DIPS INSTITUTE , RATLAM

Dhanji Bai Ka Nohra Ratlam , M.P

Test / Exam Name: 12th Revision Standard: 12th Commerce Subject: Accountancy
Student Name: Section: Roll No.:
Questions: 38 Time: 03:00 hh:mm Marks: 272

Q1. On 1st April, 2017, A and B entered into partnership contributing ₹ 60,000 and ₹ 45,000 respectively. They agreed to share 6 Marks
profits and losses in the ratio of 3 : 2. B is allowed salary of ₹ 12,000 per year. Interest on capital is to be allowed @ 10% p.a.
During the year, A withdrew ₹ 9,000 and B withdrew ₹ 18,000 as drawings, Interest on drawings paid by A and B were ₹ 150 and
₹ 210 respectively. Profit for the year ended 31st March, 2018 before the above adjustments was ₹ 35,000. Show distribution of
profits by preparing Profit and Loss Appropriation Account of the firm. Prepare Partners' Capital Accounts also.

Ans:

Working Notes:
WN1: Calculation of Interest on Capital.
Interest on A's Capital = 60, 000 ×
10

100
= ₹ 6, 000
Interest on B's Capital = 45, 000 × 10

100
= ₹ 4, 500

WN2: Calculation of Profit Share of each Partner.

Profit available for Distribution = 35,000 + 360 − 12,000 − 10,500 = ₹ 12, 860
A's Profit Share = 12, 860 × = ₹ 7, 716
3

B's Profit Share = 12, 860 ×

2
₹ 5, 144
5
=

Q2. Soumya and Bimal are partners in a firm Sharing profits and losses in the ratio of 3 : 2. The balance in their capital and current 8 Marks
accounts as on April 01, 2019 were as under:

The partnership deed provides that Soumya is to be paid salary @ ₹ 500 per month where as Bimal is to get a commission of ₹
40,000 for the year. Interest on capital is to be credited at 6% p.a. The drawings of Soumya and Bimal for the year were ₹ 30,000
and ₹ 10,000 respectively. The net profit of the firm before making these adjustment was ₹ 2,49,000. Interest on Soumya’s
 drawings was ₹ 750 and Bimal’s drawings, ₹ 250. Prepare Profit and Loss Appropriation Account and Partner’s Capital and
Current Accounts.

Ans:

Q3. Anita, Bimla and Cherry are three partners. On 1st April, 2017, their Capitals stood as: Anita 1,00,000, Bimla ₹ 2,00,000 and 8 Marks
Cherry ₹ 3,00,000. It was decided that:
1. They would receive interest on Capital @ 5% p.a.
2. Anita would get a salary of ₹ 5,000 per month.
3. Bimla would receive commission @ 5% of net profit after deduction of commission.
4. 10% of the net divisible profit would be transferred to the General Reserve.
Before the above items were taken into account, the profit for the year ended 31st March, 2018 was ₹ 5,00,000.
Prepare Profit and Loss Appropriation Account and the Capital Accounts of the partners.

Ans:
 Working Notes:
WN1: Calculation of Interest on Capital.
Interest on Anita = 1, 00, 000 ×
5
= 5, 000
100

Interest on Bimla = 2, 00, 000 × 5

100
= 10, 000

Interest on Cherry = 3, 00, 000 × 100

5
= 15, 000

WN2: Calculation of Commission to Bimla.

Commission to Bimla = 5% on Net Profits after Commission.
Commission to Bimla = Net profit × Rate

100+Rate
5
= 5, 00, 000 ×
105
= ₹ 23, 810
WN3: Calculation of Amount to be transferred to General Reserve.
Amount for General Reserve = 10% of Divisible Profit.
10
= 3, 86, 190 × = ₹ 38, 619
100

WN4: Calculation of Profit Share of each Partner.

