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# Class 12-commerce NCERT Solutions Accountancy Chapter 3 - Reconstitution of a Partnership Firm - Retirement/Death of a Partner

The NCERT solutions for CBSE Class 12 Commerce Accountancy Chapter Reconstitution of a Partnership Firm - Retirement/Death of a Partner at TopperLearning help students learn the chapter better. These detailed page-wise and exercise-wise solutions enable students to write better answers too. Studying from these credible solutions helps students score better in the exam. Along with the NCERT solutions, students can also refer to our sample papers, past years’ papers, revision notes, video lessons etc.

## Reconstitution of a Partnership Firm - Retirement/Death of a Partner Exercise 207

### Solution SA 1

A partner can retire from the firm:

1. With the consent of all partners: A partner must take the consent of all the other partners of the firm before his/her retirement. The partner can retire from the firm only if all the partners have approved the decision of his/her retirement.
2. According to the terms of the express agreement: If there is an express agreement among the partners, the partner may retire according to the terms of the agreement.
3. At his own will: If the partner wants to retire at his/her own will, then a partner may retire by giving a written notice to all the other partners informing them about his/her intention to retire.

### Solution SA 2

Various matters which need to be adjusted at the time of retirement of partner/s:

1. Computation of new profit-sharing ratio of the remaining partners of the firm
2. Computation of new gaining ratio of all the remaining partners of the firm
3. Computation of goodwill and its treatment
4. Adjustment for the revaluation of assets and liabilities
5. Distribution of accumulated profits and losses and reserves between all the partners including retiring partner
6. Adjustment of joint life policy
7. Settlement of the dues of retiring partners
8. Adjustment of capital account of the continuing partner in their new profit-sharing ratio

### Solution SA 3

 Basis of Difference Sacrificing Ratio Gaining Ratio 1. Meaning Ratio in which old partners agree to surrender their share of profit in favour of new partner/s Ratio in which the continuing partner acquires the share of profit from outgoing partner/s 2. Calculation Sacrificing Ratio = Old Ratio - New Ratio Gaining Ratio = New Ratio - Old Ratio 3. Time Calculated at the time of admission of new partner/s Calculated at the time of retirement/death of the partner/s 4. Objective To find out the share of profit and loss given up by the existing partners in favour of new partner/s To find out the share of profit and loss acquired by the remaining partners (of the new firm in case of retirement) from the retiring or deceased partner 5. Effect Reduces the profit share of the existing partners Increases the profit share of the remaining partners

## Reconstitution of a Partnership Firm - Retirement/Death of a Partner Exercise 208

### Solution SA 4

At the time of retirement or death of a partner, it becomes essential to revalue the assets and liabilities of the firm for finding out their true and fair values. Revaluation is needed as the value of assets and liabilities may increase or decrease with the passage of time. Further, it may be possible that certain assets and liabilities are left unrecorded in the books of accounts. The retiring or the deceased partner may be benefited or may bear loss due to change in the values of assets and liabilities. Therefore, the revaluation of the assets and liabilities is necessary to ascertain the true profit or loss which is to be distributed among all the partners in their old profit-sharing ratio.

### Solution SA 5

The retiring/deceased partner is entitled to a share of goodwill of the firm because goodwill is an intangible asset which is earned by the efforts of all the partners in the firm. In the future, the fruits of past performance and reputation will be shared only by the remaining partners after the retirement or death of a partner. Therefore, the remaining partners should compensate the retiring/deceased partner by entitling him/her a share of the firm's goodwill.

### Solution LA 1

The total amount due towards a retiring partner can be paid in any of the following manner:

(i) In lump sum: If the amount due to the retiring partner is to be paid in lump sum on the day of his/her retirement. This method is usually adopted when the amount payable is small and the following entry is passed to record such a payment.

 Date Particulars L.F. Dr.  Rs. Cr. Rs. Retiring Partner's Capital A/c Dr. ---------To Cash/Bank A/c Capital A/c (Being retiring partner paid in cash)

(ii) In instalments: Sometimes, the amount payable to the retiring partner is quite a large amount which a firm is unable to pay in one payment. In such cases, the amount not paid at the time of retirement (or amount which has been decided to be paid in instalments) is transferred to his/her loan account. In this case, the retiring partner receives equal instalments along with the interest on the amount outstanding. The following necessary journal entry is to be passed:

 Date Particulars L.F. Dr.  Rs. Cr. Rs. Retiring Partner's Capital A/c Dr. ---------To Retiring Partner's Loan A/c (Being retiring partner's capital account transferred to the retiring partner's loan account @ % p.a.)

