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12th Standard English Medium Accountancy Subject Retirement and Death of a Partner Book Back 5 Mark Questions with Solution Part - I

Published on: 03/06/2021

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Questions:

Generic 5

5 x 5 = 25

Manju, Charu and Lavanya are partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. Their balance sheet as on 31^st March, 2018 is as follows:

Liabilities	Rs	Rs	Asset	Rs
Capital accounts:			Buildings	1,00,000
Manju	70,000		Furniture	80,000
Charu	70,000		Stock	60,000
Lavanya	70,000	2,10,000	Debtors	40,000
Sundry creditors		40,000	Bills receivable	50,000
Profit and loss A/c		50,000	Cash at bank	20,000
		3,00,000		3,00,000

Manju retired from the partnership firm on 31.03.2018 subject to the following adjustments:
(i) Stock to be depreciated by Rs. 10,000
(ii) Provision for doubtful debts to be created for Rs. 3,000.
(iii) Buildings to be appreciated by Rs. 28,000
Prepare revaluation account and capital accounts of partners after retirement

Ramesh, Ravi and Akash are partners who share profits and losses in their capital ratio. Their balance sheet as on 31.12.2017 is as follows:

Balance Sheet as on 31st December, 2017
Liabilities	Rs.	Rs.	Asset	Rs.
Capital accounts:			Plant and machinery	45,000
Ramesh	30,000		Stock	22,000
Ravi	30,000		Debtors	15,000
Akash	20,000	80,000	Cash at bank	10,000
General reserve		8,000	Cash in hand	4,000
Creditors		8,000
		96,000		96,000

Akash died on 31.3.2018. On the death of Akash, the following adjustments are made:
(i) Plant and machinery is to be valued at Rs. 54,000
(ii) Stock is to be depreciated by Rs. 1,000
(iii) Goodwill of the firm is valued at Rs. 24,000
(iv) Share of profit of Akash is to be calculated from the closing of the last financial year to the date of death on the basis of the average of the three completed years’ profit before death. Profit for 2015, 2016 and 2017 were Rs. 66,000, Rs. 60,000 and Rs. 66,000 respectively.
Prepare the necessary ledger accounts and the balance sheet immediately after the death of Akash.

Muthu, Murali and Manoj are partners in a firm and sharing profits and losses in the ratio 3 : 1 : 2. Their balance sheet as on 31^st December, 2018 is given below:

Liabilities	Rs.	Rs.	Asset	Rs.
Capital accounts:			Machinery	45,000
Muthu	20,000		Furniture	5,000
Murali	25,000		Debtors	30,000
Manoj	20,000	65,000	Stock	20,000
General reserve		6,000
Creditors		29,000
		1,00,000		1,00,000

Manoj retires on 31^st December, 2018 subject to the following conditions:
(i) Muthu and Murali will share profits and losses in the ratio of 3 : 2
(ii) Assets are to be revalued as follows:
Machinery Rs. 43,000, stock Rs. 27,000, debtors Rs. 28,000.
(iii) Goodwill of the firm is valued at Rs. 30,000
(iv) The final amount due to Manoj is not paid immediately
Prepare necessary ledger accounts and the balance sheet immediately after the retirement of Manoj.

Charles, Muthu and Sekar are partners, sharing profits in the ratio of 3 : 4 : 2. Their balance sheet as on 31^st December, 2018 is as under:

Liabilities	Rs.	Rs.	Asset	Rs.
Capital accounts:			Furniture	20,000
Charles	30,000		Stock	40,000
Muthu	40,000		Debtors	30,000
Sekar	20,000	90,000	Cash at bank	42,000
Workmen compensation fund		27,000	Profit and loss A/c (loss)	18,000
Sundry creditors		33,000
		1,50,000		1,50,000

On 1.1.2019, Charles retired from the partnership firm on the following arrangements.
(i) Stock to be appreciated by 10%
(ii) Furniture to be depreciated by 5%
(iii) To provide Rs. 1,000 for bad debts
(iv) There is an outstanding repairs of Rs. 11,000 not yet recorded
(v) The final amount due to Charles was paid by cheque
Prepare revaluation account, partners’ capital account and the balance sheet of the firm after retirement.

