- 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 Rs.1,80,000. Aparna and Sonia decided to share future in the ratio of 3:2. Record necessary journal entires.
Solution:-
Old Ratio of Aparna, Manisha and Sonia 3:2:1.
Manisha retires
New ratio of Aparna & Sonia = 3:2
Aparna gain = 3/5 – 3/6
= 18 -15 /30
= 3/30
Sonia gain = 2/5 – 1/6
= 12 – 5 / 30
= 7/30
Gaining ratio of Aparna & Sonia in 3:7
Calculation of share of goodwill
Goodwill of the firm = Rs.1,80,000
Manisha share in goodwill = 180,000 x 2/6
= 60,000
Aparna will sacrifice = 60,000 x 3/10
= 18000
Sonia will sacrifice = 60,000 x 7/10
= 42000
General Entry of goodwill
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 Rs.60,000. Sangeeta retires and goodwill is valued at Rs.90,000. Saroj and Shanti decided to share future profits equally. Record necessary journal entries.
Solution:-
Journal
Working Notes:-
Old ratio of Sangeeta, Saroj & shanti in 2:3:5
Sangeeta retires for 2/10
Gaining ratio of saroj & shanti = 3:5
Calculation of Goodwill appeared in the books
Goodwill appeared in the books = Rs.60,000
It would be written off in old ratio
Sangeeta would be debited = 60,000 x 2/10
= 12,000
Saroj would be debited = 60,000 x 3/10
= 18,000
Shanti would be debited = 60,000 x 5/10
= 30,000
Calculation of Goodwill valued
Goodwill valued at Rs.90,000
Sangeeta share in Goodwill = 90,000 x 2,10
= 18,000
Gaining ratio of Saroj & Shanti = 3:5
Saroj will contribute = 18,000 x 3/8
= Rs.6750
Shanti will contribute = 18,000 x 5/8
= Rs.11250
3. Himanshu, Gagan and Naman are partners sharing profits and losses in the ratio of 3:2:1. On March 31, 2019, Naman retires.
The various assets and liabilities of the firm on the date were as follows:
Cash Rs.10,000, Building Rs.1,00,000, Plant and Machinery Rs.40,000, Stock Rs.20,000, Debtors Rs.20,000 and Investments Rs.30,000.
The following was agreed upon between the partners on Naman’s retirement:
- Building to be appreciated by 20%.
- Plant and Machinery to be depreciated by 10%.
- A provision of 5% on debtors to be created for bad and doubtful debts.
- Stock was to be valued at Rs.18,000 and Investment at Rs.35,000.
Record the necessary journal entries to the above effect and prepare the revaluation account.
Solution:-
Books of Himanshu and Gagan
Journal
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 Reserves Rs.36,000 and Profit and Loss Account (Dr.) Rs.15,000.
Record the necessary journal entries to the above effect.
Solution:-
Books of Naresh and Bishwajeet
Journal
5. Digivijay, Brijesh and Parakarm were partners in a firm sharing profits in the ratio of 2:2:1. Their Balance Sheet as on March 31, 2020 was as follows:
Brijesh retired on March 31, 2020 on the following terms:
- Goodwill of the firm was valued at Rs.70,000 and was not to appear in the books.
- Bad debts amounting to Rs.2,000 were to be written off.
- Patents were considered as valueless.
Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of Digvijay and Parakaram after Brijesh’s retirement.
Solution:-
Book of digivijay and parakarma
Dr. Partners’ Capital A/c Cr.
Balance Sheet as on March 31, 2017
Working Note:-
Brijesh’s Share of Goodwill
Total goodwill of the firm * Retiring Partner’s Share = 70000 * 2/5
= Rs.28,000
Gaining Ratio = New Ratio – Old Ration
Digvijay’s Share = 2/4 – 2/5
= 10 – 6 /15
= 4/15
Parakaram’s Share = 1/3 – 1/5
= 3/15
= 2/15
Gaining ratio between Digvijay and Parakaram = 4:2
= 2:1
6. Radha, Sheela and Meena were in partnership sharing profits and losses in the proportion of 3:2:1. On April 1, 2019, Sheela retires from the firm. On that date, their Balance Sheet was as follows:
The terms were:
- Goodwill of the firm was valued at Rs.13,500.