Profit available for Distribution = 5,00,000 - 30,000 - 60,000 - 23,810 - 38,619 = ₹ 3,47,571
Profit Share of Anita, Bimla and Cherry each = 3, 47, 571 × = ₹ 1, 15, 857
1

Q4. X and Y are partners sharing profits and losses in the ratio of 3 : 2. They employed Z as their Manager to whom they paid a salary 8 Marks
of ₹ 7,500 per month. Z had deposited ₹ 2,00,000 on which interest was payable @ 9% p.a. At the end off the accounting year
(i.e., 31st March, 2018) 2017-18 (after division of the year's profits), it was decided that Z should be treated as a partner with
effect from 1st April, 2014 with th share of profits, his deposit being considered as capital carrying interest @ 6% p.a. like
1

capitals of other partners. The firm's profits and losses after allowing interest on capitals were – 2014-15:
Profit ₹ 5,90,000; 2015-16
Profit ₹ 6,26,000; 2016-17
Loss ₹ 40,000 and 2017-18
Profit ₹ 7,80,000
Record necessary Journal entries to give effect to the above.

Ans:

Working Notes:
WN1: Profit before Z’s Salary and Interest on Loan.

WN2: Calculation of Interest on Capital.

Interest on Z's Capital = 2, 00, 000 ×
6
₹ 12, 000 p.a.
100
=

Interest on Z’s Capital for 4 years = 12,000 × 4 = ₹ 48,000

 WN3: Calculation of Z’s Share of Profit as a Partner.
Profit after Interest on Z’s Capital = Profit before Interest on Z’s Capital − Interest on Z’s Capital.
= 23,88,000 − 48,000 = ₹ 23,40,000
Z’s Profit Share as a Partner for 4 years.
= ₹ 3, 90, 000
1
= 23, 40, 000 ×
6

∴ Z’s Share of Interest on Capital and Profit Share as a Partner = 48,000 + 3,90,000 = ₹ 4,38,000
Z’s Salary and Interest on Loan as Manager = 72,000 + 3,60,000 = ₹ 4,32,000
Adjustment of Z's share of Profit.

Profit to be transferred by X and Y in favour of Z.

3
x = 6, 000 × = ₹ 3, 600
5

y = 6, 000 ×
2

5
₹ 2, 400
=

Q5. A, B and C are partners. Their fixed capitals as on 31st March, 2018 were A ₹ 2,00,000, B ₹ 3,00,000 and C ₹ 4,00,000. Profits for 8 Marks
the year ended 31st March, 2018 amounting to ₹ 1,80,000 were distributed. Give the necessary adjusting entry in each of the
following alternative cases:
Case (a) Interest on capital was credited @ 8% p.a. though there was no such provision in the partnership deed.
Case (b) Interest on capital was not credited @ 8% p.a. though there was such provision in the partnership deed.
Case (c) Interest on capital was credited @ 8% p.a. instead of 10% p.a.
Case (d) Interest on capital was credited @ 10% p,a, instead of 8% p.a.

Ans: Case (a):

Case (b):
Case (c):

Case (d):

Q6. X and Y entered into partnership on 1st April, 2017 and contributed ₹ 2,00,000 and ₹ 1,50,000 respectively as their capitals. On 8 Marks
1st October, 2017, X provided ₹ 50,000 as loan to the firm. As per the provisions of the partnership Deed:
1. 20% of Profits before charging interest on Drawings but after making appropriations to be transferred to General Reserve.
2. Interest on capital at 12% p.a. and Interest on Drawings @ 10% p.a.
3. X to get monthly salary of ₹ 5,000 and Y to get salary of ₹ 22,500 per quarter.
4. X is entitled to a commission of 5% on sales. Sales for the year were ₹ 3,50,000.
5. Profit and Loss to be shared in the ratio of their capital contribution up to ₹ 1,75,000 and above ₹ 1,75,000 equally.
The profit for the year ended 31st March, 2018 before providing for any interest was ₹ 4,61,000. The drawings of X and Y were ₹
1,00,000 and ₹ 1,25,000 respectively.
 Pass the necessary Journal entries relating to appropriation out of profit and Loss Appropriation Account and the Partners'
Capital Accounts.

