NCERT Solutions for Class 12 Accountancy Chapter 4 Reconstitution of a Partnership Firm: Retirement/Death of a Partner
Q. Ranjana, Sadhna and Kamana are partners sharing profits in the ratio 4 : 3 : 2. Ranjana retires: Sadhna and Kamana decided to share future profits in the ratio of 5 : 3. Calculate the Gaining Ratio.
$$\textbf{Ans.}\space\text{Gaining Share = New Share – Old Share}\\ \text{Sadhna’s Gaining Share} = \frac{5}{8}\frac{3}{9}=\frac{4524}{72}=\frac{21}{72}\\ \text{Sadhna’s Gaining Share} = \frac{3}{8}\frac{2}{9}=\frac{2716}{72}=\frac{11}{72}\\ \text{Gaining Ratio between Sadhna and Kamana} = 21 : 11$$
Q. Jaya, Kirti, Ekta and Shewata are partners in a firm sharing profits and losses in the ratio of 2 : 1 : 2 : 1. On Jaya’s retirement, the goodwill of the firm is valued at ₹36,000. Kirti, Ekta and Shewata decided to share future profits equally. Record the necessary journal entry for the treatment of goodwill without opening ‘Goodwill Account’.
Ans.
Books of Kirti, Ekta and Shewata
Journal
Date  Particulars  L. F. 
Debit (₹) 
Credit (₹) 

Kirti’s Capital A/c  Dr.  6,000  
Shewata’s Capital A/c  Dr.  6,000  
To Jaya’s Capital A/c  12,000  
(Being Jaya’s share of goodwill adjusted to remaining partners in their gaining ratio) 
$$\text{Working Notes:}\\ 1.\space\text{Jaya’s Share of Goodwill} = ₹36,000 ×\frac{2}{6}=₹12,000\\ 2.\space\text{Calculation of Gaining Ratio}\\ \text{Gaining Share = New Share – Old Share}\\ \text{Kirti’s Gain} =\frac{1}{3}\frac{1}{6}=\frac{21}{6}=\frac{1}{6}\\ \text{Kirti’s Gain} =\frac{1}{3}\frac{2}{6}=\frac{22}{6}=\frac{0}{6}[\text{Neither Gain nor Sacrifice}]\\ \text{Shewata’s Gain} =\frac{1}{3}\frac{1}{6}=\frac{21}{6}=\frac{1}{6}\\ \text{Hence, Gaining ratio between Kirti and Shewata}\space\frac{1}{6}:\frac{1}{6}=1 : 1$$
Q. Deepa, Neeru and Shilpa were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Neeru retired and the new profit sharing ratio between Deepa and Shilpa was 2 : 3. On Neeru’s retirement, the goodwill of the firm was valued of ₹1,20,000. Record necessary journal entry for the treatment of goodwill on Neeru’s retirement.
Ans.
In the Books of Deepa and Shilpa Journal
Journal
$$\text{Working Notes}:\\ 1.\space\text{Calculation of Gaining Ratio}\\ \text{Gaining Share = New Share – Old Share}\\ \text{Deepa’s Gaining Share} =\frac{2}{5}\frac{5}{10}=\frac{45}{10}=\frac{1}{10}=\frac{1}{10}\space i.e., \text{Sacrifice}.\\ \text{Shilpa Gaining share} =\frac{3}{5}\frac{2}{10}=\frac{62}{10}=\frac{4}{10}\space i.e., \text{Sacrifice}.\\ \text{2. Hence, Shilpa will compensate both Neeru (retiring partner)}\\ \text{and Deepa (continuing partner who has sacrificed) to the extent of their sacrifice worked out as follows:}\\ \text{ Deepa’s Sacrifice = Goodwill of the firm × Sacrificing Share}\\ = ₹1,20,000 ×\frac{1}{10}= ₹12,000\\ \text{Neeru’s (Retiring Partner) Sacrifice} = ₹1,20,000 ×\frac{3}{10}= ₹36,0000$$
Date  Particulars  L. F. 
Debit (₹) 
Credit (₹) 

