Reconstitution of a Partnership Firm Retirement/Death of a PartnerWorksheet

Q21: Alok, Narendra and Shiv were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Goodwill appeared at ₹ 90,000 and general reserve at ₹ 50,000 in the books of the firm. Narendra decided to retire from the firm. On the date of his retirement, goodwill of the firm was valued at f 2,40,000. The new profit sharing ratio of Alok and Shiv was 2 : 3. Record necessary journal entries on Narendra's retirement.
Ans:

Working Note:
Calculation of Gaining Ratio
Gaining Ratio = New Share - Old Share

On retirement of a partner follow these steps:
- Write off any existing goodwill recorded in the books among partners in their old profit sharing ratio.
- Bring in the revalued goodwill (or adjust the excess of revalued goodwill over book goodwill) and adjust the retiring partner's share either by crediting his capital account or by asking the continuing partners to pay in their gaining ratio.
- Transfer the general reserve to partners' capital accounts in the old profit sharing ratio.
- Close revaluation/profit or loss on revaluation to partners' capital accounts in the old ratio.
- Finally, settle the retiring partner's amount as per the agreed terms (cash, loan, instalments).
Q22: Raman, Ratan and Rajan were partners sharing profits in the ratio of 4 : 2 : 1 respectively. Following was their balance sheet as at 31st March, 2013.

On the above date, Raman retired and following were agreed
(i) The assets and liabilities were valued as: stock ₹ 24,000; debtors ₹ 21,000; building ₹ 45,200; plant ₹ 50,000 and creditors ₹ 28,000.
(ii) Amount due to Raman will be transferred to Raman's loan account.
Prepare revaluation account and Raman's capital account.
Ans:

Solution approach:
- Prepare a Revaluation Account to record increases and decreases in assets and liabilities; the net profit or loss on revaluation is transferred to partners' capital accounts in the old profit sharing ratio (4 : 2 : 1).
- Transfer the net effect to Raman's capital account and then move the final payable balance to Raman's loan account as agreed.
- Ensure all adjustments (debtors, stock, building, plant, creditors) are entered with correct signs and partners' capitals updated accordingly.
Q23: Sameer, Yasmin and Saloni were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 3. On 31st March, 2016, their balance sheet was as follows:

On the above date, Sameer retired and it was agreed that
(i) Debtors of ₹ 4,000 will be written-off as bad debts and a provision of 5% on debtors for bad and doubtful debts will be maintained.
(ii) An unrecorded creditor of ₹ 20,000 will be recorded.
(iii) Patents will be completely written-off and 5% depreciation will be charged on stock, machinery and building.
(iv) Yasmin and Saloni will share the future profits in the ratio of 3 : 2.
(v) Goodwill of the firm on Sameer's retirement was valued at ₹ 5,40,000.
Pass necessary journal entries for the above transactions in the books of the firm on Sameer's retirement.
Ans:


Working Notes:

• Calculation of Gaining Ratio
  Gaining Ratio = New Share - Old Share
  
  
  
  Gaining ratio = 3 : 1
• Provision for Bad Debts:
  
  
  
  
  
• Calculation of Sameer's Share of Goodwill
  Firm's goodwill = ₹ 5,40,000
  Sameer's share = 5,40,000 × (4/10) = ₹ 2,16,000
  To be contributed by Yasmin and Saloni in their gaining ratio, i.e. 3 : 1.
• Loss on Revaluation
  It can be ascertained by preparing revaluation account in the following manner
  
  

Journal entries required (in sequence):
- Write off bad debts and adjust provision for doubtful debts; record the unrecorded creditor.
- Pass entries to write off patents and provide depreciation on stock, machinery and building; transfer the profit / loss on revaluation to partners' capital accounts in old ratio.
- Adjust goodwill: credit Sameer's capital with his share of goodwill (₹ 2,16,000) and debit Yasmin's and Saloni's capital accounts in the gaining ratio (3 : 1).
- Transfer any cash or loan settlement for Sameer as per terms. The working notes and revaluation workings give the numerical details which should be posted to the respective ledger accounts.
Q24: Lalit, Madhur and Neena were partners sharing profits as 50%, 30% and 20% respectively. On 31st March, 2013 their balance sheet was as follows

