Retirement/Death of a Partner (Part - 1) | Accountancy Class 12 - Commerce PDF Download

Page No 6.77:

Question 1: A, B and C were partners sharing profits in the ratio of 1/2, 2/5 and 1/10. Find the new ratio of the remaining partners if C retires.
ANSWER:

As we can see, no information is given as to how A and B are acquiring C's profit share after his retirement, so the new profit sharing ratio between A and B is calculated just by crossing out the C's share. That is, the new ratio becomes 5 : 4.
∴ New Profit Ratio (A and B) = 5 : 4
Ans: Convert the fractions to a common base to compare A and B directly. A = 1/2 = 5/10 and B = 2/5 = 4/10, so A : B = 5 : 4. When C (1/10) retires and no redistribution method is stated, simply remove C's share and retain the proportion between A and B as 5 : 4.

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Question 2: From the following particulars, calculate new profit-sharing ratio of the partners:
(a) Shiv, Mohan and Hari were partners in a firm sharing profits in the ratio of 5 : 5 : 4. Mohan retired and his share was divided equally between Shiv and Hari.
(b) P, Q and R were partners sharing profits in the ratio of 5 : 4 : 1. P retires from the firm.
ANSWER:

(b) Old Ratio (P, Q and R) = 5 : 4 : 1
P's Profit Share =
As we can see, no information is given as to how Q and R are acquiring P's profit share after his retirement, so the new profit sharing ratio between Q and R is calculated just by crossing out the P's share. That is, the new ratio becomes 4 : 1
∴ New Profit Ratio (Q and R) = 4 : 1
Ans (a): Mohan's share = 5 parts. It is divided equally between Shiv and Hari, so each gets 2½ parts (i.e. 5/2). New shares: Shiv = 5 + 2½ = 7½, Hari = 4 + 2½ = 6½. Simplify by multiplying by 2: Shiv : Hari = 15 : 13.
Ans (b): Remove P's share (5 parts). Q and R retain their relative proportions 4 : 1, so new ratio for Q and R = 4 : 1.

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Question 3: R, S and M are partners sharing profits in the ratio of 2/5, 2/5 and 1/5. M decides to retire from the business and his share is taken by R and S in the ratio of 1 : 2. Calculate the new profit-sharing ratio.
ANSWER:

Ans: (Solution shown in the image placeholders. No textual data to alter.)

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Question 4: A, B and C were partners sharing profits in the ratio of 4 : 3 : 2. A retires, assuming B and C will share profits in the ratio of 2 : 1. Determine the gaining ratio.
ANSWER:
Old Ratio (A, B and C) = 4 : 3 : 2
New Ratio (B and C) = 2 : 1

Ans: First express old shares as fractions of the firm: B = 3/9 = 1/3 and C = 2/9. After A retires, B and C share as 2 : 1 so B(new) = 2/3 and C(new) = 1/3. Calculate gains: B's gain = 2/3 - 1/3 = 1/3. C's gain = 1/3 - 2/9 = 3/9 - 2/9 = 1/9. Gaining ratio B : C = (1/3) : (1/9) = 3 : 1.

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Question 5: X, Y and Z are partners sharing profits in the ratio of 1/2, 3/10, and 1/5. Calculate the gaining ratio of remaining partners when Y retires from the firm.
ANSWER:

Ans: Remove Y's share (3/10). Remaining old shares are X = 1/2 = 5/10 and Z = 1/5 = 2/10, so new ratio X : Z = 5 : 2. New shares become X(new) = 5/7 and Z(new) = 2/7. Gains: X gain = 5/7 - 1/2 = 3/14; Z gain = 2/7 - 1/5 = 3/35. Gaining ratio = (3/14) : (3/35) = 1/14 : 1/35 = 5 : 2. Thus gaining ratio of X and Z is 5 : 2.