Ans:

Working Notes:
WN1: Calculation of Reserve.
Profit before charging Interest on Drawings but after making appropriations.
= 4,59,500 − 42,000 − 17,500 − 60,000 − 90,000
= 2,50,000
Reserve = 2, 50, 000 × 20

100
= ₹ 50, 000

WN2: Division of Profit.

Partners Up to ₹ 1,75,000 ₹ 36,250 (Above Rs 1,75,000) Total
X 1,00,000 18,125 1,18,125
Y 75,000 18,125 93,125

Q7. A, B and C have Capitals of ₹ 60,000, ₹ 30,000 and ₹ 20,000 respectively on 1st April, 2017, on which they are entitled to interest 8 Marks
@ 6% p.a. They share profits in the ratio of 5 : 3 : 2. A is entitled to receive a salary of ₹ 500 per month. Drawings during the year
were as follows:

The rate of interest on Drawingsis 6% Profit for the year ended 31st March 2018 was ₹ 24,605 before charging salary, interest on
Capital and Drawiiigs Assuming that the Capitals are (a) Fixed, (b) Floating, show the Partner's Capital Accounts, Current
Accounts and Profit and Loss Appropriation Account.

Ans:
 When Capital are fixed:

Working Notes:
1. Calculation of Interest on Drawings:

Interest on Drawings:
28,000 6
A =
12
×
100
= ₹ 140
33,000 6
B =
12
×
100
= ₹ 165
18,000 6
C =
12
×
100
₹ 90
=

Q8. Lokesh and Azad are partners sharing profits in the ratio 3 : 2, with capitals of ₹ 50,000 and 30,000, respectively. Interest on 6 Marks
capital is agreed to be paid @ 6% p.a. Azad is allowed a salary of ₹ 2,500 p.a. During 2016, the profits prior to the calculation of
interest on capital but after charging Azad’s salary amounted to ₹ 12,500. A provision of 5% of profits is to be made in respect of
manager’s commission. Prepare accounts showing the allocation of profits and partner’s capital accounts.

Ans:
Q9. The Capitals of A, B and C as on 31st March, 2018 amounted to ₹ 90,000, ₹ 3,30,000 and ₹ 6,60,000 respectively. The profits 6 Marks
amounting ₹ 1,80,000 for the year 2017-18 were distributed in the ratio of 4 : 1 : 1 after allowing interest on Capital @ 10% p.a.
During the year, each partner withdrew ₹ 3,60,000. The Partnership Deed was silent as to profit-sharing ratio but provided for
interest on capital @ 12%.
Pass the necessary adjustment entry showing the working clearly.

Ans:

Q10. X, Y and Z are partners with capitals of ₹ 4,00,000; ₹ 3,00,000 and ₹ 2,00,000 respectively. They charge 8% p.a. interest on their 6 Marks
capitals and divide the profits in the ratio of 3 : 2: 1. Xhas guaranteed that Z's share shall not amount to less than ₹ 50,000 in any
one year
 Their Drawings duringthe year were ₹ 50,000; ₹ 40,000 and ₹ 35,000 respectively. Net profits for the year before providing
interest on capitals was ₹ 2,52,000. Prepare P & L Appropriation A/c and capital accounts.

Ans:

Working Note:
Net Profit after Interest on Capital = ₹ 2,52,000 – ₹ 72,000 = ₹ 1,80,000
Share of Profit = X : ₹ 1, 80, 000 × = ₹ 60, 000
2

= Y : ₹ 1, 80, 000 × 2

6
= ₹ 60, 000
1
= Z : ₹ 1, 80, 000 × = ₹ 30, 000
6

The minimum guaranteed amount to Z is ₹ 50,000 whereas his share of profit amounts to ₹ 30,000. Hence, the deficiency of ₹
20,000 will be deducted from A's share and will be added to Z’s share.

