Important Questions Class 12 Accountancy Chapter 5 Retirement or Death of a partner -CoolGyan

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CBSE Class 12 Accountancy Important Questions Chapter 5 Retirement or Death of a partner

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

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

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

Basic	Sacrificing Ratio	Gaining Ratio
1. Meaning	It is the ratio in which the old partners surrender a part of their share of profits in favour of a new partner.	It is the ratio in which the remaining partners acquire the outgoing partner’s share of profit
2. When Calculated	At the time of admission of new partner	At the time retirement or death of a partner.
3. Formula	Sacrificing Ratio = Old Ratio – New ratio	Gaining Ratio = New Ratio – Old Ratio
4. Purpose I	New partners share of goodwill is divide between old partners in this ratio.	Retiring or deceased partner’s share of goodwill is paid by the continuing partners in the ratio.

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

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
	M’s capital A/c Dr. N’s capital A/c Dr. P’s capital A/c Dr. To Goodwill A/c (Being the existing goodwill written off in old ratio i.e. 1:1:1)		9000 6,000 6,000 8,000 2,000	18,000 10,000
	M’s capital A/c Dr. N’s capital A/c Dr. To P’s Capital A/c (Being adjustment made for goodwill on retirement in giving ratio i.e., 4 : 1)

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

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

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
	R’s capital A/c Dr. To T’s capital A/c Dr. To T’s capital A/c (T’s share of goodwill adjustment in gaining ratio i.e. 1:1)		5,000 5,000	10,000

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

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
	General Reserve A/c Dr. P & L A/c Dr. To X’s capital A/c Dr. To Y’s capital A/c To Z’s capital A/c (Reserve & Surplus amount distributed in old ratio on Y’s retirement)		24,000 16,000	20,000 10,000 10,000

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

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
	Workmen Compensation Fund A/c Dr. To P’s capital A/c To Q’s capital A/c To R’s capital A/c To Claim for workmen compensation fund A/c (Excess amount in Workmen Compensation Fund capital A/cs in old ratio) is transferred to parties		30,000	9,000 6,000 3,000 12,000

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

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
	A’s capital A/c Dr. B’s capital A/c Dr. C’s capital A/c Dr. To P & L A/c (Loss in P&L A/c written off (in old ratio) on A’s retirement)		5,000 5,000 5,000	15,000

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

Date	Particulars	L.F	Rs.	Date	Particulars	L.F	Rs.
2015 Dec 31 2016 Dec 31 2017 Dec 31	Bank A/c (22,000+6600) Balance c/d Bank A/c Balance c/d Bank A/c (Final Payment)		28,600 44,000	2015 Dec 31 2015 Jan 1 2017 Jan 1 Dec 31	B’s Capital A/c By Interest A/c (10% of 66,000) Balance b/d Br. Interest A/c (10% of 44,000) Balance b/d Interest A/c (10% of 22,000)		66,000 6,600
			72,600				72,600
			26,400 22,000				44,000 4,400
			48,400				48,400
			24,200				22,000 2,200
			24,200				24,200

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

	Y (Rs.)	Z (Rs.)
New Capital based on New Ratio i.e. 2:1 (total being 1,20,000) Existing capital after adjustments Cash is being brought or paid off	80000 70,000	40,000 50,000
	10,000 (brought in )	10,000 (to be paid)

Journal Entries

	Particulars	L.F	Debit (Rs.)	Credit (Rs.)
1. 2.	Bank A/c Dr. To Y’s Capital A/c (Amount to be brought in by Y)		10,000 10,000	10,000 10,000
	Z’s Capital A/c Dr. To Bank A/c (Amount to be withdrawn by Y)

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

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
2015 July, 31	Profit and Loss Suspense a/c Dr. To A’s Capital A/c (A’s share of profit transferred to his capital A/c		7,000	– 7,000

13 : If in the – 1 given above the sales for the last year are Rs.        2,10,000 and for the current year upto 31^st July are say Rs. 90,000 then Profits      from 3st April to 31^st July 2015.
Solution : =  = Rs. 18,000
A’s share = Rs.  = 9,000
Journal Entry will be

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
2015 July, 31	P&L Suspense A/c Dr. To A’s Capital A/c (Being A’s share of profit till date of his death transferred to his capital A/c		9,000	9,000

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

Particulars	(Rs.)	Assets	(Rs.)
Creditors Bill Payable Outstanding Rent Provision for Legal Cluim Capital : Vijay 92,000 Vivek 60,000 Vinay 40,000	54,000 24,000 4,400 12,000 1,92,000	Bank Debtor 12,000 Less: Provision for Doubtful 800 Stock Furniture Premises	55,000 11,200 18,000 8,200 1,94,000
	2,86,400		2,86,400

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

Particulars	(Rs.)	Assets	(Rs.)
To Stock To Provision for legal Claim To Profit Transferred Vijay 3,080 Vivek 3,080 Vinay 1,540	1,800 2,400 7,400	By Premises By Furniture By Provision For doubtful debts	9,700 2,000 200
	11,900	By Premises By Furniture By Provision For doubtful debts	11,900

Capital Account

Particulars	Vijay	Vivek	Vinay	Particulars	Vijay	Vivek	Vinay
Vivek’s Capital Vivek’s Loan Bank Balance c/d	12,800 – – 82,280	– 50,000 32,280 –	6,400 – – 35,140	By Balance b/d By Revaluation A/c By Vijay’s Capital By Vinay’s Capital	92,000 3,080 – –	60,000 3,080 12,800 6,400	40,000 1,540 – –
Vivek’s Capital Vivek’s Loan Bank Balance c/d	95,080	82,280	41,540		95,080	82,280	41,540