(iii) Partly in Cash and Partly in Instalments: If the amount due to the retiring partner is to be paid partly in cash and partly in equal instalments, then a certain amount is paid in cash to the retiring partner on the date of the retirement and the rest amount due to him/her is transferred to his/her loan account. The following necessary journal entry is to be passed:

 Journal Date Particulars L.F. Dr.  Rs. Cr. Rs. Retiring Partner's Capital A/c Dr. ---------To Cash/Bank A/c Capital A/c (Amount transferred to the partner's loan account) ---------To Cash A/c (Amount paid in cash immediately on the date of the retirement) (Being retiring partner partly paid in cash and balance transferred to the partner's loan account)

### Solution LA 2

The amount payable to the deceased partner can be ascertained by preparing his/her capital account. The legal executer of the deceased partner would be entitled to the balance in deceased partner's capital account. The balancing figure of the deceased partner's capital account is derived after posting the below mentioned items:

1. Crediting deceased partner's capital account with

1. Credit balance of capital account and/or current account
2. Deceased partner's share of profit up to the date of his/her death
3. Deceased partner's share of goodwill
4. Deceased partner's share in accumulated reserves and profit account
5. Deceased partner's share in gain on revaluation of assets and liabilities
6. Deceased partner's share of Joint Life Policy
7. Interest on capital, if any, up to the date of the death
8. Salary or commission, if any, up to the date of the death

2. Debiting deceased partner's capital account with

Debit balance of the deceased partner's capital account and/or current account.

1. Drawings up to the date of death of the partner
2. Interest on drawings, if any, up to the date of the death
3. Deceased partner's share in loss on revaluation of assets and liabilities
4. Deceased partner's share of loss up to the date of the death
5. Deceased partner's share in the accumulated losses of the firm

The legal executor is entitled to the balancing figure which is the excess of the credit side over the debit side of the deceased partner's capital account.

 Date Particulars J.F Rs. Date Particulars J.F Rs. To Revaluation A/c (Loss) By Balance b/d To Profit and Loss Suspense A/c (Share of loss up to the date of the death) By Profit and Loss Suspense A/c (Share in profits up to the date of the death) To Accumulated Losses A/c By Goodwill A/c To Goodwill A/c (Written off) By Reserve and Profit A/c To Drawings A/c By Revaluation A/c (gain) To Interest on Drawings A/c By Joint Life Policy A/c To Partner's Executor's A/c (Balancing Figure) By Interest on Capital A/c By Salary A/c By Commission A/c xxx Xxx

### Solution LA 3

Generally, in accounting terms, the retiring or deceased partner's capital account is credited with his share of goodwill and continuing partner's capital accounts are debited from the gaining ratio. This treatment is based on Para 16 of Accounting Standard 10, which states that it is mandatory to record goodwill in the books only when consideration in money or money's worth has been paid for it.

In case of retirement and death of a partner, goodwill account cannot be raised. There are namely two probable situations on which the treatment of goodwill rests.

1. If goodwill already appears in the books of the firm
2. If no goodwill appears in the books of the firm

The treatment of goodwill in the above two scenarios is discussed below.

Scenario 1: Goodwill already appears in the books of the firm

Step 1: Write off the existing goodwill

The goodwill already appearing in the old balance sheet of the firm (if mentioned in the question), is first written off and is to be distributed among all partners of the firm including the retiring or deceased partner in their old profit-sharing ratio. The following journal entry is passed to write off the old/existing goodwill:

 Date Particulars L.F. Dr.  Rs. Cr. Rs. Partner's Capital A/c Dr. ---------To Goodwill A/c (Being goodwill written off among all partners in their old ratio)

Step 2: Adjusting goodwill through partner's capital account

After writing off the old goodwill, the goodwill needs to be adjusted through the partner's capital account with the share of the goodwill of the retiring or the deceased partner. The following journal entry is passed:

 Date Particulars L.F. Dr.  Rs. Cr. Rs. Remaining Partner's Capital A/c Dr. ---------To Retiring/Deceased Partner's Capital A/c (Being gaining partner's capital A/c debited from gaining share and retiring/deceased partner's capital account credited for share of goodwill)

Scenario 2: No goodwill appears in the books of the firm

In case no goodwill appears in the books of the firm, the goodwill is adjusted through the partner's capital account with the share of the goodwill of the retiring or deceased partner.