On this date, Madhur retired and Lalit and Neena agreed to continue on the following terms
(i) The goodwill of the firm was valued at ₹ 51,000.
(ii) There was a claim for workmen's compensation to the extent of ₹ 6,000.
(iii) Investments were brought down to ₹ 15,000.
(iv) Provision for bad debts was reduced by ₹ 1,000.
(v) Madhur was paid ₹ 10,300 in cash and the balance was transferred to his loan account payable in two equal instalments together with interest @ 12% per annum.
Prepare revaluation account, partners capital accounts and Madhur's loan account till the loan is finally paid off.
Ans:


Working Note:
Madhur's share in goodwill = 51,000 × (3/10) = ₹ 15,300, which is contributed by Lalit and Neenain the ratio of 5 : 2.
Lalit will pay = 15,300 × (5/7) = ₹ 10,929; Neena will pay = 15,300 × (2/7) = ₹ 4,371
Reduction in the value of investments have been adjusted through revaluation account

Key actions to record:
- Prepare the Revaluation Account taking into account the workmen's compensation claim, reduction in investments and change in provision for bad debts; transfer the resulting profit or loss to partners' capital accounts in the old ratio.
- Adjust goodwill by crediting Madhur's capital with his share (₹ 15,300) and debiting Lalit's and Neena's capitals in the agreed ratio (5 : 2).
- Pay Madhur ₹ 10,300 in cash and transfer the balance to Madhur's loan account; record interest and instalment payments against this loan as they fall due.
Q25: X, Y and Z are partners in a firm sharing profits in the ratio of 3 : 2 : 1. On 1st April, 2009, X retires from the firm, Y and Z agrees that the capital of the new firm shall be fixed at ₹ 2,10,000 in the profit sharing ratio. The capital accounts of Y and Z after all adjustments on the date of retirement showed balances of ₹ 1,45,000 and ₹ 63,000 respectively. State the amount of actual cash to be brought in or to be paid to the partners.
Ans:

Procedure to adjust capitals:
- Compute the required capitals in new profit sharing ratio (Y:Z = 2:1) from total fixed capital ₹ 2,10,000.
- Compare required capitals with existing capital balances after adjustments; the partner with deficit must bring in cash, the partner with excess will withdraw cash.
- Settle the net amounts by cash or current account adjustments so that Y and Z hold capitals in the agreed ratio.
Q26: X, Y and Z are partners in a firm sharing profits in the ratio of 3 : 2 : 1. On 1st April, 2009, Y retires form the firm. X and Z agree that the capital of the new firm shall be fixed at ₹ 2,10,000 in the profit sharing ratio. The capital accounts of X and Z after all adjustments on the date of retirement showed balances of ₹ 1,45,000 and ₹ 63,000 respectively. State the amount of actual cash to be brought in or to be paid to the partners.
Ans: Calculation of Cash to be Brought In or Paid Out

How to finalise the cash adjustments:
- Compute new capitals in X:Z ratio (3:1) from total capital ₹ 2,10,000.
- Compare required capitals with the existing capital balances (₹ 1,45,000 and ₹ 63,000).
- The partner whose balance is short brings in cash equal to the shortfall; the partner with excess withdraws the surplus.
Q27: Nandan, John and Rosa are partners sharing profits in the ratio of 4 : 3 : 2. On 1st April, 2012, John gave a notice to retire from the firm. Nandan and Rosa decided to share future profits in the ratio of 1 : 1. The capital accounts of Nandan and Rosa after all adjustments showed a balance of ? 43,000 and ₹ 80,500 respectively. The total amount to be paid to John was ₹ 95,500. This amount was to be paid by Nandan and Rosa in such a way that then- capitals become proportionate to their new profit sharing ratio. Pass necessary journal entries in the books of the firm for the above transactions. Show your workings clearly.
Ans:


Brief explanation of entries to be passed:
- Transfer John's payable amount to John's loan (or pay in cash if agreed). In this case the amount is to be paid such that Nandan's and Rosa's capitals become proportionate at 1 : 1.
- Compute the amounts each continuing partner must contribute or withdraw to achieve equal capitals after settlement; pass journal entries debiting their capital accounts (or crediting cash) and crediting John's loan/cash as needed.
- Open current accounts if required for net adjustments between partners.
Q28:Akul, Bakul and Chandan were partners in a firm sharing profits in the ratio of 2 : 2 : 1. On 31st March, 2018 their balance sheet was as follows
Balance Sheet of Akul, Bakul and Chandan

Bakul retired on the above date and it was agreed that
(i) Plant and Machinery was undervalued by 10%.
(ii) Provision for doubtful debts was to be increased to 15% on debtors.
(iii) Furniture was to be decreased to ₹ 87,000.
(iv) Goodwill of the firm was valued at ₹ 3,00,000 and Bakul's share was to be adjusted through the capital accounts of Akul and Chandan.
(v) Capital of the new firm was to be in the new profit sharing ratio of the continuing partners.
Prepare revaluation account, partners' capital accounts and balance sheet of the reconstituted firm.
Ans:


Working Notes:
1. Plant and machinery (original value) =1,80,000 x (100/90) = ₹ 2,00,000
2. Firm's goodwill = ₹ 3,00,000
Bakul's share of goodwill =3,00,000 x (2/5) = ₹ 1,20,000 to be contributed by Akul and Chandan in the ratio 2 : 1.
3.
Akul's new capital =1,50,000 x (2/3) =1,00,000 - 92,000 = ₹ 8,000 cash brought in
Chandan's new capital =1,50,000 x (1/3) = 50,000 - 58,000 = ₹ 8,000 cash withdrew
Steps to complete the reconstitution:
- Prepare Revaluation Account to record the upward valuation of plant and machinery, change in provision for doubtful debts and reduction in furniture; transfer net profit or loss to old partners' capital accounts in their old profit sharing ratio.
- Adjust goodwill by crediting Bakul's capital with his share and debiting Akul's and Chandan's capital accounts in their agreed contribution ratio (2 : 1).
- Recompute the continuing partners' capitals to the new capital structure and settle any cash to be brought in or paid out to achieve the required capitals.
- Finally prepare the balance sheet of the reconstituted firm with revised asset values and adjusted capitals.
Q29: G, E and F were partners in a firm sharing profits in the ratio of 7 : 2 : 1. The balance sheet of the firm as at 31st March, 2018 was as follows

E retired on the above date. On E's retirement the following was agreed upon
(i) Land and building were revalued at ₹ 1,88,000, machinery at ₹ 76,000 and stock at ₹ 10,000 and goodwill of the firm was valued at ₹ 90,000.
(ii) A provision of 2.5% was to be created on debtors for doubtful debts.
(iii) The net amount payable to E was transferred to his loan account to be paid later on
(iv) Total capital of the new firm was fixed at ₹ 2,40,000 which will be adjusted according to their new profit sharing ratio by opening current accounts.
Prepare revaluation account, partners' capital accounts and balance sheet of reconstituted firm.
Ans:



Procedure summary:
- Revalue assets (land & building, machinery, stock) and create provision for doubtful debts; record all these in the Revaluation Account and transfer the net result to partners' capitals in the old ratio (7 : 2 : 1).
- Adjust goodwill: credit E's capital with his share and debit the continuing partners' capitals according to the agreed contribution ratio (gaining ratio).
- Transfer net amount payable to E to E's loan account and adjust total capitals of the continuing partners to the fixed total of ₹ 2,40,000 by opening current accounts and bringing in or withdrawing cash as required.
- Prepare the revised balance sheet showing the adjusted assets and new capital structure.
Q30: Mohan, Vinay and Nitya were partners in a firm sharing profits and losses in the proportion of