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Question 6: (a) W, X, Y and Z are partners sharing profits and losses in the ratio of 1/3, 1/6, 1/3 and 1/6 respectively. Y retires and W, X and Z decide to share the profits and losses equally in future.
Calculate gaining ratio.
(b) A, B and C are partners sharing profits and losses in the ratio of 4 : 3 : 2. C retires from the business. A is acquiring 4/9 of C's share and balance is acquired by B. Calculate the new profit-sharing ratio and gaining ratio.
ANSWER:

Ans (a): Old shares: W = 1/3, X = 1/6, Z = 1/6. After Y retires the three share equally so each new share = 1/3. Gains: W gain = 1/3 - 1/3 = 0; X gain = 1/3 - 1/6 = 1/6; Z gain = 1/3 - 1/6 = 1/6. Gaining ratio among W, X, Z is 0 : 1 : 1 - effectively X and Z gain equally (1 : 1), W has no gain.
Ans (b): C's share = 2/9. A acquires (4/9) of C's share = (4/9)×(2/9) = 8/81. B acquires remaining (5/9) of C's share = (5/9)×(2/9) = 10/81. New shares: A = 4/9 + 8/81 = 36/81 + 8/81 = 44/81. B = 3/9 + 10/81 = 27/81 + 10/81 = 37/81. New ratio A : B = 44 : 37. Gains: A gain = 8/81 and B gain = 10/81, so gaining ratio = 8 : 10 = 4 : 5.

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Question 7: Kumar, Lakshya, Manoj and Naresh are partners sharing profits in the ratio of 3 : 2 : 1 : 4. Kumar retires and his share is acquired by Lakshya and Manoj in the ratio of 3 : 2. Calculate new profit-sharing ratio and gaining ratio of the remaining partners.
ANSWER:

Ans: Total parts = 3 + 2 + 1 + 4 = 10. Kumar's share = 3/10. This 3/10 is divided between Lakshya and Manoj in 3 : 2, so Lakshya gets (3/5)×3/10 = 9/50 and Manoj gets (2/5)×3/10 = 6/50 = 3/25. New shares (expressed with denominator 50): Lakshya = 2/10 = 10/50 + 9/50 = 19/50; Manoj = 1/10 = 5/50 + 6/50 = 11/50; Naresh = 4/10 = 20/50. New profit-sharing ratio Lakshya : Manoj : Naresh = 19 : 11 : 20. Gaining ratio between Lakshya and Manoj = 9 : 6 = 3 : 2.

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Question 8: A, B, and C were partners in a firm sharing profits in the ratio of 8 : 4 : 3. B retires and his share is taken up equally by A and C. Find the new profit-sharing ratio.
ANSWER:

Ans: B's share = 4 parts. When it is taken equally by A and C, each gets 2 parts. New A = 8 + 2 = 10, New C = 3 + 2 = 5. New ratio A : C = 10 : 5 = 2 : 1. Thus new profit-sharing ratio A : B (B is retired) is 2 : 1 for A and C.

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Question 9: A, B, and C are partners sharing profits in the ratio of 5 : 3 : 2. C retires and his share is taken by A. Calculate new profit-sharing ratio of A and B.
ANSWER:

Ans: C's share = 2 parts. A takes whole of C's share, so new A = 5 + 2 = 7 and B remains 3. New profit-sharing ratio A : B = 7 : 3.

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Question 10: P, Q and R are partners sharing profits in the ratio of 7 : 5 : 3. P retires and it is decided that profit-sharing ratio between Q and R will be same as existing between P and Q. Calculate New profit-sharing ratio and Gaining Ratio.
ANSWER:

Ans: Existing ratio between P and Q is 7 : 5. So Q : R (new) = 7 : 5. Thus Q(new) = 7/12 and R(new) = 5/12. Old shares: Q(old) = 5/15 = 1/3 and R(old) = 3/15 = 1/5. Gains: Q gain = 7/12 - 1/3 = 7/12 - 4/12 = 3/12 = 1/4. R gain = 5/12 - 1/5 = 25/60 - 12/60 = 13/60. Gaining ratio = (1/4) : (13/60) = 15 : 13. New profit-sharing ratio Q : R = 7 : 5; gaining ratio = 15 : 13.

