwill of the firm is valued at ₹ 1, 80,000. Aparna and Sonia decided to share the 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 andSonia’s Capital Accounts in their gaining ratio )

Working Notes:

1. Manisha’s share in goodwill:

Total goodwill of the firm × Retiring Partner’s Share =

2. Gaining Ratio = New Ratio − Old Ratio

Aparna Gaining share

Gaining Ratio between Aparna and Sonia = 3: 7

3. Aparna’s share in goodwill

Sonia’s share in goodwill

Q6. 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 CapitalAccount in her gaining ratio)

Working Notes:

1. Sangeeta’s share of goodwill.

Total goodwill of the firm ´ Retiring Partner’s share 

2. Gaining Ratio = New Ratio – Old Ratio

Saroj’s Gaining Share 

Shanti’s Gaining Share 

Q7. 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 are to be depreciated by 10%.
(iii)	A provision of 5% on debtors is to be created for bad and doubtful debts.
(iv)	The 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	25,000
	To Revaluation A/c
	(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 Debtsmade 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’ CapitalAccounts 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 3,000
Naman 3,000	18,000
	25,000		25,000

Q8. 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)

Q9. 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.

Particulars	Digvijay	Brijesh	Parakaram	Particulars	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	89,400		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	19,000
		Less: Bad Debts 2,000	2,000
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 

2. Gaining Ratio = New Ratio – Old Ratio

Digvijay’s Share

Parakaram’s Share

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

Q10. 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 the 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

Meena’s Shares

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

Q11. 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
	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

Dr. 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

Q12. 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 the 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 the average of the 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 installments with interest at 12% p.a. on the outstanding balance. Show Mr. Pammy’s Capital account, and 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 

2) Pammy’s Share of Goodwill

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

Average Profit 

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

3) Gaining Ratio = New Ratio – Old Ratio

Puneet’s Share

Pankaj’s Share

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 

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

 Q13. 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 GeneralReserve 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 executors 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

=

2. Rockey’s Share of Goodwill

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

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

3. Gaining Ratio = New Ratio − Old Ratio

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

Q14. Following is the Balance Sheet of Jain, Gupta and Malik as on March 31, 2016.

Books of Jain, Gupta and MalikBalance 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
	1,65,800		1,65,800

The partners have been sharing profits in the ratio of 5:3:2. Malik decides to retire from the 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 the 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 a loan.

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

In the books of Jain and GuptaRevaluation 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
	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	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 =

2) Gaining Ratio = New Ratio – Old Ratio

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

Q15. 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	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 the 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

2. Bharti’s Share of Goodwill

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

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

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

3. Gaining Ratio = New Ratio − Old Ratio

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

Q16. 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 MithyaBalance 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  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 SathyaJournal

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 CapitalAccount)
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. 12016	Bank		4,200	Aug. 12016	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 312017	Bank (6,100 + 305 + 610)		7,015	April 01July 312017	Balance b/dInterest (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

3. Mithya’s share of Goodwill

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

4. Gaining Ratio = New Ratio – Old Ratio

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