The following is the journal entry which is passed to give the required affect:

 Date Particulars L.F. Dr.  Rs. Cr. Rs. Remaining Partner's Capital A/c Dr. ---------To Retiring/Deceased Partner's Capital A/c (Being gaining partner's capital A/c debited from gaining share and retiring/deceased partner's capital account credited for share of goodwill)

### Solution LA 4

A deceased partner's share of profits can be calculated on any of the following basis depending on the agreement between partners.

1. On the basis of time:

Profit up to the date of the death of the partner is calculated on the basis of last year's profit or average profit of last few years. In this approach, it is assumed that the profit will be uniform throughout the current year. The deceased partner will be entitled to the share of the profit proportionately up to the date of his/her death.

Share of Deceased Partner in Profit =

Example:

L, M and N are equal partners. The profit of the firm for the years 2013, 2014 and 2015 are Rs 20,00,000, Rs 14,00,000 and Rs 26,00,000, respectively. N dies on 31 March 2016. The share of N in the firm's profit will be calculated on the basis of the average profit of the last three years. The firm closes its books every year on 31 December.

In this case, N's share in the profits will be calculated for four months, i.e. from 1 January 2016 to 31 March 2016.

2. On the basis of sale: Profit is calculated on the basis of last year's sale. In this situation, it is assumed that the net profit margin of the current year's sale is similar to that of the last year.

Example: P, Q and R are equal partners. Sales for the previous year and the profits were Rs 12,50,000 and Rs 1,25,000. R died on 30 June 2015. Sale of the current year till the date of R's death amounted to Rs 6,00,000. The firm closes its books on 31 December every year.

### Solution NUM 1

 Books of Aparna and Sonia  Journal Date Particulars L.F. Dr. Rs. Cr. Rs. 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 adjusted to aparna's and Sonia's capital account in their gaining ratio)

Working Note:

### Solution Num 2

 Books of Saroj and Shanti  Journal Date Particulars L.F. Dr. Rs. Cr. Rs. Sangeeta's Capital A/c Dr. 12,000 Saroj's Capital A/c Dr. 18,000 Shanti's Capital A/c Dr. 30,000 ---------To Goodwill A/c 60,000 (Being goodwill written off) Saroj's Capital A/c Dr. 18,000 ---------To Sangeeta's Capital A/c 18,000 (Being sangeeta's share of goodwill adjusted to saroj's capital account in her gaining ratio)

Working Note:

### Solution Num 3

 Books of Himanshu and Gagan  Journal Date Particulars L.F. Dr. Rs. Cr. Rs. Building A/c Dr. 20,000 Investment A/c Dr. 5,000 ---------To Revaluation A/c 25,000 (Being value of building and investment increased at the time of Naman's retirement) Revaluation A/c Dr. 7,000 ---------To Plant and Machinery  A/c 4,000 ---------To Provision for Bad and Doubt Debts A/c 1,000 ---------To Stock A/c 2,000 (Being assets revalued and provision for bad and doubtful debts made at time of naman's retirement) Revaluation A/c Dr. 18,000 ---------To Himanshu's Capital A/c 9,000 ---------To Gangan's Capital A/c 6,000 ---------To Naman's Capital A/c 3,000 (Being Profit on revaluation transferred to all partners capital account in their old profit sharing ratio)

 Revaluation Account Dr. Cr. Particulars Rs. Particulars Rs. To Plant and Machinery A/c 4,000 By Building A/c 20,000 To Stock A/c 2,000 By Investment A/c 5,000 To Provision for Bad and Doubtful Debts A/c 1,000 To Profit transferred: Himanshu Capital A/c 9,000 Gangan Capital A/c 6,000 Naman Capital A/c 3,000 18,000 25,000 25,000

### Solution Num 4

 Books of Naresh and Bishwajeet Journal Date Particulars L.F. Dr. Rs. Cr. Rs. General Reserve A/c Dr. 36,000 ---------To Naresh's Capital  A/c 12,000 ---------To Raj Kumar's Capital A/c 12,000 ---------To Bishwajeet's Capital A/c 12,000 (Being general reserve distributed among old partner in old ratio) Naresh's Capital A/c Dr. 5,000 Raj Kumar's Capital A/c 5,000 Bishwajeet's Capital A/c 5,000 ---------To Profit and Loss A/c 15,000 (Being debit balance of profit and loss account written off)

## Reconstitution of a Partnership Firm - Retirement/Death of a Partner Exercise 209

### Solution Num 5

 Books of Digvijay and Parakaram Revaluation Account Dr. Cr. Particulars Rs. Particulars Rs. To Bad Debts A/c 2,000 To Patents A/c 9,000 By loss transferred to: Digvijay Capital A/c 4,400 Brijesh Capital A/c 4,400 Parakaram Capital A/c 2,200 11,000 11,000 11,000

