NCERT Solutions for Class 12 Accountancy Chapter 4 Reconstitution of a Partnership Firm: Retirement/Death of a Partner

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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.

$$\textbf{Ans.}\space\text{Gaining Share = New Share – Old Share}\\ \text{Sadhna’s Gaining Share} = \frac{5}{8}-\frac{3}{9}=\frac{45-24}{72}=\frac{21}{72}\\ \text{Sadhna’s Gaining Share} = \frac{3}{8}-\frac{2}{9}=\frac{27-16}{72}=\frac{11}{72}\\ \text{Gaining Ratio between Sadhna and Kamana} = 21 : 11$$

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)

$$\text{Working Notes:}\\ 1.\space\text{Jaya’s Share of Goodwill} = ₹36,000 ×\frac{2}{6}=₹12,000\\ 2.\space\text{Calculation of Gaining Ratio}\\ \text{Gaining Share = New Share – Old Share}\\ \text{Kirti’s Gain} =\frac{1}{3}-\frac{1}{6}=\frac{2-1}{6}=\frac{1}{6}\\ \text{Kirti’s Gain} =\frac{1}{3}-\frac{2}{6}=\frac{2-2}{6}=\frac{0}{6}[\text{Neither Gain nor Sacrifice}]\\ \text{Shewata’s Gain} =\frac{1}{3}-\frac{1}{6}=\frac{2-1}{6}=\frac{1}{6}\\ \text{Hence, Gaining ratio between Kirti and Shewata}\space\frac{1}{6}:\frac{1}{6}=1 : 1$$

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

$$\text{Working Notes}:\\ 1.\space\text{Calculation of Gaining Ratio}\\ \text{Gaining Share = New Share – Old Share}\\ \text{Deepa’s Gaining Share} =\frac{2}{5}-\frac{5}{10}=\frac{4-5}{10}=-\frac{1}{10}=\frac{1}{10}\space i.e., \text{Sacrifice}.\\ \text{Shilpa Gaining share} =\frac{3}{5}-\frac{2}{10}=\frac{6-2}{10}=\frac{4}{10}\space i.e., \text{Sacrifice}.\\ \text{2. Hence, Shilpa will compensate both Neeru (retiring partner)}\\ \text{and Deepa (continuing partner who has sacrificed) to the extent of their sacrifice worked out as follows:}\\ \text{ Deepa’s Sacrifice = Goodwill of the firm × Sacrificing Share}\\ = ₹1,20,000 ×\frac{1}{10}= ₹12,000\\ \text{Neeru’s (Retiring Partner) Sacrifice} = ₹1,20,000 ×\frac{3}{10}= ₹36,0000$$

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

$$\text{Ashish’s Gain =}\frac{3}{5}-\frac{5}{10}=\frac{6-5}{10}=\frac{1}{10}\\\text{Lokesh’s Gain =}\frac{2}{5}-\frac{2}{10}=\frac{4-2}{10}=\frac{2}{10}\\\text{Gaining Ratio of Ashish and Lokesh = 1 : 2,}\\\textbf{2. Calculation of Suresh’s Share of Goodwill:}\\\text{Goodwill of Firms =₹2,00,000}\\\text{Suresh’s Share of Goodwill =}\frac{3}{10}×₹2,00,000=₹60,000\\\text{Which will be compensated by Ashish and Lokesh in their gaining ratio i.e., 1 : 2.}$$

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