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Question 11: Murli, Naveen and Omprakash are partners sharing profits in the ratio of 3/8, 1/2 and 1/8. Murli retires and surrenders 2/3rd of his share in favour of Naveen and remaining share in favour of Omprakash. Calculate new profit-sharing ratio and gaining ratio of the remaining partners.
ANSWER:

Ans: Murli's share = 3/8. Two-thirds of this (to Naveen) = (2/3)×3/8 = 1/4. Remaining one-third (to Omprakash) = (1/3)×3/8 = 1/8. New shares: Naveen = 1/2 + 1/4 = 3/4. Omprakash = 1/8 + 1/8 = 1/4. New ratio Naveen : Omprakash = 3 : 1. Gaining ratio (amounts by which they increase) = Naveen gain 1/4 : Omprakash gain 1/8 = 2 : 1.

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Question 12: A, B and C are partners in a firm sharing profits and losses in the ratio of 4 : 3 : 2. B decides to retire from the firm. Calculate new profit-sharing ratio of A and C in the following circumstances:
(a) If B gives his share to A and C in the original ratio of A and C.
(b) If B gives his share to A and C in equal proportion.
(c) If B gives his share to A and C in the ratio of 3 : 1.
(d) If B gives his share to A only.
ANSWER:

Ans: B's share = 3/9 = 1/3.
(a) A : C original = 4 : 2 = 2 : 1. Split B's 1/3 in 2 : 1 → A gets 2/9, C gets 1/9. New A = 4/9 + 2/9 = 6/9 = 2/3; New C = 2/9 + 1/9 = 3/9 = 1/3. So A : C = 2 : 1.
(b) Split equally: each gets 1/6. New A = 4/9 + 1/6 = 11/18; New C = 2/9 + 1/6 = 7/18. So A : C = 11 : 7.
(c) Split in 3 : 1: A gets (3/4)×1/3 = 1/4; C gets (1/4)×1/3 = 1/12. New A = 4/9 + 1/4 = 25/36; New C = 2/9 + 1/12 = 11/36. Ratio A : C = 25 : 11.
(d) If B gives his share to A only: New A = 4/9 + 1/3 = 7/9; New C = 2/9. Ratio A : C = 7 : 2.

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Question 13: L, M and O are partners sharing profits and losses in the ratio of 4 : 3 : 2. M retires and the goodwill is valued at ₹ 72,000. Calculate M's share of goodwill and pass the Journal entry for Goodwill. L and O decided to share the future profits and losses in the ratio of 5 : 3.
ANSWER:

Ans: M's share of goodwill = Total goodwill × M's share = 72,000 × (3/9) = 72,000 × 1/3 = ₹ 24,000.
Gaining ratio: Old shares - L = 4/9, O = 2/9. New shares - L = 5/8, O = 3/8. Gains: L gain = 5/8 - 4/9 = 13/72; O gain = 3/8 - 2/9 = 11/72. Gaining ratio L : O = 13 : 11. M's goodwill (₹ 24,000) is borne by L and O in 13 : 11 i.e. L pays ₹ 13,000 and O pays ₹ 11,000.
Journal Entry:
Journal
L's Capital A/c Dr. ₹ 13,000
O's Capital A/c Dr. ₹ 11,000
To M's Capital A/c ₹ 24,000
(Being M's share of goodwill brought in by gaining partners in their gaining ratio)

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Question 14: P, Q, R and S were partners in a firm sharing profits in the ratio of 5 : 3 : 1 : 1. On 1st January, 2019, S retired from the firm. On S's retirement, goodwill of the firm was valued at ₹ 4,20,000. New profit-sharing ratio among P, Q and R will be 4 : 3 : 3.
Showing your working notes clearly, pass necessary Journal entry for the treatment of goodwill in the books of the firm on S's retirement.
ANSWER:

Ans: S's share of goodwill = ₹ 4,20,000 × (1/10) = ₹ 42,000.
Old shares: P = 5/10, Q = 3/10, R = 1/10. New shares: P = 4/10, Q = 3/10, R = 3/10. Gains (New - Old): P = 4/10 - 5/10 = -1/10 (sacrifice), Q = 3/10 - 3/10 = 0, R = 3/10 - 1/10 = 2/10 (gain). Thus R is the only gaining partner and bears full goodwill of ₹ 42,000.
Journal Entry:
R's Capital A/c Dr. ₹ 42,000
To S's Capital A/c ₹ 42,000
(Being S's share of goodwill paid by R in full as per gaining calculation)