 Partners' Capital Account Dr. Cr. Particulars Digvijay Brijesh Parakaram Particulars Digvijay Brijesh Parakaram To Brijesh's Capital A/c 18,667 9,333 By Balance b/d 82,000 60,000 75,500 To Revaluation A/c(Loss) 4,400 4,400 2,200 By Reserve A/c 7,400 7,400 3,700 To Brijesh's Loan A/c 91,000 By Digvijay's Capital A/c 18,667 To Balance c/d 66,333 67,667 By Parakaram's Capital A/c 9,333 89,400 95,400 79,200 89,400 95,400 79,200

 Balance Sheet as on March 31, 2017 Dr. Cr. Liabilities Rs. Assets Rs. Creditors 49,000 Cash 8,000 Brijesh's Loan 91,000 Debtors 19,000 Digvijay's Capital 66,333 Less: Bad Debts 2,000 17,000 Parakaram's Capital 67,667 Stock 42,000 Building 2,07,000 2,74,000 2,74,000

Since, sufficient balance is not available to pay the amount due to Brijesh, the balance of his Capital Account transferred to his loan account.

### Solution Num 6

 Books of Radha and Meena Revaluation Account Dr. Cr. Particulars Rs. Particulars Rs. To Machinery A/c 800 By Expenses Owing A/c 750 To Losse Tools A/c 400 By Factory Premises A/c 1,800 To Profit transferred to: Meena Capital A/c 675 Radha Capital A/c 450 Sheela Capital A/c 225 1,350 2,550 2,550

 Partners' Capital Account Dr. Cr. Particulars Radha Sheela Meena Particulars Radha Sheela Meena To Sheela's Capital A/c 3,250 1,083 By Balance b/d 15,000 15,000 15,000 To Sheela's Loan A/c 24,283 By General Reserve A/c 6,750 4,500 2,250 To Balance c/d 19,175 16,392 By Revaluation A/c (Profit) 675 450 225 By Radha's Capital A/c 3,250 By Meena's Capital A/c 1,083 22,425 24,283 17,475 22,425 24,283 17,475

 Balance Sheet as on April 1,2017 Liabilities Rs. Assets Rs. Trade Creditors 3,000 Cash in Hand 1,500 Bills Payable 4,500 Cash at Bank 7,500 Expenses Owing 3,750 Debtors 15,000 Sheela's Loan 24,283 Stock 12,000 Capital: Factory premises 24,300 Radha 19,175 Machinery 8,000 Meena 16,392 35,567 Less : 10% 800 7,200 Losse Tools 4,000 Less : 10% 400 3,600 71,100 71,100

## Reconstitution of a Partnership Firm - Retirement/Death of a Partner Exercise 210

### Solution Num 7

 Revaluation Account Dr. Cr. Particulars Rs. Particulars Rs. Stock 900 Premises 16,000 Provision for Legal Damages 1,200 Provision for Doubtful Debts 100 Profit transferred to Capital Account: Furniture 4,000 Pankaj 9,000 Naresh 6,000 Saurabh 3,000 18,000 20,100 20,100

 Partners' Capital Account Dr. Cr. Particulars Pankaj Naresh Saurabh Particulars Pankaj Naresh Saurabh To Naresh's Capital A/c 14,000 By Balance b/d 46,000 30,000 20,000 To Naresh's Loan A/c 26,000 By General Reserve A/c 6,000 4,000 2,000 To Bank A/c 28,000 By Revaluation A/c (Profit) 9,000 6,000 3,000 To Balance c/d 47,000 25,000 By Pankaj's Capital A/c 14,000 61,000 54,000 25,000 61,000 54,000 25,000

 Bank Account Dr. Cr. Particulars Rs. Particulars Rs. To Balance b/d 7,600 By Naresh's Capital A/c 28,000 To Bank Loan A/c ( Balancing Figure) 20,400 28,000 28,000

 Balance Sheet as on September 30,2017 Liabilities Rs. Assets Rs. Sundry  Creditors 15,000 Debtors 6,000 Bills Payable 12,000 Less: Provision for Doubtful Debts 300 5,700 Bank Loan/ Overdraft 20,400 Stock 8,100 Outstanding Salaries 2,200 Furniture 45,000 Provision for Legal Damages 7,200 Premises 96,000 Naresh's Loan 26,000 Capital: Pankaj 47,000 Saurabh 25,000 72,000 1,54,800 1,54,800