- Expenses owing to be brought down to Rs.3,750.
- Machinery and loss tools are to be valued at 10% less than their book value.
- Factory premises are to be revalued at Rs.24,300.
Prepare:
- Revaluation account
- Partners’ Capital accounts and
- Balance sheet of the firm after retirement of Sheela.
Solution:-
Books of Radha and Meena
Dr. Revaluation A/c Cr
Dr. Partners’ Capital Account Cr.
Balance Sheet as on April 01, 2017
Sheela’s share of goodwill
Total goodwill of the firm * Retiring Partner’s Share = 13,500 * 2/6
= 4,500
Gaining Ratio = New Ratio – Old Ratio
Radha’s share = 3/4 – 3/6
= 18 – 12/24
= 6/24
Meena’s Shares = 1/4 – 1/6
= 6 – 4/24
= 2/6
Gaining Ratio between Radha and Meena = 6 : 2
= 3:1
7. Pankaj, Narsh and Saurabh are partners sharing profits in the ratio of 3:2:1. Narsh retired from the firm due to his illness on September 30, 2017. On that date the Balance Sheet of the firm was as follows:
Book of Pankaj, Naresh and Sauabh
Balance Sheet as on September 30, 2017
Additional Information
- 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 Rs.1,200 and furniture to be brought up to Rs.45,000.
- Goodwill of the firm be valued at Rs.42,000.
- Rs.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 form Bank.
- Naresh share of profit till the date of retirement is to be calculated on the basis of last year’s profit, i.e., Rs.60,000.
- 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.
Solution:-
Dr. Revaluation Account Cr.
Dr. Partners’ Capital Accounts Cr.
Dr. Bank Account Cr.
Balance Sheet as on March 31, 2017
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, 2019 was as follows:
Books of Puneet, Pankaj and pammy
Balance sheet as on March 31, 2019
Mr. Pammy died on September 30, 2019. The partnership deed provided the following:
- The deceased partner will be entitled to his share of profits up to the date of death calculated on the basis of previous year’s profit.
- He will be entitled to his share of goodwill of the firm calculated on the basis of 3 years’ purchases of average of last 4 years’ profit. The profits for the last four financial years are given below:
For 2015-16; Rs.80,000; for 2016-17, Rs.50,000; for 2017-18, Rs.40,000; for 2018-19, Rs.30,000.
The drawings of the deceased partner up to the date of death amounted to Rs.10,000. Interest on Capital is to be allowed at 12% per annum.
Surviving partners agreed that Rs.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
Working Notes:
Pammy’s Share of Profit
Previous Year’s Profit * Proportionate Period * Share of Deceased partner
=30,000 * 6 / 12 * 1/5
= Rs.3,000
Pammy’s Share of Goodwill
Goodwill of the firm = Average Profit * Number of year’s Purchases
Average Profit = 80,000 + 50,000 + 40,000 + 30,000/4
= 2,00,000 / 4
= Rs.50,000
Goodwill of the firm = 50,000 * 3
= Rs.1,50,000
Pammy’s Share = 1,50,000 * 1/5
= Rs.30,000
Gaining Ratio = New Ratio – Old Ratio
Puneet’s Share = 2/4 – 2/5
2/20
Pankaj’s Share = 2/4 – 2/5
= 2/20
Gaining Ratio between Puneet and Pankaj = 2: 2
= 1:1
Interest on Capital for 6 months, i.e. from April 1, 2007 to September 30, 2007
= 40,000 * 12 / 100 * 6/12
= Rs.2,400
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
= Rs.60,000
Calculation of Interest
9. Following is the Balance Sheet of Prateek, Rockey and Kushal as March 31, 2020.
Books of Prateek, rockey and Kushal
Balance Sheet as on March 31, 2020
rockey died on June 30, 2020. Under the terms of the partnership deed, the executors of a deceased partner were entitled to:
- Amount standing to the credit of the Partner’s Capital account.
- Interest on capital at 5% per annum.
- Share of goodwill on the basis of twice the average of the past three years’ profit and
- 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.