 respectively. On 31st March, 2018 their balance sheet was as follows

Mohan retired on the above date and it was agreed that
(i) Plant and machinery will be depreciated by 5%.
(ii) An old computer previously written off was sold for ₹ 4,000.
(iii) Bad debts amounting to ₹ 3,000 will be written off and a provision of 5% on debtors for bad and doubtful debts will be maintained.
(iv) Goodwill of the firm was valued at ₹ 1,80,000 and Mohan's share of the same was credited in his account by debiting Vinay's and Nitya's accounts.
(v) The capital of the new firm was to be fixed at ₹ 90,000 and necessary adjustments were to be made by bringing in or paying off cash as the case may be.
(vi) Vinay and Nitya will share future profits in the ratio of 3 : 2.
Prepare revaluation account, partners' capital accounts and balance sheet of the reconstituted firm.
Ans:


Working Notes:
1. Calculation of Gaining Ratio

Gaining ratio = 8 : 7
2. Firm's goodwill = 1,80,000
Mohan's share of goodwill = 1,80,000 × (3/6) = 90,000
Lo be adjusted in gaining ratio, i.e. 8 : 7.
Recording steps to be followed:
- Prepare Revaluation Account for depreciation on plant & machinery, sale of written-off computer, bad debts and provision for doubtful debts; transfer net effect to old partners' capitals in old ratio.
- Adjust goodwill by crediting Mohan's capital with his share (₹ 90,000) and debiting Vinay's and Nitya's capital accounts in the gaining ratio (8 : 7).
- Adjust and fix the total capital of the continuing partners to ₹ 90,000 by bringing in or paying out cash and then prepare the reconstituted balance sheet.
Q31: J, H and K were partners in a firm sharing profits in the ratio of 5 : 3 : 2. On 31st March, 2015 their balance sheet was as follows

On the above date, H retired and J and K agreed to continue the business on the following terms
(i) Goodwill of the firm was valued at ₹ 1,02,000.
(ii) There was a claim of ₹ 8,000 for workmen's compensation.
(iii) Provision for bad debts was to be reduced by 12,000.
(iv) H will be paid ₹ 14,000 in cash and the balance will be transferred in his loan account which will be paid in four equal yearly instalments together with interest @ 10% per annum.
(v) The new profit sharing ratio between J and K will be 3 : 2 and their capitals will be in their new profit sharing ratio. The capital adjustments will be done by opening current accounts.
Prepare revaluation account, partners capital accounts and balance sheet of the new firm.
Ans:


Working Notes:
1. Calculation of Gaining Ratio
Gaining Ratio = New Share - Old Share

Gaining ratio = 1 : 2
2. Adjustment for Goodwill Firm's goodwill = ₹ 1,02,000
H's share of goodwill = 1,02,000 × 3/10 = ₹ 30,600 will be debited to gaining partners, i.e. J and K in gaining ratio, i.e. 1 : 2
J's share = 30,600 × (1/3) = ₹ 10,200; K's share = 30,600 × (2/3) = ₹ 20,400
3. Adjustment of Capital
J's capital after adjustment = 1,36,800
(+) K's capital after adjustment = 38,400
Total capital of new firm = ₹ 1,75,200
J's adjusted capital = 1,75,200 × 3/5 = ₹ 1,05,120; K's adjusted capital = 1,75,200 × 2/5 = ₹ 70,080
Outline of accounting treatment:
- Pass revaluation entries for the workmen's compensation claim and reduction in provision for bad debts; transfer the net result to partners' capital accounts in old ratio (5 : 3 : 2).
- Adjust goodwill by debiting the gaining partners (J and K) and crediting H's capital with his goodwill share (₹ 30,600) in the gaining ratio (1 : 2).
- Pay H ₹ 14,000 in cash and transfer remaining balance to H's loan payable in four instalments with interest; open current accounts to bring partners' capitals to the agreed proportions and prepare the new balance sheet.
Q32: Leena, Madan and Naresh were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 3. On 31st March, 2015 their balance sheet was as follows