## Reconstitution of a Partnership Firm - Retirement/Death of a Partner Exercise 211

### Solution Num 8

 Pammy's Capital Account Dr. Cr. Particulars Rs. Particulars Rs. To Drawings A/c 10,000 By Balance b/d 40,000 To Pammy Executor's A/c 75,400 By Profit and Loss A/c (Suspense) 3,000 By Puneet's Capital A/c 15,000 By Pankaj's Capital A/c 15,000 By Interest on Capital A/c 2,400 By Reserve 10,000 85,400 85,400

 Pammy's Executor Account Date Particulars Rs. Date Particulars Rs. 2017-18 2017-18 Sept 30 To Bank A/c 15,400 Sept 30 By Pammy's Capital A/c 75,400 Mar 31 To Balance c/d 63,600 Mar 31 By Interest A/c 3,600 79,000 79,000 2018-19 2018-19 Sep 30 To Bank A/c (15,000+3,600+3,600) 22,200 Apr 01 By Balance b/d 63,600 Mar 31 To Balance c/d 47,700 Sep 30 By Interest A/c 3,600 Mar 31 By Interest A/c 2,700 69,900 69,900 2019-20 2019-20 Sep 30 To Bank A/c 20,400 Apr 01 By Balance b/d 47,700 Mar 31 To Balance c/d 31,800 Sep 30 By Interest A/c 2,700 Mar 31 By Interest A/c 1,800 52,200 52,200 2020-21 2020-21 Sep 30 To Bank A/c (15,000+1,800+1,800) 18,600 Apr 01 By Balance b/d 31,800 Mar 31 To Balance c/d 15,900 Sep 30 By Interest A/c 1,800 Mar 31 By Interest A/c 900 34,500 34,500 2021-22 2021-22 Sep 30 To Bank A/c (15,000+900+900) 16,800 Apr 01 By Balance b/d 15,900 Sep 30 By Interest A/c 900 16,800 16,800

3.Interest Amount

The firm closes its books every year on march 31 While installments to Pammy's Executor are paid on sept.30 every year.

Amount outstanding on 30 September = 75,400 - 15,400 = 60,000

 Periods Outstanding Yearly Interest For 6 Month 2017 - 18 60,000 2018 - 19 45,000 2019 - 20 30,000 2020 - 21 15,000

### Solution Num 9

 Books of Prateek and Kushal Journal Date Particulars L.F. Dr. Rs. Cr.  Rs. 2017 June 30 General Reserve A/c Dr. 250 Profit and Loss ( Suspense) A/c Dr. 1,000 General Reserve A/c Dr. 4,571 ---------To Rockey's Capital A/c 5,821 (Being share of profit, interest on capital and share of general reserve credited to rockey's account) June 30 Pateek's Capital A/c Dr. 4,800 Kunal Capital A/c Dr. 3,200 ---------To Rockey's  A/c 8,000 (Being rockey's share of goodwill adjusted to prateek's and Kunal's capital in their gaining ratio, 3:2) June 30 Rockey' Capital A/c Dr. 33,821 ---------To Rockey's Executor's A/c 33,821 (Being balance of rockey capital account transferred to his executor 's account)

 Rockey's Capital Account Date Particulars Rs. Date Particulars Rs. 2017 2017 Apr 01 To Rockey's Executor A/c 33,821 Apr 01 By Balance b/d 20,000 By Interest on capital A/c 250 By Profit and Loss (Suspense) A/c 1,000 By General Reserve A/c 4,571 By Prateek's Capital A/c 4,800 By Kushal's Capital A/c 3,200 33,821 33,821

## Reconstitution of a Partnership Firm - Retirement/Death of a Partner Exercise 212

### Solution Num 10

 Revaluation Account Dr. Cr. Particulars Rs. Particulars Rs. To Machinery A/c 3,000 By Freehold Property A/c 8,000 To Furniture A/c 840 By Stock A/c 3,300 To Reserve for Bad Debts A/c 500 To Capitals: Narang 3,480 Suri 1,160 Bajaj 2,320 6,960 11,300 11,300

 Partners' Capital Account Dr. Cr. Particulars Narang Suri Bajaj Particulars Narang Suri Bajaj To Bajaj's Capital A/c 5,250 1,750 By Balance b/d 30,000 30,000 28,000 To Bajaj's Loan A/c 41,320 By Reserve A/c 6,000 2,000 4,000 To Balance c/d 34,230 31,410 By Revaluation A/c (Profit) 3,480 1,160 2,320 By Narang's Capital A/c 5,250 By Suri's Capital A/c 1,750 39,480 33,160 41,320 39,480 33,160 41,320 To Suri's Current A/c 15,000 By Balance b/d 34,230 31,410 To Balance c/d 49,230 16,410 By Narang's Current A/c 15,000 49,230 31,410 49,230 31,410