Shilpa’s Capital A/c  Dr.  48,000  
To Neeru’s Capital A/c  36,000  
To Deepa’s Capital A/c  12,000  
(Being Shilpa compensated Neeru for her share of goodwill and to Deepa for the sacrifice made by her on Neeru’s retirement) 
Q. to adjust the capitals of Asha and Lata in their new profit sharing ratio. You are required to calculate the new capitals of the partners and record necessary journal entries for bringing in or withdrawal of the necessary amounts involved.
Ans. (i) Calculation of new capitals of the existing partners
Balance in Asha's Capital (after all adjustments)  =  1,60,000 
Balance in Lata's Capital  =  80,000 
Total Capital of the New Firm  =  2,40,000 
$$\text{Based on the new profit sharing ratio of 3 : 1}\\\text{Asha’s New Capital =}\space₹2,40,000×\frac{3}{4}=₹1,80,000\\\text{Lata’s New Capital}=₹2,40,000×\frac{1}{4}=₹60,000$$
Note : The total capital of the new firm is based on the sum of the balance in the capital accounts of the continuing partners.
(ii) Calculation of cash to be brought in or withdrawn by the continuing partners:
Asha  Lata  
₹  ₹  
New Capital  1,80,000  60,000 
Existing Capital  1,60,000  80,000 
(iii) Cash to be brought in or (paid off)  20,000  20,000 
Books of Asha and Lata
Journal
Date  Particulars  L. F. 
Debit (₹) 
Credit (₹) 

Cash A/c  Dr.  20,000  
To Asha’s Capital A/c  20,000  
(Being cash brought by Asha)  
Lata's Capital A/c  Dr.  20,000  
To Cash A/c  20,000  
(Being surplus capital withdrawn by Lata) 
Q. Lalit, Pankaj and Rahul are partners sharing profits in the ratio of 4 : 3 : 3. After all adjustments, on Lalit's retirement with respect to general reserve, goodwill and revaluation etc., the balances in their capital accounts stood at `70,000 `60,000 and `50,000 respectively. It was decided that the amount payable to Lalit will be brought by Pankaj and Rahul in such a way as to make their capitals proportionate to their profit sharing ratio. Calculate the amount to be brought by Pankaj and Rahul and record necessary journal entries for the same. Also record necessary entry for payment to Lalit.
After Lalit's retirement, the new profit sharing ratio between Pankaj and is 3 : 3,i.e. 1 : 1.
Ans. (i) Calculation of total capital of the new firm:
Balance in Pankaj’s Capital Account (after adjustment)  =  60,000 
Balance in Rahul’s Capital Account (after adjustment)  =  50,000 
Amount payable to Lalit (Retiring partner)  =  70,000 
Total capital of new firm  =  1,80,000 
(ii) Calculation of new capitals of the continuing partners:
$$\text{Pankaj’s New Capital}=₹1,80,000×\frac{1}{2}=₹90,000\\\text{Rahul’s New Capital}=₹1,80,000×\frac{1}{2}=₹90,000\\$$
(iii) Calculation of the amounts to be brought in or withdrawn by the continuing partners
Particulars  Pankaj (₹) 
Rahul (₹) 
New Capital (₹1,80,000 in the ratio of 1 : 1)  90,000  90,000 
Existing Capital (after adjustment)  60,000  50,000 
Cash to be brought in  30,000  40,000 
Books of Pankaj and Rahul
Journal
Date  Particulars  L. F. 
Debit (₹) 
Credit (₹) 

To Pankaj's Capital A/c  30,000  
To Rahul's Capital A/c  40,000  
(Being amount brought in by Pankaj and Rahul)  
Lalit’s Capital A/c  Dr.  70,000  
To Cash A/c  70,000  
(Being amount paid to Lalit on retirement) 
Q. The Balance Sheet of Ashish, Suresh and Lokesh who were sharing profits in the ratio of 5 : 3 : 2, is given below as on March 31, 2017.
Balance Sheet of Ashish, Suresh and Lokesh
as at March 31, 2017
Liabilities  Amount (₹) 
Assets  Amount (₹) 

Capitals:  Land  4,00,000  
Ashish  7,20,000  Buildings  3,80,000  
Suresh  4,15,000  Plant & Machinery  4,65,000  
Lokesh  3,45,000 
14,80,000  Furniture & Fittings  77,000 
Reserve Fund  1,80,000  Stock  1,85,000  
Sundry Creditors  1,24,000  Sundry Debtors  1,72,000  
Outstanding Expenses  16,000  Cash in Hand  1,21,000  
18,00,000  Cash in Hand  18,00,000 
Suresh retires on the above date and the following adjustments are agreed upon his retirement:
 (i) Stock was valued at ₹1,72,000.
 (ii) Furniture and fittings were valued at ₹80,000.
 (iii) An amount of ₹10,000 due from Mr. Deepak, a debtor, was doubtful and a provision for the same was required.
 (iv) Goodwill of the firm was valued at ₹2,00,000, but it was decided not to show goodwill in the books of accounts.
 (v) Suresh was paid ₹40,000 immediately on retirement and the balance was transferred to his loan account.