Q11. Ankur, Bhavna and Disha are partners in a firm. On 1st April, 2017, the balance in their Capital Accounts stood at ₹ 14,00,000, ₹ 6 Marks
6,00,000 and ₹ 4,00,000 respectively. They shared profits in the proportion of 7 : 3 : 2 respectively. Partners are entitled to
interest on capital @ 6% per annum and salary to Bhavna @ ₹ 50,000 p.a. and a commission of ₹ 3,000 per month to Disha as
per the provisions of the partnership Deed.
Bhavna's share of profit (excluding interest on capital) is guaranteed at not less than ₹ 1,70,000 p.a. Disha's share of profit
(including interest on capital but excluding commission) is guaranteed at not less than ₹ 1,50,000 p.a. Any deficiency arising on
that account shall be met by Ankur. The profit of the firm for the year ended 31st March, 2018 amounted to ₹ 9,50,000.
Prepare 'Profit and Loss Appropriation Account' for the year ended 31st March, 2018.

Ans:

Working Notes:
Profit available for distribution = 9,50,000 - (1,44,000 + 50,000 + 36,000) = ₹ 7,20,000
Profit sharing ratio = 7 : 3 : 2
 Ankur's Profit Share = 7, 20, 000 ×
7

12
₹ 4, 20, 000
=

Bhavna's Profit Share = 7, 20, 000 ×

3
= ₹ 180, 000
12

Disha's Profit Share = 7, 20, 000 ×

2
= ₹ 1, 20, 000
12

Bhavna’s Minimum Guaranteed Profit = ₹ 1,70,000 (excluding interest on capital)

But, Bhavna’s Actual Profit Share = ₹ 1,80,000
This implies that there is no deficiency in Bhavna’s profit share as her actual profit share (i.e. ₹ 1,80,000) exceeds his minimum
guaranteed profit share (i.e. ₹ 1,70,000).
Disha’s Minimum Guaranteed Profit = ₹ 1,50,000 (including interest on capital but excluding salary)
Disha’s Minimum Guaranteed Profit (excluding interest) = 1,50,000 - 24,000 = ₹ 1,26,000
But, Disha’s Actual Profit Share = ₹ 1,20,000
Deficiency in Disha’s Profit Share = 1,26,000 – 1,20,000 = ₹ 6,000
This deficiency is to be borne by Ankur alone.
Therefore,
Ankur’s New Profit Share = 4,20,000 - 6,000 = ₹ 4,14,000
Q12. A and B are in partnership sharing profits and losses in the ratio of 3 : 2. They decided to admit C, their Manager, as a partner 6 Marks
with effect from 1st April, 2017, giving him th share of profits. C, while a Manager, was in receipt of a salary of ₹ 27,000 p.a.
1

and a commission of 10% of the net profits after charging such salary and commission.
In terms of the Partnership Deed, and excess amount, which C will be entitled to receive as a partner over the amount which
would have been due to him if he continued to be the manager, would have to be personally borne by A out of his share of
profit. Profit for the year ended 31st March, 2018 amounted to ₹ 2,25,000. You are required to show Profit and Loss
Appropriation Account for the year ended 31at March, 2018.

Ans:

Working Notes:
WN1: Calculation of Remuneration to C as a Manager
Salary to C = ₹ 27,000
Commission to C = 10% of Net Profit after Salary and Commission
Net Profit after Salary and Commission = 2,25,000 − 27,000 = ₹ 1,98,000
10
∴ Commission to C = 1, 98, 000 × = ₹ 18, 000
110

C’s remuneration as Manager = Salary + Commission = 27,000 + 18,000 = ₹ 45,000

WN2: Calculation of Profit Share of C as a Partner
Profit = ₹ 2,25,000
C's Profit Share = 2, 25, 000 × = ₹ 56, 250
1

Part of C’s Profit Share to be borne by A = 56,250 − 45,000 = ₹ 11,250

Profit available for distribution between A and B = 2,25,000 − 45,000 = ₹ 1,80,000
A's Share of Profit = 1, 80, 000 × = ₹ 1, 08, 000
3

B's Share of Profit = 1, 80, 000 × ₹ 72, 000

2

5
=

A’s Profit share after adjusting C’s deficiency = 1,08,000 − 11,250 = ₹ 96,750
Q13. X and Y contribute ₹ 20,000 and ₹ 10,000 respectively towards capital. They decide to allow interest on capital @ 6% p.a. Their 6 Marks
respective share of profits is 2 : 3 and the net profit for the year is ₹ 1,500. Show distribution of profits:
1. Where there is no agreement except for interest on capitals.
2. Where there is an agreement that the interest on capital as a charge.