 Balance Sheet as on April 01,2017 Liabilities Rs. Assets Rs. Biils Payable 12,000 Free hold Premises 48,000 Sundry Creditors 18,000 Machinery 27,000 Bajan's Loan 41,320 Furniture 11,160 Suri current Capital Account: 15,000 Stock 25,300 Narang 49,230 Sundry Debtors 20,000 Suri 16,410 65,640 Less: Reserve for Bad Debts 1,500 18,500 Cash 7,000 Narang's Current A/c 15,000 1,51,960 1,51,960

NOTE:

1. In the given Question Suri's Capital is Rs 30,000 instead of Rs 20,000.
2. Due to insufficient balance in Bajaj's Capital Account, the amount due to Bajaj is transferred to his Loan Account.

## Reconstitution of a Partnership Firm - Retirement/Death of a Partner Exercise 213

### Solution Num 11

 Journal Date Particulars L.F. Dr. Rs. Cr. Rs. 2015 Mar 30 Revalutaion A/c Dr. 1,840 ---------To Stock A/c 1,550 ---------To Reserve for Doubtful Debts A/c 25 ---------To Reserve for Legal Charges A/c 265 (Being Assets and Liabilities are Revalued) June 30 Factory Building A/c Dr. 1,440 ---------To Revalutaion A/c 1,440 (Being factory building appreciate) mar 31 Rajesh's Capital A/c Dr. 160 Pramod's Capital A/c Dr. 120 Nishant's Capital A/c Dr. 120 ---------To Revalutaion A/c 400 (Being loss on revaluation adjusted to partners 'capital account) Mar 31 Rajesh's Capital A/c Dr. 2,000 Nishant's Capital A/c Dr. 1,000 ---------To Pramod's Capital A/c 3,000 (Being pramod's share of goodwill adjusted to rajesh and nishant capital account in their gaining ratio) Mar.31 Reserve Fund A/c Dr. 2,750 ---------To Rajesh's Capital A/c 1,100 ---------To Pramod's Capital A/c 825 ---------To Nishant's Capital A/c 825 (Being reserve fund distributed all the partners) Mar.31 Pramod's Capital A/c Dr. 18,705 ---------To Pramod's Loan A/c 18,705 (Being pramod's capital transferred to his loana account) Mar.31 Rajesh's Capital A/c 940 Nishant's Capital A/c 2,705 ---------To Rajesh's Current A/c 940 ---------To Nishant's Current A/c 2,705 (Being excess in capital account is transferred to current account)

 Partners' Capital Account Dr. Cr. Particulars Rajesh Pramod Nishant Particulars Rajesh Pramod Nishant To Revaluation A/c (Loss) 160 120 120 By Balance b/d 20,000 15,000 15,000 To Pramod's Capital A/c 2,000 1,000 By Reserve Fund A/c 1,100 825 825 To Pramod 's Loan A/c 18,705 By Rajesh's Capital A/c 2,000 To Rajesh's Current A/c 940 By Nishant's Capital A/c 1,000 To Nishant's Current A/c 2,705 To Balance c/d 18,000 12,000 21,100 18,825 15,825 21,100 18,825 15,825

 Balance Sheet as on March 31,2015 Liabilities Rs. Assets Rs. Bills Payable 6,250 Plant and Machinery 11,500 Sundry Creditors 10,000 Debtors 10,500 Reserve for Legal Charges 265 Less: Reserve 525 9,975 Pramod's Loan 18,705 Bills Receivable 7,000 Current Account: Rajesh 940 Stock 15,500 Nishant 2,705 3,645 Less : 10% Depreciation 1,550 13,950 Capital Account: Factory Building 12,000 Rajesh 18,000 Add: 12% Appreciation 1,440 13,440 Nishant 12,000 30,000 Bank Balance 13,000 68,865 68,865

NOTE:

In the above solution, in order to adjust the capital of remaining partners in the new firm according to their new profit sharing ratio, the surplus or the deficit of Capital Account is transferred to their Current Account. But, in order to match the answer with that of given in the book, the surplus or the deficit amount of the Partners' Capital Account, will either be withdrawn or brought in by the old partners. This treatment will be shown in the Partners' Capital itself and no need to transfer the surplus or deficit capital balance to their Current Accounts. The following Journal entry is passed to record the withdrawal of surplus capital by the partners. If existing partners withdraw their excess capital Journal entry