John, James and Raja are partners in a firm sharing profits and losses equally. Their balance sheet as on 31st March, 2019 is as follows:
Raja retired on 31^st March, 2019 subject to the following conditions:
(i) Machinery is valued at Rs. 1,30,000
(ii) Value of office equipment is brought down by Rs. 2,000
(iii) Provision for doubtful debts should be increased to Rs. 3,000
(iv) Investment of Rs. 25,000 not recorded in the books is to be recorded now
Pass necessary journal entries and prepare revaluation account.

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Answers Key:

Generic 5

5 x 5 = 25

Dr Revaluation A/c Cr
Particulars	Rs	Rs	Particulars	Rs
To Stock A/c		10,000	By Buildings A/c	28,000
To Provision for doubtful debts
To Profit on revaluation transferred to		3,000
Manju's Capital A/c (15,000 x 5/10)	7,500
Charus capital A/c (15,000 x 3/10	4,500
Lavanya's capital A/c (15,000 x 2/10)	3,000	15,000

		28,000		28,000

Dr Capital Account Cr
Particulars	Manju Rs	Charu Rs	Lavanya Rs	Particulars	Manju Rs	Charu Rs	Lavanya Rs
To Balance c/d	-	89,500	83,000	By Balance b/d	70,000	70,000	70,000
To Manjus				By Revaluation A/c	7,500	4,500	3,000
loan A/c	1,02,500	-	-	By Profit and loss A/c	25,000	15,000	10,000

	1,02,500	89,500	83,000		1,02,500	89,500	83,000
				By Balance b/d	-	89,500	83,000

Dr. Revaluation Account Cr.
Particulars	Rs.	Rs.	Particulars	Rs.
To Stock A/c		1,000	By Plant and Machinery A/c	9,000
To Profit on revaluation transferred to
Ramesh’s capital A/c (3/8	3,000
Ravi’s capital A/c (3/8)	3,000
Akash’s capital A/c (2/8)	2,000	8,000
		9,000		9,000

Dr. Capital Account Cr.
Particulars	Ramesh Rs.	Ravi Rs.	Akash Rs.	Particulars	Ramesh Rs.	Ravi Rs.	Akash Rs.
To Akash’s capital A/c	3,000	3,000		By Balance b/d	30,000	30,000	20,000
To Akash’s Executor A/c			34,000	By General reserve A/c	3,000	3,000	2,000
To Balance c/d	33,000	33,000		By Revaluation A/c (profit)	3,000	3,000	2,000
				By Profit and loss suspense A/c			4,000
				By Ramesh’s capital A/c			3,000
				By Ravi’s capital A/c			3,000
	36,000	36,000	34,000		36,000	36,000	34,000
				By Balance b/d	33,000	33,000

Balance Sheet as on 31st December, 2018
Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
Capital accounts:			Plant and machinery	45,000
Ramesh	33,000		Add: Appreciation	9,000	54,000
Ravi	33,000	66,000	Stock	22,000
Akash’s Executor’s A/c		34,000	Less: Depreciation	1,000	21,000
Sundry creditors		8,000	Debtors		15,000
			Cash at bank		10,000
			Cash in hand		4,000
			Profit and loss suspense A/c		4,000
		1,08,000			1,08,000

(i) Profit sharing ratio
Profit sharing ratio = Capital ratio = 30,000: 30,000: 20,000 that is, 3:3:2
Gaining ratio between Ramesh and Ravi = Old profit sharing ratio = 3:3 that is 1:1
(ii) Calculation of Akash’s share of current year’s profit
Average profit = \(\frac{66, 000 +60, 000+ 66, 000 +1,92, 000}{3} = 64,000\)
Current year’s profit upto the date of death = 64,000 × 3/12 = Rs.16,000
Akash’s share of current year’s profit = 16,000 × 2/8 = Rs. 4,000
(iii) Akash’s share of goodwill = 24,000 × 2/8 = Rs. 6,000
It is to be borne by Ramesh and Ravi in the gaining ratio of 1:1

Dr. Revaluation Account Cr.
Particulars	Rs.	Rs.	Particulars	Rs.
To Machinery A/c		2,000	By Stock A/c	7,000
To Debtors A/c		2,000
To Profit on revaluation transferred to
Muthu's capital A/c	1,500
Murali's capital A/c	500
Manoj's capital A/c	1,000	3,000
		7,000		7,000

