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

CBSE Class 12 Accountancy Chapter 5 Important Questions – Free PDF Download

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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
6,0008,000
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 31st 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 312016
Dec 312017
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 312015
Jan 12017
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

10,00010,000
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 31st July 2015. The profits of the firm for the year ending 31st March 2015 year Rs. 42000. Calculate A’s share for the period from 1st April to 31st 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 31st July are say Rs. 90,000 then Profits      from 3st April to 31st 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
12,0001,92,000
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
2,4007,400
By  Premises
By Furniture
By Provision For doubtful debts
9,700
2,000
200
11,900 11,900

Capital Account

Particulars Vijay Vivek Vinay Particulars Vijay Vivek Vinay
Vivek’s Capital
Vivek’s Loan
BankBalance 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
3,08012,8006,400
40,000
1,540––
95,080 82,280 41,540 95,080 82,280 41,540

Balance Sheet
As at 31st 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 14th 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, 14th
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

10,000700

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
10,000700
30,000
30,00012,000
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 (31st December, 2014) to the date of death (14th 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 31st 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
1,71,0005,00,000
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 30th 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 30th April 2014.
Prepare Revolution account & R’s Executor account till it is finally settled. Accounts are closed on 31st 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
6,00024,000
By Stock
By Building
10,000
50,000
60,000 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

2,27,333 2,27,333

R’s Executor Account

Date Particulars (Rs.) Date Particulars  (Rs.)
3.4.13
31.12.1330.4.1431.12.14

30.4.15

To Bank A/c
To Balance c/dTo Bank A/c  75000
15,000
 
To Balance c/dTo Bank A/c 75,000
Add Interest        7,500
72,333
1,60,000
30.4.13
31.12.131.1.1430.4.14

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 80,0002,500
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