 Journal Date Particulars L.F. Dr. Rs. Cr. Rs. 2015 Mar 30 Rajesh's Capital A/c Dr. 940 Nishant's Capital A/c Dr. 2,705 ---------To Bank A/c 3,645 (Being surplus capital withdrawn)

 Balance Sheet as on March 31,2015 Liabilities Rs. Assets Rs. Biils Payable 6,250 Plant and Machinery 11,500 Sundry Creditors 10,000 Debtors 10,500 Reserve for Legal Charges 265 Less: Reserve 525 9,975 Pramod's Loan 18,705 Bills Receivable 7,000 Current Account: Rajesh 18,000 Stock 15,500 Nishant 12,000 30,000 Less : 10% Depreciation 1,550 13,950 Factory Building 12,000 Add: 12% Appreciation 1,440 13,440 Bank Balance 9,355 65,220 65,220

### Solution Num 12

 In the Books of Jain and Gupta Revaluation Account Dr. Cr. Particulars Rs. Particulars Rs. To Office Furniture A/c 4,000 By Stock A/c 1,900 To Land and Building A/c 6,000 By Plant and Machinery A/c 3,300 To Provision for Doubtful Debts 1,700 By Loss transferred to: Jain's Capital A/c 3,250 Gupta's Capital A/c 1,950 Malik's Capital A/c 1,300 6,500 11,700 11,700

 Partners' Capital Account Dr. Cr. Particulars Jain Gupta Malik Particulars Jain Gupta Malik To Revaluation A/c (Profit) 3,250 1,950 1,300 By Balance b/d 40,000 60,000 20,000 To Malik's Capital A/c 1,125 675 By Accumulated Profit A/c 8,375 5,025 3,350 To Cash A/c 16,500 By Jain Capital A/c 1,125 To Malik's Loan A/c 7,350 By Gupta's Capital A/c 675 To Balance c/d 53,900 69,000 By Cash A/c 9,900 6,600 58,275 71,625 25,150 58,275 71,625 25,150

 Balance Sheet as on April 01,2016 Dr. Cr. Liabilities Rs. Assets Rs. Sundry Creditors 19,800 Stock (18,100+1,900) 20,000 Telephone Bills Outstanding 300 Bonds 14,370 Account Payable 8,950 Cash 5,500 Malik's loan 7,350 Bills Receivable 23,450 Partner's Capital Sundry Debtors 26,700 Jain 53,900 Less: Provision for Bad Debts 1,700 25,000 Gupta 69,000 1,22,900 Land and Building (26,000-6,000) 20,000 Office Furniture (18,250-4,000) 14,250 Plant and Machinery (20,230+3,300) 23,530 Computers 13,200 1,59,300 1,59,300

## Reconstitution of a Partnership Firm - Retirement/Death of a Partner Exercise 214

### Solution Num 13

 Journal Date Particulars L.F. Dr. Rs. Cr. Rs. 2016 June 12 Interest on Capital A/c Dr. 240 General Reserve A/c Dr. 4,000 Profit and Loss A/c Dr. 3,333 ---------To Bharti's Capital A/c 7,573 (Being Profit, interest and general reserve are in creditors to Bharti's capital account)) June 12 Arti's capital A/c Dr. 3,600 Seema's Capital A/c Dr. 1,200 ---------To Bharti's Capital  A/c 4,800 (Being Bharti's Share of Goodwill adjusted to Arti's and Seem's capital account in their gaining ratio,3:1) June 12 Bharti's Capital A/c Dr. 24,373 ---------To Bharti's Executor's A/c 24,373 (Being bharti's capital account is transferred to her executor's account) June 12 Bank A/c Dr. 16,200 ---------To Investment A/c 13,250 ---------To Profit on Sale of investment A/c 2,950 (Being investment sold) June 12 Bharti's Executor's A/c Dr. 24,373 ---------To Bank A/c 24,373 (Being bharti's executor paid)

 Bharti's Capital Account Date Particulars J.F Rs. Date Particulars J.F Rs. 2016 2016 June 12 To Bharti's Executor A/c 24,373 Mar 31 By Balance b/d 12,000 June 12 By Interest on capital 240 By Profit and Loss (Suspense) A/c 3,333 By General Reserve 4,000 By Arti's Capital A/c 3,600 By Seema's Capital A/c 1,200 24,373 24,373

 Bharti's Capital Account Date Particulars J.F Rs. Date Particulars J.F Rs. 2016 2016 June 12 To Bank A/c 24,373 June 12 By Bharti's Capital A/c 24,373 24,373 24,373