Profit for the year ending on March 31, 2018 March 31, 2019 and March 31, 2020 were Rs.12,000, Rs.16,000 and Rs.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.
Solution:-
Books of Prateek and Kushal
Journal
Working Notes:-
Rockey’s Share of Profit = Previous year’s profit * proportionate Period * Share of Deceased Partner
= 14,000 * 3/12 * 2/7
= Rs.1,000
Rockey’s Share of Goodwill
Average Profit = 12,000 + 16,000 + 14,000/3
= Rs.14,000
Goodwill of a firm = Average profit *Number of year’s Purchase Goodwill of a firm = 14,000 *2
= Rs.28,000
Rockey’s Share = 3/5 – 3/7
= 21 – 15/35
= 9/35
Kushal’s Share = 2/5 – 2/7
= 14 – 10/35
= 4/35
Gaining Ratio between Prateek & Kushal = 9:4
= 3:2
Interest on Capital for 3 months i.e. from April 1, 2020 to June 30, 2020
= 20,000 * 5/100 * 3/12
= Rs.250
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, 2020 was as follows:
Bajaj retires from the business and the partners agree to the following:
- Freehold premises and stock are to be appreciated by 20% and 15% respectively.
- Machinery and furniture are to be reduced by 10% and 7% respectively.
- Bad debts reserve is to be increased to Rs.1,500.
- Goodwill is valued at Rs.21,000 on Bajaj’s retirement.
- 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.
Solution:-
Working Notes:
Bajaj Share in Goodwill = total goodwill of the firm * Retiring Partner’s Share
= 21,000 * 1/3
= Rs.7,000
Gaining Ratio = New Ratio – Old Ratio
Narang’s Gaining Share = 3/4 – 3/6
= 9-6/12
= 3/12
Suri’s Gaining Share = 1/4 – 1/6
= 3-2/12
= 1/12
Gaining Ratio between Narang and Suri = 3:1
Calculation of New Capitals of the existing partners
Balance in Narang’s Capital = Rs.34,230
Balance in Suri’s Capital = Rs.31,410
Total Capital of the New firm after revaluation of assets & liabilities & adjustment of Goodwill & Reserve = Rs.65,640
Based on new profit – sharing ratio of 3:1
Narang’s Capital = 65,640 * 3/4
= Rs.49,230
Suri’s Capital = 65,640 * 1/4
= Rs.16,410
NOTE: 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:
Pramod retired on the date of Balance Sheet and the following adjustments were made:
- Stock is to be reduced by 10% .
- Factory buildings were appreciated by 12%.
- Provision for doubtful debts be created up to 5%.
- Provision for legal charges to be made at Rs.265.
- The goodwill of the firm be fixed at Rs.30,000. The continuing partners decide to keep their capitals in the new profit sharing ratio of 3:2.
Record journal entries and prepare the balance sheet of the reconstituted firm after transferring the balance in Pramod’s Capital account to his loan account.
Solution:-
Working Notes:
Pramod’s Share of goodwill = total goodwill of the firm*Retiring Partner’s Share
= 10,000 * 3/12
= Rs.3,000
Gaining Ratio = New Ratio – Old Ratio
Rajesh’s Gaining share = 3/5 – 4/10
= 6 – 4/10
= 2/10
Nishant’s Gaining share = 2/5 – 3/10
= 4 – 3/10
= 1/10
Gaining Ratio between Rajesh and Nishant = 2:1
If Existing partners withdraw their excess capital
Journal Entry
Rajesh’s Capital A/c 940
Nishant’s Capital A/c 2,705
To Bank A/c 3,645
(Being Surplus Capital withdraw)
12. Following is the Balance Sheet of Jain, Gupta and Malik as on March 31, 2020.
Books of Jain, Gupta and Malik
Balance Sheet as on March 31, 2020
The partners have been sharing profits in the ratio of 5:3:2. Malik decides to retire from business on April 1, 2020 and his the business is to be calculated as per the following terms of revaluation of assets and liabilities:
Stock, Rs.20,000; Office furniture, Rs.14,250; Plant and Machinery Rs.23,530; Land and Building Rs.20,000
A provision of Rs.1,700 to be created for doubtful debts. The goodwill of the firm is valued at Rs.9,000.