On 31st March, 2015, Madan retrired from the firm and the remaining partners decided to carry on the business. It was decided to revalue assets and liabilities as under
(i) Land and building be appreciated by ₹ 2,40,000 and machinery be depreciated by 10%.
(ii) 50% of investments were taken over by the retiring partner at book value.
(iii) An old customer Mohit whose account was written-off as bad debt had promised to pay ₹ 7,000 in settlement of his full debt of ₹ 10,000.
(iv) Provision for doubtful debts was to be made at 5% on debtors.
(v) Closing stock will be valued at market price which is ₹ 1,00,000 less than the book value.
(vi) Goodwill of the firm be valued at ₹ 5,60,000 and Madan's share of goodwill be adjusted in the accounts of Leena and Naresh. Leena and Naresh decided to share future profits and losses in the ratio of 3 : 2.
(vii) The total capital of the new firm will be ₹ 32,00,000 which will be in the proportion of the profit sharing ratio of Leena and Naresh.
(viii) Amount due to Madan was settled by accepting a bill of exchange in his favour payable after 4 months.
Prepare revaluation account, partners capital accounts and balance sheet of the firm after
Madan's retirement.
Ans:


Working notes:
1. Calculation of Gaining Ratio
Gaining Ratio = New Share - Old Share

2. Calculation of Share of Goodwill
Madan's share of goodwill = 5,60,000 × 2/7 = ₹ 1,60,000 to be contributed by Leena alone. As she is the
only gaining partner, she will compensate to Naresh also.
3. Calculation of Capital of Partners in New firm
New profit sharing ratio = 3 : 2
Leena's capital = 32,00,000 × 3/5 = ₹ 19,20,000; Naresh's capital = 32,00,000 x 2/5 = ₹ 12,80,000
4.

5. It is mentioned in the question that an old customer Mohit had promised to pay ₹ 7,000 in settlement of his debt, since it is an oral promise it is not considered as a transaction, therefore Mohit has been considered as the debtor of the firm.
Practical steps to be taken in the ledgers:
- Prepare the Revaluation Account to record appreciation of land & building, depreciation on machinery, stock revaluation loss, recognition of Mohit's payment as debtor recovery, and adjustment of investments taken over by the retiring partner. Transfer net gain/loss to old partners' capitals in their old ratio.
- Adjust goodwill by crediting Madan's capital with his goodwill share and debiting the gaining partner(s) in the gaining ratio; if only one partner gains, she alone will compensate as agreed.
- Settle Madan's amount by accepting bill of exchange in his favour and reflect this in Madan's capital/loan account; finally adjust the continuing partners' capitals to the fixed total of ₹ 32,00,000 in the ratio 3 : 2 and prepare the revised balance sheet.
Q33: Xavier, Yusuf and Zaman were partners in a firm sharing profits in the ratio of 4 : 3 : 2. On 1st April, 2014 their balance sheet was as follows

Yusuf had been suffering from ill health and thus gave notice of reitrement from the firm. An agreement was, therefore, enterd into as on 1st April, 2014, the terms of which were as follows
(i) That land and building be appreciated by 10%.
(ii) The provision for bad debts is no longer necessary.
(iii) That stock be appreciated by 20%.
(iv) That goodwill of the firm be fixed at ₹ 54,000. Yusuf s share of the same be adjusted into Xavier's and Zaman's capital accounts, who are going to share future profits in the ratio of 2 : 1.
(v) The entire capital of the newly constituted firm be readjusted by bringing in or paying necessary cash so that the future capitals of Xavier and Zaman will be in their profits sharing ratio.
Prepare revaluation account and partners capital accounts.
Ans:

Working notes:
1. Calculation of Gaining Ratio
Gaining Ratio = New Share - Old Share