(vi) Ashish and Lokesh were to share future profits in the ratio of 3 : 2.
Prepare Revaluation Account, Partner’s Capital Accounts and Balance Sheet of the reconstituted firm.
Ans.
In the Books of Ashish, Suresh and Lokesh
Dr.
Revaluation Account
Cr.
Particulars  Amount (₹) 
Particulars  Amount (₹) 

To Stock A/c  13,000  By Furniture & Fittings A/c  3,000  
To Provision for Doubtful Debts A/c  10,000  By Loss on Revaluation transferred to:  
Ashish’s Capital  10,000  
Suresh’s Capital  6,000  
Lokesh’s Capital  4,000 
20,000  
23,000  23,000 
Dr.
Partners’ Capital Accounts
Cr.
Date 2017 
Particulars  Ashish (₹) 
Suresh (₹) 
Lokesh (₹) 
Particulars  Ashish (₹) 
Suresh (₹) 
Lokesh (₹) 
Mar. 31  To Reval. (Loss) A/c  10,000  6,000  4,000  By Balance b/d  7,20,000  4,15,000  3,45,000 
To Suresh’s  By Reserve Fund A/c  90,000  54,000  36,000  
Capital A/c  20,000  —  40,000  By Ashish’s A/c  
To Cash  —  40,000  —  Capital A/c  —  20,000  —  
To Suresh’s Loan A/c  —  4,83,000    Lokesh’s Capital A/c    40,000  —  
To Balance c/d  7,80,00  —  3,37,000  
8,10,000  5,29,000  3,81,000  8,10,000  5,29,000  3,81,000 
Balance Sheet of Ashish and Lokesh
as at April 01, 2017
Liabilities  Particulars  Ashish (₹) 
Suresh (₹) 
Lokesh (₹) 
Particulars  Ashish (₹) 
Suresh (₹) 
Lokesh (₹) 
Mar. 31  To Reval. (Loss) A/c  10,000  6,000  4,000  By Balance b/d  7,20,000  4,15,000  3,45,000 
To Suresh’s  By Reserve Fund A/c  90,000  54,000  36,000  
Capital A/c  20,000  —  40,000  By Ashish’s A/c  
To Cash  —  40,000  —  Capital A/c  —  20,000  —  
To Suresh’s Loan A/c  —  4,83,000    Lokesh’s Capital A/c    40,000  —  
To Balance c/d  7,80,00  —  3,37,000  
8,10,000  5,29,000  3,81,000  8,10,000  5,29,000  3,81,000 
Balance Sheet of Ashish and Lokesh
as at April 01, 2017
Liabilities  Amount (₹) 
Assets  Amount (₹) 

Capitals:  Land  4,00,000  
Ashish  7,80,000  Buildings  3,80,000  
Lokesh  3,37,000 
11,17,000  Plant and Machinery  4,65,000  
Suresh's Loan  4,83,000  Furniture & Fittings  80,000  
Sundry Creditors  1,24,000  Stock  1,72,000  
Outstanding Expenses  16,000  Sundry Debtors  1,72,000  
Less: Provision for  
Doubtful Debts  10, 000 
1,62,000  
Cash is Hand  (₹1,21,000 – ₹40,000)  81,000  
17,40,000  Cash is Hand  (₹1,21,000 – ₹40,000)  17,40,000 
Working Notes:
1. Calculation of Gaining Ratio:
Old Ratio of Ashish, Suresh and Lokesh = 5 : 3 : 2
New Ratio of Ashish and Lokesh = 3 : 2
Gaining Share = New Share – Old Share
$$\text{Ashish’s Gain =}\frac{3}{5}\frac{5}{10}=\frac{65}{10}=\frac{1}{10}\\\text{Lokesh’s Gain =}\frac{2}{5}\frac{2}{10}=\frac{42}{10}=\frac{2}{10}\\\text{Gaining Ratio of Ashish and Lokesh = 1 : 2,}\\\textbf{2. Calculation of Suresh’s Share of Goodwill:}\\\text{Goodwill of Firms =₹2,00,000}\\\text{Suresh’s Share of Goodwill =}\frac{3}{10}×₹2,00,000=₹60,000\\\text{Which will be compensated by Ashish and Lokesh in their gaining ratio i.e., 1 : 2.}$$