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Question 15: Aparna, Manisha and Sonia are partners sharing profits in the ratio of 3 : 2 : 1. Manisha retired and goodwill of the firm is valued at ₹ 1,80,000. Aparna and Sonia decided to share future profits in the ratio of 3 : 2. Pass necessary Journal entries.
ANSWER:

Ans: Manisha's share of goodwill = 1,80,000 × (2/6) = 60,000. New shares: Aparna = 3/5, Sonia = 2/5. Old shares: Aparna = 3/6 = 1/2, Sonia = 1/6. Gains: Aparna gain = 3/5 - 1/2 = 1/10; Sonia gain = 2/5 - 1/6 = 7/30. Gaining ratio Aparna : Sonia = 3 : 7. Thus Aparna pays 60,000 × 3/10 = 18,000 and Sonia pays 60,000 × 7/10 = 42,000.
Journal Entries:
Aparna's Capital A/c Dr. ₹ 18,000
Sonia's Capital A/c Dr. ₹ 42,000
To Manisha's Capital A/c ₹ 60,000
(Being Manisha's share of goodwill paid by remaining partners in gaining ratio)

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Question 16: A, B and C are partners sharing profits in the ratio of 3 : 2 : 1. B retired and the new profit-sharing ratio between A and C was 2 : 1. On B's retirement, the goodwill of the firm was valued at ₹ 90,000. Pass necessary Journal entry for the treatment of goodwill on B's retirement.
ANSWER:

Ans: B's share of goodwill = 90,000 × (2/6) = 30,000. New A : C = 2 : 1 so A(new) = 2/3 and C(new) = 1/3. Old A = 3/6 = 1/2, old C = 1/6. Gains: A gain = 2/3 - 1/2 = 1/6; C gain = 1/3 - 1/6 = 1/6. Gaining ratio = 1 : 1. Each of A and C brings 15,000 towards B's goodwill.
Journal Entry:
A's Capital A/c Dr. ₹ 15,000
C's Capital A/c Dr. ₹ 15,000
To B's Capital A/c ₹ 30,000
(Being B's share of goodwill borne equally by A and C)

Page No 6.79:

Question 17: Hanny, Pammy and Sunny are partners sharing profits in the ratio of 3 : 2 : 1. Goodwill is appearing in the books at a value of  ₹ 60,000. Pammy retires and at the time of Pammy's retirement, goodwill is valued at ₹ 84,000. Hanny and Sunny decided to share future profits in the ratio of 2 : 1. Record the necessary Journal entries. 
ANSWER:

Working Notes:
WN1: Calculation of Pammy's Share in Goodwill
Pammy's share=Firm's Goodwill×Pammy's Profit Share
Pammy's share=84,000×2/6=28,000 (to be borne by gaining partners in gaining ratio)
WN2: Calculation of Gaining Ratio
Gaining Ratio = New Ratio - Old Ratio

Gaining Ratio=1:1
Ans: Pammy's share of revalued goodwill = ₹ 84,000 × (2/6) = ₹ 28,000. Hanny and Sunny's new shares are 2/3 and 1/3 respectively. Old shares: Hanny 3/6 = 1/2, Sunny 1/6. Gains: Hanny = 2/3 - 1/2 = 1/6; Sunny = 1/3 - 1/6 = 1/6. Gaining ratio = 1 : 1. Each of Hanny and Sunny will bear ₹ 14,000 of Pammy's goodwill.
Since goodwill of ₹ 60,000 is already on the books, usual entries are:
1. To write off existing goodwill from books among old partners in old ratio (3:2:1):
Goodwill A/c Dr. ₹ 60,000
To Hanny's Capital A/c ₹ 30,000
To Pammy's Capital A/c ₹ 20,000
To Sunny's Capital A/c ₹ 10,000
(Being goodwill written off in old profit sharing ratio)
2. To record revalued goodwill share payable to retiring partner (borne by gaining partners):
Hanny's Capital A/c Dr. ₹ 14,000
Sunny's Capital A/c Dr. ₹ 14,000
To Pammy's Capital A/c ₹ 28,000
(Being Pammy's share of revalued goodwill paid by Hanny and Sunny in gaining ratio)