Ans: Calculation of Interest on Capital

Interest on X's Capital = 20, 000 × 6

100
= ₹ 1, 200
Interest on Y's Capital = 10, 000 ×
6
₹ 600
100
=

Total Amount of interest on Capital = 1,200 + 600 = ₹ 1,800

Case 1:
Where there is no clean agreement except for interest on capitals
 Profit for the year ended = ₹ 1,500
Total amount of interest = ₹ 1,800
Here, total amount of interest on capital is more than the profit available for distribution.
Therefore, profit of ₹ 1,500 is distributed between X and Y in the ratio of their interest on capital.
Particulars X : Y
Interest on Capital 1,200 : 600
Ratio of interest on Capital 2 : 1

X will get Interest on Capital = 1, 500 × 2

3
= ₹ 1, 000
Y will get Interest on X's Capital = 1, 500 × 1

3
= ₹ 500

Case 2:
In case, there is a clear agreement that the interest on capital will be allowed even if the firm has incurred loss, then the whole
amount of interest on capital is to be allowed to the partners.
Interest on X's Capital = 20, 000 × = ₹ 1, 200
6

100

Interest on Y's Capital = 10, 000 × 6

100
= ₹ 600
Total Profit of the firm = ₹ 1,500
Total amount of Interest on Capital = ₹ 1,800 (i.e. ₹ 1,200 + ₹ 600). Therefore, loss to the firm amounts to ₹ 300. This loss is to
shared by X and Y in their profit sharing ratio that is 2 : 3.
Loss to X = 300 × = ₹ 120
2

Loss to Y = 300 ×
3

5
₹ 180
=

Q14. Sumit purchased Amit's business on 1st April, 2018. Goodwill was decided to be valued at two years' purchase of average normal 6 Marks
profit of last four years. The profits for the past four years were:
Year Ended 31st March, 2015 31st March, 2016 31st March, 2017 31st March, 2018
Profit (₹) 80,000 1,45,000 1,60,000 2,00,000

Books of Account revealed that:

1. Abnormal loss of ₹ 20,000 was debited to Profit and Loss Account for the year ended 31st March, 2015.
2. A fixed asset was sold in the year ended 31st March, 2016 and gain (profit) of ₹ 25,000 was credited to Profit and Loss
Account.
3. In the year ended 31st March, 2017 assets of the firm were not insured due to oversight. Insurance premium not paid was
₹ 15,000.
Calculate the value of goodwill.

Ans: Goodwill=Average Profit × No. of years' purchase

= 1,41,250 × 2 = ₹ 2,82,500
Working Notes:
WN: 1 Calculation of Normal Profits

WN: 2 Calculation of Average Profit

Total Profit for past given years
Average Profit =
Number of Years
5,65,000
=
4
₹ 1, 41, 250
=

Q15. From the following information, calculate value of goodwill of the firm: 6 Marks
1. At three years' purchase of Average Profit.
2. At three years' purchase of Super Profit.
3. On the basis of Capitalisation of Super Profit.
4. On the basis of Capitalisation of Average profit.
Information:
1. Average Capital Employed is ₹ 6,00,000.
2. Net Profit/(Loss) of the firm for the last three years ended are:
 3. 31st March, 2108–₹ 2,00,000, 31st March, 2107–₹ 1,80,000, and 31st March, 2106–₹ 1,60,000.
4. Normal Rate of Return in similar business is 10%.
5. Remuneration of ₹ 1,00,000 to partners is to be taken as charge against profit.
6. Assets of the firm (excluding goodwill, fictitious assets and not-trade investments) is ₹ 7,00,000 whereas Partners' Capital is
₹ 6,00,000 and Outside Liabilities ₹ 1,00,000.