Balance Sheet
As at 31^st March 2015

Liabilities	(Rs.)	Assets	(Rs.)
Creditors Bill Payable Outstanding Rent Provision for legal claims Vijay’s Vivek’s Vinay’s	54,400 24,000 4,400 14,400 50,000 82,280 35,140	Bank Debtors 12,000 Less provision 600 Stock Furniture Premises	22,920 11,400 16,200 10,000 2,03,700
	2,64,220		2,64,220

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

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

Liabilities	(Rs.)	Assets	(Rs.)
Capitals : M 70,000 N 70,000 O 70,000 General Reserve Creditors	2,10,000 30,000 20,000	Plant and machinery Stock Sundry Debtors Cash at Bank Cash in Hand	60,000 30,000 95,000 40,000 35,000
	2,60,000		2,60,000

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

Date	Particulars	L.F	Debit (Rs.)	Credit (Rs.)
2015 March, 14^th	General Reserve A/c Dr. To N’s Capital A/c (Being transfer of N’s share of general reserve of his Capital A/c)		10,000 700 30,000 30,000 12,000 1,52,700	10,000 700 60,000 12,000 1,52,700
	Interest on Capital A/c Dr. To N’s Capital A/c (Being interest 5% p.a. credited to N’s Capital A/c upto 14/03.2010)
	M’s Capital A/c Dr. O’s Capital A/c Dr. To N’s Capital A/c (Being goodwill adjusted in gaining ratio i.e. 1:1)
	Profit and Loss Suspense’s A/c Dr. To N’s Capital A/c (Being the transfer to N’s share of profit to his capital A/c)
	N’s Capital A/c Dr. To N’s Executor A/c (Being the transfer of amount due to N’s executor A/c)

N’s Capital A/c

Particulars	(Rs.)	Particulars	(Rs.)
To N’s Executors A/c	1,52,700	By Balance b/d By General Reserve A/c By Interest on Capital A/c By M’s Capital A/c By O’s Capital A/c By Profit & Loss	70,000 10,000 700 30,000 30,000 12,000
To N’s Executors A/c	1,52,700		1,52,700

Working Note :
1. Calculation of Goodwill
Average profit for 3 years
= Rs. 90,000
Goodwill of the firm = Average Profit No. Of year of Purchase
= = Rs. 1,80,000
Total N’s Share in Goodwill = = 60,000
2. Time from the date of last balance Sheet (31^st December, 2014) to the date of death (14^th March, 2015)
= 31 days of January + 28 days of Feb (2015 is not a leap year) + 14 days of March = 73 days
Payment for deceased : Partner payment for deceased partner either in lump sum or in installments.
a. When payment is made in full (lump sum)
Accounting entry in this case will be
Deceased Partner’s Executor A/c    Dr.
To Bank A/c
b. When Payment is made in installments. When payment is made in installments interest is paid on installments at agreed price or @ 6% per annum.
Journal entries are :
(i) When interest is allowed
Interest A/c   Dr.
To Deceased Partner’s Executor A/c
(ii) When installment is paid :
Deceased partner’s Executors A/c Dr.
To Bank A/c   (interest & installment amount)

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

Liabilities	(Rs.)	Assets	(Rs.)
Bill Payable Employees Provident Fund Workmen compensation reserve Loan Capitals Accounts: P 2,27,500 Q 1,52,500 R 1,20,000	20,000 50,000 90,000 1,71,000 5,00,000	Cash at Bank Bills Receivable Stock Sundry Debtors Furniture Plant & Machinery Building Advertisement Suspense	1,58,000 8,000 90,000 1,60,000 20,000 65,000 3,00,000 30,000
	8,31,000		8,31,000

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

Particulars	(Rs.)	Particulars	(Rs.)
To provision for Doubtful debts To Furniture To Plant & Machinery To Bill Receivable To Profits transferred to P’s capital A/c 12,000 Q’s capital A/c 8,000 R’s capital A/c 4000	10,000 5,000 15,000 6,000 24,000	By Stock By Building	10,000 50,000
	60,000	By Stock By Building	60,000

R’s Capital A/c

Date	Particulars	(Rs.)	Date	Particulars	(Rs.)
30.4.13	To advertisement A/c To R’s Executor A/c	5,000 2,22,333	1.1.13	By Balance b/d By workmen Compensation reserve By Revaluation A/c By P’s Capital A/c (goodwill) By Q’s capital A/c (goodwill) By P&L Suspense A/c	1,20,000 15,000 4,000 45,000 30,000 13,333
30.4.13	To advertisement A/c To R’s Executor A/c	2,27,333	1.1.13		2,27,333

R’s Executor Account

Date	Particulars	(Rs.)	Date	Particulars	(Rs.)
3.4.13 31.12.13 30.4.14 31.12.14 30.4.15	To Bank A/c To Balance c/d To Bank A/c 75000 15,000 To Balance c/d To Bank A/c 75,000 Add Interest 7,500	72,333 1,60,000	30.4.13 31.12.13 1.1.14 30.4.14 1.1.15 30.4.15	By R’s capital A/c By interest A/c By Balance b/d By interest A/c 5000 Add 5000 By Balance b/d By interest A/c	2,22,333 10,000
		2,32,333			2,32,333
		90,000 80,000			1,60,000 10,000
		1,70,000			1,70,000
		82,500			80,000 2,500
		82,500			82,500

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