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Question 18: X, Y and Z are partners sharing profits in the ratio of 3 : 2 : 1. Goodwill is appearing in the books at a value of ₹ 60,000. Y retires and at the time of Y's retirement, goodwill is valued at ₹ 84,000. X and Z decided to share future profits in the ratio of 2 : 1. Pass the necessary Journal entries through Goodwill Account.
ANSWER: 

Working Notes:
WN1: Calculation of Gaining Ratio
X :Y :Z=3:2:1(Old ratio)
X :Z = 2:1(New ratio)
Gaining Ratio = New Ratio - Old Ratio

X:Z=1:1
WN2: Calculation of Retiring Partner's Share of Goodwill

Ans: Y's share of revalued goodwill = 84,000 × (2/6) = ₹ 28,000. X and Z gain equally (gaining ratio 1 : 1), so each bears ₹ 14,000.
If goodwill of ₹ 60,000 is already on the books, make following entries:
1. Write off existing goodwill among old partners (3 : 2 : 1):
Goodwill A/c Dr. ₹ 60,000
To X's Capital A/c ₹ 30,000
To Y's Capital A/c ₹ 20,000
To Z's Capital A/c ₹ 10,000
2. Remaining partners bring Y's revalued share of goodwill in gaining ratio and credit Y:
X's Capital A/c Dr. ₹ 14,000
Z's Capital A/c Dr. ₹ 14,000
To Y's Capital A/c ₹ 28,000

Page No 6.79:

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Question 19: A, B and C are partners sharing profits in the ratio of 4/9 : 3/9 : 2/9. B retires and his capital after making adjustments for reserves and gain (profit) on revaluation stands at ₹ 1,39,200. A and C agreed to pay him ₹ 1,50,000 in full settlement of his claim. Record necessary Journal entry for adjustment of goodwill if the new profit-sharing ratio is decided at 5 : 3.
ANSWER:

Working Notes 
i. Calculation of B's share of goodwill
A, B and C are sharing profits in ratio 4/9 : 3/9 : 2/9
B retires from the firm. Remaining partners agreed to pay him Rs 1,50,000
B's capital after making necessary adjustments Rs 1,39,200
Therefore, Hidden Goodwill is Rs (1,50,000 - 1,39,200) i.e. Rs 10,800
ii Gaining Ratio
New profit sharing ratio between A and B is 5:3

Thus, B's share of goodwill will be brought in by A and C in the gaining ratio 13:11 i.e.

Ans: Hidden goodwill = ₹ (1,50,000 - 1,39,200) = ₹ 10,800. New A : C = 5 : 3 ⇒ A(new) = 5/8, C(new) = 3/8. Old A = 4/9, old C = 2/9. Gains: A gain = 5/8 - 4/9 = 13/72; C gain = 3/8 - 2/9 = 11/72. Gaining ratio A : C = 13 : 11. Therefore, A's contribution = 10,800 × 13/24 = ₹ 5,850 and C's contribution = 10,800 × 11/24 = ₹ 4,950.
Journal Entry:
A's Capital A/c Dr. ₹ 5,850
C's Capital A/c Dr. ₹ 4,950
To B's Capital A/c ₹ 10,800
(Being hidden goodwill borne by A and C in gaining ratio on B's retirement)

Question 20: M, N and O are partners in a firm sharing profits in the ratio of 3 : 2 : 1. Goodwill has been valued at ₹ 60,000. On N's retirement, M and O agree to share profits equally. Pass the necessary Journal entry for treatment of N's share of goodwill.
ANSWER:

 
Ans: N's share of goodwill = ₹ 60,000 × (2/6) = ₹ 20,000. New M : O = 1 : 1 so M(new) = 1/2 and O(new) = 1/2. Old M = 3/6 = 1/2, old O = 1/6. Gains: M gain = 0; O gain = 1/2 - 1/6 = 1/3. Thus only O gains and will bear full ₹ 20,000 of N's goodwill.
Journal Entry:
O's Capital A/c Dr. ₹ 20,000
To N's Capital A/c ₹ 20,000
(Being N's share of goodwill borne by O on N's retirement)