The continuing partners agreed to pay Rs.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.
Solution:-
In the books of Jain and Gupta
Dr. Revaluation Account Cr.
Working Note:
Malik’s share of goodwill = total goodwill * Retiring Partners Share
= 9,000 * 2/10
= Rs.1,800
Gaining Ratio = New Ratio – Old Ratio
Jain’s Gaining share = 5/8 – 5/10
= 50 – 40/80
= 10/80
Gupta’s Gaining share = 3/8 – 3/10
= 30 – 24/80
= 6/80
Gaining Ratio between Jain and Gupta = 10:6
= 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, 2020 stood as follows:
Books of Arti, Bharti and Seema
Balance Sheet as on March 31, 2020
Bharti died on June 12, 2020 and according to the deed of the said partnership, her executors are entitled to be paid as under:
- The capital to her credit at the time of her death and interest thereon @ 10% per annum.
- Her proportionate share of reserve fund.
- Her share of profits for the intervening period will be based on the sales during that period, which were calculated as Rs.1,00,000. The rate of profit during past three years had been 10% on sales.
- 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 year were:
2017 – Rs.8,200
2018 – Rs.9,000
2019 – Rs.9,800
The investments were sold for Rs.16,200 and her executors were paid out. Pass the necessary journal entries and write the account of the executors of Bharti.
Solution:-
Journal
Working Note:
Bharti’s share of profit = Profit is 10% of sales
Sales during the last year for that period were Rs.1,00,000
If sales are Rs.1,00,000 then the profit is Rs.10,000
Bharti’s Share = 10,000 * 2/6
Bharti’s Share of Goodwill
Goodwill of the firm = Average profit * Number of Years Purchase
Average Profit = 8,200 + 9,000 + 9,800/3
= Rs.9,000
9,000 – 20% of 9,000 = 9,000 – 1,800
= Rs.7,200
Goodwill of the firm = 7,200 x 2
= 14,400
Bharti’s Share = 14,400 * 2/6
= Rs.4,800
Gaining Ratio = New Ratio – Old Ratio
Arti’s Gaining Share = 3/4 – 3/6
= 9 – 6/12
= 3/12
Seema’s Gaining Share = 1/4 – 1/6
= 3 – 2/12
= 1/12
Gaining ratio between Arti and Seema = 3:1
Interest on Capital for 73 days, i.e. from April 1. 2020 to June 12, 2020
Interest on capital = Amount of Capital * Ratio of Interest * Period
= 21,000* 10/100 * 73/365
= Rs.240
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, 2020 was as follows:
Books of Nithya, Sathya and mithya
Balance Sheet at March 31, 2020
Mithya dies on August 1, 2020. The agreement between the executors of Mithya and the partners stated that:
- Goodwill of the firm be valued at 2 ½ times average profit of last four years. The profits of four years were : in 2016-17, Rs.13,000; in 2017-18, Rs.12,000; in 2018-19, Rs.16,000; and in 2014-15, Rs.15,000.
- The patents are to be valued at Rs.8,000, Machinery at Rs.25,000 and Premises at Rs.25,000.
- The share of profit of Mithya should be calculated on the basis of the profit of 2019-20.
- Rs.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, 2020 after giving effect to the adjustments.
Solution:-
Journal
Mithya’s Share of Profit:
Previous year’s profit – proportionate period – share of profit
Mithya’s share of Goodwill
Goodwill of a firm = Average profit – Number of year’s Purchase
Average Profit = 13,000 + 12,000 + 16,000 +15,000/4
= Rs.14,000
Goodwill of the firm = 14,000 * 2.5
= Rs.35,000
Mithya’s share of goodwill = 35,000 * 2/10
= 7,000
Gaining Ratio = New Ratio – Old Ratio
Nithya’s Gaining Share = 5/8 – 5/10
= 25 – 20/40
= 5/40
Sahtya’s Gaining Share = 3/8 – 3/10
= 15 – 12/40
= 3/40
Gaining Ratio between Nithya and Sathya = 5:3