Ans: 1. Goodwill = Average Profit × No. of Years' Purchase

= 80,000 × 3 = ₹ 2,40,000
2. Goodwill = Super Profit × No. of Years' Purchase
= 20,000 × 3 = ₹ 60,000
3. Goodwill = Super Profit ×
100

Normal Rate of Return

100
= 20, 000 ×
10
₹ 2, 00, 000
=

4. Goodwill = Capitalised value - Net Assets

= 8,00,000 - 6,00,000 = ₹ 2,00,000
Working Notes:
WN: 1 Calculation of Average and Super Profits
Average Profit =
Total Profit for past given years

No. of Years
2,00,000+1,80,000+1,60,000
=
3

= ₹ 1,80,000
Average Profit(Adjusted) = ₹ 1,80,000 - 1,00,000(Remuneration to Partners)
= ₹ 80,000
Normal Profit = Capital Employed × Normal Rate of Return

100
10
= 6, 00, 000 × ₹ 60, 000
100
=

Super Profit = Average Profit(Adjusted) - Normal Profit

= 80,000 - 60,000 = ₹ 20,000
WN: 2 Calculation of Capital Employed
Capital Employed = Total Assets - Outside Liabilities
= 7,00,000 - 1,00,000 = ₹ 6,00,000
Q16. Calculate the goodwill of a firm on the basis of three years' purchase of the weighted average profit of the last four years. The 6 Marks
appropriate weights to be used and profits are:
Year 2014-15 2015-16 2016-17 2017-18
Profit (₹) 1,01,000 1,24,000 1,00,000 1,40,000
Weight 1 2 3 4

On a scrutiny of the accounts, the following matters are revealed:

1. On 1st December, 2016, a major repair was made in respect of the plant incurring ₹ 30,000 which was charged to revenue.
The said sum is agreed to be capitalised for goodwill calculation subject to adjustment of depreciation of 10% p.a. on
reducing balance method.
2. The closing stock for the year 2015-16 was overvalued by ₹ 12,000.
3. To cover management cost, an annual charge of ₹ 24,000 should be made for the purpose of goodwill valuation.
4. In 2015-16, a machine having a book value of ₹ 10,000 was sold for ₹ 11,000 but the proceeds were wrongly credited to
Profit and Loss Account. No effect has been given to rectify the same. Depreciation is charged on machine @ 10% p.a. on
reducing balance method.

Ans:

Working Notes:
Goodwill = Weighted Average Profit × Number of years' purchase
Total of Product
Weighted Average Profit =
Total of Weights
 77,000+1,56,000+3,53,700+4,55,640
=
10
= ₹ 1, 04, 234
Goodwill = 1, 04, 234 × 3 = ₹ 3, 12, 702
Note 1: Depreciation on ₹ 30,000 machinery is charged for only 4 months in the year 2016-17.
Note 2: Sale proceeds wrongly credited in 2015-16 have been deducted after adjusting for profit of ₹ 1,000. No depreciation is
charged, since date of sale is not given (assumed that the machinery is sold at the end of the year).
Q17. X and Y are partners in a firm. They admit Z into partnership for equal share. It was agreed that goodwill will be valued at three 6 Marks
years' purchase of average profit of last five years. Profits for the last five years were:
Year Ended 31st March, 2014 31st March, 2015 31st March, 2016 31st March, 2017 31st March, 2018
Profit (₹) 90,000 (Loss) 1,60,000 1,50,000 65,000 1,77,000

Books of Account of the firm revealed that:

1. The firm had gain (profit) of ₹ 50,000 from sale of machinery sold in the year ended 31st March, 2015. The gain (profit) was
credited in Profit and Loss Account.
2. There was an abnormal loss of ₹ 20,000 incurred in the year ended 31st March, 2016 because of a machine becoming
obsolete in accident.
3. Overhauling cost of second hand machinery purchased on 1st July, 2016 amounting to ₹ 1,00,000 was debited to Repairs
Account. Depreciation is charged @ 20% p.a. on Written Down Value Method.
Calculate the value of goodwill.