Gaining ratio = 2 : 1
2. Adjustment of Goodwill:
Yusuf's share of goodwill = 54,000 x 3/5 = ₹ 18,000 to be contributed in gaining ratio, i.e. 2 : 1
Xavier will pay =18,OOO x 2/3 = ₹ 12,000; Zaman will pay = 18,000 x 1/3 = ₹ 6,000
3. Calculation of New Capitals

Adjusted Capital of Xavier Adjusted Capital of Zaman Amount Due to Yusuf Total Capital of New Firm
Xavier's new capital = 2,95,650 x 2/3 = ₹ 1,97,100
Zaman's new capital = 2,95,650 x 1/3 = ₹ 98,550
How to post entries:
- Enter appreciation of land & building and increase in stock, and reverse provision for bad debts in Revaluation Account; transfer resulting surplus to old partners' capitals in the old ratio (4 : 3 : 2).
- Adjust Yusuf's share of goodwill by crediting Yusuf's capital account and debiting Xavier's and Zaman's capitals in the gaining ratio (2 : 1).
- Bring in or withdraw cash to readjust Xavier's and Zaman's capitals to the required new amounts; finally prepare partners' capital accounts reflecting these adjustments.
Q34: Amit, Balan and Chander were partners in a firm sharing profits in the proportion of 1/2, 1/3 and 1/6 respectively. Chander retired on 1st April, 2014. The balance sheet of the firm on the date of Chander's retirement was as follows

It was agreed that
(i) Goodwill will be valued at ₹ 27,000.
(ii) Depreciation of 10% was to be provided on machinery.
(iii) Patents were to be reduced by 20%.
(iv) Liability on account of provident fund was estimated at ₹ 2,400.
(v) Chander took over investments for ₹ 15,800.
(vi) Amit and Balan decided to adjust their capitals in proportion of their profit sharing ratio by opening current accounts.
Prepare revaluation account and partners' capital accounts on Chander's retirement.
Ans:

Working Notes:
1. Adjustment for Goodwill
Chander's share in goodwill = 27,000 x 1/6 = ₹ 4,500; to be contributed in gaining ratio, i.e. 3 : 2
Amit will pay = 4,500 x 3/5 = ₹ 2,700
Balan will pay = 4,500 x 2/5 = ₹ 1,800
2. Adjustment for Capital
Combined capital ⇒ Amit's adjusted capital = 42,100
Balan's adjusted capital = 37,900
Total = 80,000
New profit sharing ratio = 3 : 2
Amit's new capital = 80,000 x 3/5 = ₹ 48,000
Chander's new capital = 80,000 x 2/5 = ₹ 32,000
Notes for ledger posting:
- Provide depreciation on machinery and reduce patents by 20%; create provident fund liability and set off investments taken over by Chander; transfer net revaluation result to partners' capitals in the old ratio.
- Adjust goodwill by crediting Chander's capital and debiting Amit's and Balan's capitals in the gaining ratio (3 : 2).
- Recompute Amit's and Balan's capitals to the required new totals and use current accounts to bring in/withdraw cash so that their capitals stand in the ratio 3 : 2 after retirement.
Q35: Lokesh, Mansoor and Nihal were partners in a firm sharing profits as 50%, 30% and 20% respectively. On 31st March, 2014, their balance sheet was as follows

On the above date, Mansoor retired and Lokesh and Nihal agreed to continue on the following terms
(i) Firm's goodwill was valued at ₹ 1,02,000 and it was decided to adjust Mansoor's share of goodwill into the capital accounts of the continuing partners.
(ii) There was a claim for workmen's compensation to the extent of ₹ 12,000 and investments were brought down to ₹ 30,000.
(iii) Provision for bad debts was to be reduced by ₹ 2,000.
(iv) Mansoor was to be paid ₹ 20,600 in cash and the balance will be transferred to his loan account which was paid in two equal instalments together with interest @ 10% per annum.
(v) Lokesh's and Nihal's capitals were to be adjusted in their new profit sharing ratio by bringing in or paying off cash as the case may be.
Prepare revaluation account and partners' capital accounts.
Ans:


Working Notes:
1. Calculation of Share of Goodwill
Mansoor's share of goodwill = 1,02,000 × 3/10 = ₹ 30,600, to be contributed by Lokesh and Nihal in gaining ratio, i.e. 5 : 2
Lokesh will pay = 30,600 × 5/7 = ₹ 21,857; Nihal will pay = 30,600 x 2/7 = ₹ 8,743
2. Calculation of Capital of New Firm after Mansoor's Retirement
Lokesh's capital after adjustment = 68,143
Nihal's capital after adjustment = 21,257
total = ₹ 89,400
Lokesh's new capital = 89,400 × 5/7 = ₹ 63,857
Nihal's new capital =89,400 × 2/7 = ₹ 25,543
General posting order:
- Pass revaluation entries for workmen's compensation, reduction in investments and change in provision for bad debts; transfer net effect to partners' capital accounts in the old ratio.
- Adjust goodwill by crediting Mansoor's capital and debiting Lokesh's and Nihal's capitals in the gaining ratio (5 : 2) so that Mansoor's share (₹ 30,600) is borne by them.
- Pay Mansoor ₹ 20,600 in cash and transfer the remainder to his loan account payable in two equal instalments with interest; finally, adjust Lokesh's and Nihal's capitals to the prescribed new capitals by bringing in or withdrawing cash.
Q36: L, M and N were partners in a firm sharing profits in the ratio of 2 : 1 : 1. On 1st April, 2013 their balance sheet was as follows

On the above date, N retired. The following were agreed
(i) Goodwill of the firm was valued at ₹ 6,00,000.
(ii) Land was to be appreciated by 40% and building was to be depreciated by ₹ 1,00,000.
(iii) Furniture was to be depreciated by ₹ 30,000.
(iv) The liabilities for workmen's compensation fund was determined at ₹ 1,60,000.
(v) Amount payable to N was transferred to his loan account.
(vi) Capitals of L and M were to be adjusted in their new profit sharing ratio and for this purpose current accounts of the partners will be opened.
Prepare revaluation account, partner's capital accounts and the balance sheet of the new firm.
Ans:


Working Notes:
1. Firm's goodwill = ₹ 6,00,000
N's share of goodwill = 6,00,000 × 1/4 = 1,50,000 to be contributed by L and M in gaining ratio i.e., 2 : 1
L = 1,50,000 × 2/3 = ₹ 1,00,000, M = 1,50,000 × 1/3 = ₹ 50,000
2. Calculation of Proportionate's Capital
L's capital after all adjustment = 9,15,000
M's capital after all adjustment = 6,37,500
Total capital of new firm = ₹ 15,52,500
L's new capital =15,52,500 x 2/3 = ₹ 10,35,000
M's new capital =15,52,500 x 1/3 = ₹ 5,17,500
Accounting sequence to be followed:
- Record appreciation of land and depreciation of building and furniture in Revaluation Account; include the liability for workmen's compensation and transfer the net revaluation result to the partners' capital accounts in the old ratio (2 : 1 : 1).
- Adjust goodwill by crediting N's capital with his share and debiting L's and M's capitals in the gaining ratio (2 : 1).
- Transfer the payable amount to N's loan account and adjust L's and M's capitals to the new total capital by opening current accounts; prepare the new balance sheet showing revised asset values and adjusted capitals.
Q37: Kushal, Kumar and Kavita were partners in a firm sharing profits in the ratio of 3 : 1 : 1. On 1st April, 2012 their balance sheet was as follows

On the above date, Kavita retired and the following was agreed
(i) Goodwill of the firm was valued at ₹ 40,000.
(ii) Land was to be appreciated by 30% and building was to be depreciated by ₹ 1,00,000.
(iii) Value of furniture was to be reduced by ₹ 20,000.
(iv) Bad debts reserve is to be increased to ₹ 15,000.
(v) 10% of the amount payable to Kavita was paid in cash and the balance was transferred to her loan account.
(vi) Capitals of Kushal and Kumar will be in proportion to their new profit sharing ratio. The surplus/deficit, if any in their capital accounts will be adjusted through current accounts.
Prepare revaluation account, partner's capital accounts and balance sheet of Kushal and Kumar after Kavita's retirement.
Ans:


Working Note:
1. Finn's goodwill = ₹ 40,000
Kavita's share of goodwill - 40,000 × 1/5 = ₹ 8,000, to be contributed by Kushal and Kumar in gaining ratio, i.e. 3 : 1; Kushal = 8,000 × 3/4 = ₹ 6,000; Kumar = 8,000 × 1/4 = ₹ 2,000
2. Adjustment of Capital
Adjusted capital of Kushal = 3,63,000
Adjusted capital of Kumar = 3,01,000 ₹
Total = 6,64,000
New profit sharing ratio = 3 : 1
New capital of Kushal = 6,64,000 × 3/4 = ₹ 4,98,000
New capital of Kumar = 6,64,000 × 1/4 = ₹ 1,66,000
Practical ledger actions:
- Pass revaluation entries for appreciation of land, depreciation on building, reduction in furniture value and increase in bad debt reserve; transfer resultant profit / loss to partners' capitals in the old ratio.
- Adjust goodwill by crediting Kavita's capital (₹ 8,000) and debiting the gaining partners (Kushal and Kumar) in the gaining ratio (3 : 1).
- Pay 10% of Kavita's amount in cash and transfer the balance to her loan account; finally, adjust Kushal's and Kumar's capitals using current accounts so they stand in the ratio 3 : 1 and prepare the new balance sheet.
Q38: State the basis of calculating the amount of profit payable to the legal representative of a deceased partner in the year of death.
Ans: Amount of profit can be calculated on time basis or sales basis.
Further clarification:
- Time Basis: Profit for the period from the start of the accounting year to the date of death is calculated pro rata on time (e.g., days or months).
- Sales Basis: Profit is determined as a proportion of sales for the intervening period using an agreed rate of profit on sales. Choose the basis as provided by the partnership agreement or as mutually agreed.
Q39: Dinkar, Navita and Vani were partners sharing profits and losses in the ratio of 3 : 2 : 1. Navita died on 30th June, 2017. Her share of profit for the intervening period was based on the sales during that period, which were ₹ 6,00,000. The rate of profit during the past four years had been 10% on sales. The firm closes its books on 31st March every year.
Calculate Navita's share of profit.
Ans: Total sales = ₹ 6,00,000 (1st April, 2017-30th June, 2017)
Firm's profit on sales = 600000 × 10% = ₹ 60,000
Navita's share of profit = 60000 × 2/6 = ₹ 20,000
Explanation and checks:
- Since profit is to be calculated on sales basis, first compute the firm's profit on the intervening period's sales at the historical rate of 10% (₹ 60,000).
- Apportion Navita's share using her profit sharing fraction (2 out of total 3+2+1=6), giving ₹ 20,000 as the amount due to her legal representative.
Q40: Jayant, Kartik and Leena were partners in a firm sharing profits and losses in the ratio of 6 : 2 : 3. Kartik died and Jayant and Leena decided to continue the business. Their gaining ratio was 2 : 3. Calculate the new profit sharing ratio of Jayant and Leena.
Ans: Jayant's old share = 5/10 Jayant's gaining share =
Jayant's New Share = Old Share + Gaining share =
Leena's old share = 3/10; Leena's gaining share =
Leena s new share =
New profit sharing ratio = Jayant : Leena = 29 : 21.
Worked explanation:
- Determine the deceased partner's share (Kartik's share = 2/11 of total earlier? Check the original total - here original total 6+2+3=11). Kartik's share is therefore 2/11. The continuing partners acquire Kartik's share in the gaining ratio 2 : 3.
- Calculate each continuing partner's gaining amount and add it to their old share to get their new shares; finally scale to whole numbers to obtain the new ratio 29 : 21 for Jayant and Leena respectively.