## Reconstitution of a Partnership Firm - Retirement/Death of a Partner Exercise 215

### Solution Num 14

 Journal Date Particulars L.F. Dr. Rs. Cr. Rs. 2015 May 01 Nithya's Capital A/c Dr. 2,500 Sathya's Capital A/c Dr. 1,500 Mithya's Capital A/c Dr. 1,000 ---------To Goodwill A/c 5,000 (Being goodwill written off among all the partners) May 01 Patents A/c Dr. 2,000 Premise  A/c Dr. 5,000 ---------To Revaluation A/c 7,000 (Being increase in the value of patents and premises) May 01 Revaluation A/c Dr. 5,000 ---------To Machinery A/c 5,000 (Being decrese in the value of machinery) May 01 Revaluation A/c Dr. 2,000 ---------To Nithya's Capital A/c 1,000 ---------To Sathya's Capital A/c 600 ---------To Mithya's Capital A/c 400 (Being profit on revaluation of assets and liabilities transferred to partners' capital account) May 01 Reserve Fund A/c Dr. 6,000 ---------To Nithya's Capital A/c 3,000 ---------To Sathya's Capital A/c 1,800 ---------To Mithya's Capital A/c 1,200 (Being reserve fund transferred to partners capital account) May 01 Nithya's Capital A/c Dr. 4,375 Sathya's Capital A/c Dr. 2,625 ---------To Mithya's Capital A/c 7,000 (Being mithya's share of goodwill adjusted to nithya's and sathya's capital account in their gaining ratio 5:3) May 01 Profit and Loss A/c (Suspense) Dr. 1,000 ---------To Mithya's Capital A/c 1,000 (Being profit till date of death credited to mithya's capital account) May 01 Mithya's Capital A/c Dr. 28,600 ---------To Mithya's Executors A/c 28,600 (Being mithya's capital account transferred to her executor account) May 01 Mithya's Executors A/c Dr. 4,200 ---------To Cash A/c 4,200 (Being cash paid to mithya's executor)

 Mithya's Executor's Account Date Particulars J.F Rs. Date Particulars J.F Rs. 2015 2015 May 01 To Bank A/c 4,200 May 01 By Mithya's Capital A/c 28,600 Oct 31 To Bank  A/c (6,100+ 1,220) 7,320 Oct 31 By Interest A/c 1,220 Dec 31 To Balance c/d 18,605 Dec 31 By Interest {915 × 2/6} 305 30,125 30,125 2016 2016 Apr 30 To Bank A/c  ( 6,100 + 915 ) 7,015 Jan 01 By Balance b/d 18,605 Oct 31 To Bank A/c  (6,100 + 610 ) 6,710 Apr 30 By Interest  A/c {915 × 4/6} 610 Dec 31 To Balance c/d 6,202 Oct 31 By Interest A/c 610 Dec 31 By Interest A/c  {305 × 2/6} 102 19,927 19,927 2017 2017 Apr 30 To Bank A/c  (6,100 + 305) 6,405 Jan 01 By Balance b/d 6,202 Apr 30 By Interest {305 × 4/6} 102 6,405 6,405

 Balance Sheet as on May 01, 2015 Liabilities Rs. Assets Rs. Creditors 14,000 Investment 10,000 Mithya's Executor's Loan A/c 24,400 Premises 25,000 Partners' Capitla A/c Machinery 25,000 Nithya 27,125 Stock 13,000 Sathya 28,275 55,400 Debtors 8,000 Patents 8,000 Bank ( 8,000 - 4,200) 3,800 Profit and Loss (Suspense) 1,000 93,800 93,800

Working Note:

1.

 Partners' Capital Account Dr. Cr. Particulars Nithya Sathya Mithya Particulars Nithya Sathya Mithya To Goodwill 2,500 1,500 1,000 By Balance b/d 30,000 30,000 20,000 To Mithya's Capital A/c 4,375 2,625 By Revaluation A/c 1,000 600 400 To mithya's executor's A/c 28,600 By Reserve fund 3,000 1,800 1,200 To Balance c/d 27,125 28,275 By Profit and Loss A/c (Suspense) 1,000 By Nithya's Capital A/c 4,375 By Sathya's Capital A/c 2,625 34,000 32,400 29,600 34,000 32,400 29,600

5.

 Calculation of Interest Period Amount Outstanding Interest May 01, 15 to Oct 31, 15 24,400 Nov 01, 15 to Apr 30, 16 18,300 May 01,16 to Oct 31, 15 12,200 Nov 01, 16 to Apr 30,17 6,100