Dr. Capital Account Cr.
Particulars	Muthu Rs.	Murali Rs.	Manoj Rs.	Particulars	Muthu Rs.	Murali Rs.	Manoj Rs.
To Manoj’s capital A/c	3,000	7,000	-	By Balance b/d	20,000	25,000	20,000
To Manoj's loan A/c			33,000	By General reserve A/c	3,000	1,000	2,000
To Balance c/d	21,400	19,500		By Revaluation A/c (profit)	1,500	500	1,000
				By Muthu’s capital A/c			3,000
				By Manoj’s capital A/c	-	-	7,000
	24,500	26,500	33,000		24,500	26,500	33,000
				By Balance b/d	21,500	19,500

Balance sheet as on 31st March 2019
Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
Capital accounts:			Machinery	45,000
Muthu	21,500		Less: Depreciation	2,000	43,000
Murali	19,500	41,000	Furniture		5,000
Manoj’s loan A/c		31,000	Debtors	30,000	63,000
Creditors		29,000	Less: Provision for bad debts	2,000	28,000
			Stock	20,000
			Add: Appreciation	7,000	27,00
		1,03,000			1,03,000

(i) Computation of gaining ratio
Share gained = New share – old share
Muthu = \(\frac{3}{5}-\frac{3}{6}= \frac{18-15}{30}=\frac{3}{30} \)
Murali = \(\frac{2}{5}-\frac{1}{6}= \frac{12-5}{30}=\frac{7}{30} \)
Therefore, the gaining ratio of Muthu and Murali is 3:7
(ii) Adjustment for goodwill
Goodwill of the firm = Rs. 30,000
Share of goodwill to Manoj = 30,000 × \(\frac{2}{6}\) = Rs. 10,000
It is to be adjusted in the capital accounts of Muthu and Murali in the gaining ratio of 3:7
That is,
Muthu : 10,000 × \(\frac{3}{10}\) = Rs. 3,000
Murali : 10,000 × \(\frac{3}{10}\) = Rs. 7,000

Dr. Revaluation Account Cr.
Particulars	Rs.	Particulars		Rs.
To Furniture A/c	1,000	By Stock A/c		4,000
To Provision for bad debts A/c	1,000	By Loss on revaluation transferred to
To Outstanding repairs	11,000	Charles capital A/c (3/9)	3,000
		Muthu’s capital A/c (4/9)	4,000
		Sekar’s capital A/c (2/9)	2,000	9,000
	13,000			13,000

Dr. Capital Account Cr.
Particulars	Charles Rs.	Muthu Rs.	Sekar Rs.	Particulars	Charles Rs.	Muthu Rs.	Sekar Rs.
To Profit and loss A/c	6,000	8,000	4,000	By Balance b/d	30,000	40,000	20,000
To Revaluation A/c (loss	3,000	4,000	2,000	By Workmen’s compensation fund	9,000	12,000	6,000
To Bank	30,000	-	-
		40,000	20,000
	39,000	52,000	26,000		39,000	52,000	26,000
				By Balance b/d	-	40,000	20,000

Balance Sheet as on 1st January 2019
Liabilities	Rs.	Rs.	Asset	Rs.	Rs.
Capital accounts:			Furniture	20,000
Muthu	40,000		Less: Depreciation	1,000	19,000
Sekar	20,000	60,000	Stock	40,000
Sundry creditors		33,000	Add: Appreciation	4,000	44,000
Outstanding repairs		11,000	Debtors	30,000
			Less: Provision for bad debts	1,000	29,000
			Cash at bank	42,000
			Less: Amount paid to Charles	30,000
		1,04,000			1,04,000

Journal entries
Date	Particulars		Debit Rs.	Credit Rs.
2019 March 31	Revaluation A/c	Dr.	13,000
	To Machinery A/c			10,000
	To Office equipment A/c			2,000
	To Provision for doubtful debts A/c			1,000
	(Depreciation on machinery and furniture andprovision made for doubtful debts adjusted)
"	Investments A/c	Dr.	25,000
	To Revaluation A/c			25,000
	(Unrecorded investments brought into accounts)
"	Revaluation A/c	Dr.	12,500
	To John’s capital A/c			4,000
	To James’s capital A/c			4,000
	To Raja’s capital A/c			4,000
	(Profit on revaluation transferred to capital accounts)

Dr. Revaluation Account Cr.
Particulars	Rs.	Rs.	Particulars	Rs.
To Machinery A/c		10,000	By Investments A/c	25,000
To Office equipment A/c		2,000
To Provision for doubtful debts		1,000
To Profit on revaluation transferred to
John’s Capital A/c (1/3)	4,000
James Capital A/c (1/3)	4,000
Raja’s Capital A/c (1/3)	4,000	12,000
		25,000		25,000