NCERT Solutions for Class 12 Accountancy Partnership Accounts Chapter 3

Reconstitution of a Partnership Firm - Retirement/Death of a partner Class 12

Chapter 3 Reconstitution of a Partnership Firm - Retirement/Death of a partner Exercise Solutions

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Short answers : Solutions of Questions on Page Number : 217

Q1 :  

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


Answer :

The following are the different ways in which a partner can retire from a firm.

i. With the consent of all other partners: A partner must take the consent of all the co-partners of the firm before his/her retirement. Thereafter, the partner can retire from the firm if and only if all the partners agree on the decision of his/her retirement.

ii) With an express agreement by all the partners: In case of written agreement among the partners a partner may retire from the firm by expressing his/her intention of leaving the firm though a notice to the other partners of the firm.

iii) By giving a written notice: If partnership among the partners is at will then a partner may retire by giving notice in writing to all the other partners informing them about his/her intention to retire.

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Q2 :  

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


Answer :

The following are the various matters that need to be adjusted at the time of retirement of partners/partner.

1. Calculation of new gaining ratio of all the remaining partners of the firm.

2. Calculation of new ratio of the remaining partners of the firm.

3. Calculation of goodwill of the new firm and its accounting treatment.

4. Revaluation of assets and liabilities of the new firm.

5. Distribution of accumulated profits and losses and reserves among all the partners (including the retiring partner).

6. Treatment of Joint Life Policy

7. Settlement of the amount due to the retiring partner

8. Adjustment of capital accounts of the remaining partners in their new profit sharing ratio.

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Q3 :  

Distinguish between sacrificing ratio and gaining ratio.


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<< Previous Chapter 2 : Reconstitution of a Partnership Firm - Admission of a Partner Next Chapter 4 : Dissolution of Partnership Firm >>

Short answersnumerical questionslong answers : Solutions of Questions on Page Number : 218

Q1 :  

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. Pass necessary Journal entries.


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Q2 :  

Explain the modes of payment to a retiring partner.


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Q3 :  

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.


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Q4 :  

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


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Q5 :  

Himanshu, Gagan and Naman are partners sharing profits and losses in the ratio of 3:2:1. On March 31, 2007, 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:

(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 bed and doubtful debts.

(iv)

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.


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Q6 :  

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


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Q7 :  

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


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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 Reserves Rs 36,000 and Profit and Loss Account (Dr.) Rs 15,000.

Pass the necessary journal entries to the above effect.


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Q9 :  

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


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Q10 :  

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


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<< Previous Chapter 2 : Reconstitution of a Partnership Firm - Admission of a Partner Next Chapter 4 : Dissolution of Partnership Firm >>

Numerical questions : Solutions of Questions on Page Number : 219

Q1 :  

 

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, 2007 was as follows:

 

Liabilities

Amount

Rs

Assets

Amount

Rs

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, 2007 on the following terms:

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

(ii)   Bad debts amounting to Rs 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.

 

 


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Q2 :  

 

Radha, Sheela and Meena were in partnership sharing profits and losses in the proportion of 3:2:1. On April 1, 2007, Sheela retires from the firm. On that date, their Balance Sheet was as follows:

 

Liabilities

Amount

Rs

Assets

Amount

Rs

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 Rs 13,000.

b) Expenses owing to be brought down to Rs 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 Rs 24,300.

Prepare:

1. Revaluation account

2. Partner's capital accounts and

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

 

 


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Q3 :  

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, 2007

 

Liabilities

Amount Rs

Assets

Amount Rs

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 Rs 1,200 and furniture to be brought up to Rs 45,000*.

(The amount of Rs 450 that is being given in the book for furniture is a mistake, as it should be Rs 45,000)

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

(iii) 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 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.


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Q4 :  

 

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, 2007 was as follows:

 

Books of Puneet, Pankaj and Pammy

 

 

Balance Sheet as on March 31, 2007

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

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, 2007. 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 2003-04; Rs 80,000; for 2004-05, Rs 50,000; for 2005-06, Rs 40,000; for 2006-07, 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.

 

 


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Q5 :  

 

Following is the Balance Sheet of Prateek, Rockey and Kushal as on March 31, 2007.

 

Books of Prateek, Rockey and Kushal

 

 

Balance Sheet as on March 31, 2007

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

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, 2007. 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, 2005, March 31, 2006 and March 31, 2007 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.

 

 


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Q6 :  

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, 2007 was as follows:

Books of Suri, Narang and Bajaj

Balance Sheet as on April 1, 2007

 

Liabilities

Amount

Rs

Assets

Amount

Rs

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

30,000*

 

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 Rs 1,500.

d) Goodwill is valued at Rs 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.

*In the given Question Suri's Capital is Rs 30,000 instead of Rs 20,000.


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Q7 :  

The Balance Sheet of Rajesh, Pramod and Nishant who were sharing profits in proportion to their capitals stood as on March 31, 2007:

 

Books of Rajesh, Pramod and Nishant

 

Balance Sheet as on March 31, 2007

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

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 Rs 265.

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

f) The capital of the new firm be fixed at Rs 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.

 


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Q8 :  

Following is the Balance Sheet of Jain, Gupta and Malik as on March 31, 2002.

                                        

Books of Jain, Gupta and Malik

Balance Sheet as on March 31, 2002

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

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, 2002 and his share in 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.


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Q9 :  

Arti, Bharti and Seema are partners sharing profits in the proportion of 3:2:1 and their Balance Sheet as on March 31, 2003 stood as follows:

 

Books of Arti, Bharti and Seema

 

Balance Sheet as on March 31, 2003

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

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, 2003 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 Rs 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:

2001 - Rs 8,200

2002 - Rs 9,000

2003 - 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.

 

 


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Q10 :  

Nithya, Sathya and Mithya were partners sharing profits and losses in the ratio of 5:3:2. Their Balance Sheet as on December 31, 2002 was as follows:

 

Books of Nithya, Sathya and Mithya

 

Balance Sheet at December 31, 2002

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

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 May 1, 2002. 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 1998, Rs 13,000; in 1999, Rs 12,000; in 2000, Rs 16,000; and in 2001, Rs 15,000.

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

(c) The share of profit of Mithya should be calculated on the basis of the profit of 2002.

(d) 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 May 1, 2002 after giving effect to the adjustments.


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