Ans: Goodwill = Average Profit × No. of years' purchase

= 1,00,000 × 3 = ₹ 3,00,000
Working Notes:
WN: 1 Calculation of Normal Profits

*Adjustment Amount
Overhauling cost of second hand machinery wrongly accounted as expense instead of capital expenditur 1,00,0
e. Profit to be increase by ₹ 1,00,000 00
(15,00
Depreciation to be debited from P&L A/c (1, 00, 000 × × )
20 9

100 12
0)
85,00
Amount to be added back
0

WN: 2 Calculation of Average Profit

Total Profit for past given years
Average Profit =
Number of Years
5,00,000
=
5
₹ 1, 00, 000
=

Q18. A, B and C are partners in a firm sharing profits in the ratio of 3 : 2 : 1. Their Balance Sheet as at 31st March, 2017 is as under: 8 Marks

From 1st April, 2017, the partners agreed to share future profits in the ratio of 4 : 3 : 3 and make the following adjustments:
1. Premises will be appreciated by 10% and stock by ₹ 10,000.
 2. A provision for doubtful debts is to be made on debtors @4%.
3. Sundry Creditors be reduced by ₹ 15,000.
4. Machinery will be depreciated by 5%.
5. Goodwill of the firm is valued at ₹ 48,000.
Prepare Revaluation Account, Partner's Capital Accounts and Balance Sheet of the reconstituted firm.

Ans: Working Note: Goodwill is valued at ₹ 48,000. It will be adjusted as follows:

Sacrifice or Gain:
3 4 (15–12) 3
A = – = = (Sacrifice)
6 10 30 30

3 (10–9)
2 1
B = – = = (Sacrifice)
6 10 30 30

3 (5–9) 4
1
C = – = = (Gain)
6 10 30 30

Since A has sacrificed, his Capital A/c will be credited from of ₹ 48,000 = ₹ 4,800
3
th
30

Since B has sacrificed, his Capital A/c will be credited from 1

30
th of ₹ 48,000 = ₹ 1,600
Since C has gained, his Capital A/c will be debited from 4

30
th of ₹ 48,000 = ₹ 6,400.
Q19. A, B and C are partners sharing profits and losses in the ratio of 5 : 3 : 2 Their Balance Sheet as at 31st March, 2017 stood as 8 Marks
follows:

They decided to share profits equally w.e.f.1st April, 2017. They also agreed that:
1. Value of Land and Building be decreased by 5%.
2. Value of Machinery be increased. by 5%.
3. A Provision for Doubtful Debts be created @ 5% on Sundry Debtors.
4. A Motor Cycle valued at ₹ 20,000 was unrecorded and is now to be recorded in the books.
5. Out of Sundry Creditors, ₹ 10,000 is not payable.
6. Goodwill is to be valued at 2 years' purchase of last 3 years profits. Profits being for 2016-17-₹ 50,000 (Loss); 2015-16-
₹ 2,50,000 and 2014-15-₹ 2,50,000.
7. C was to carry out the work for reconstituting the firm at a remuneration (including expenses) of ₹ 5,000. Expenses came
to ₹ 3,000.
Pass journal entries and prepare Revaluation Account.

Ans:
Working Notes:
WN1: Calculation of sacrifice or gain
A : B : C = 5 : 3 : 2 (Old Ratio)
A : B : C = 1 : 1 : 1 (New Ratio)
 Sacrificing (or Gaining Ratio) = Old Ratio - New Ratio
A's share = 5 1 15−10 5
− = = (sacrifice)
10 3 30 30

B's share=
3 1 19−10 1
− = = − (Gain)
10 3 30 30

C's share= 2 1 6−10 4

− = = − (Gain)
10 3 30 30

WN2: Valuation of Goodwill

Goodwill = Average profit × no. of year purchase
1,50,000 × 2 = ₹ 3,00,000
WN3: Adjustment of Goodwill
Amount credited to A's Capital A/c = 3, 00, 000 × 5

30
= ₹ 50, 000
Amount debited to B's Capital A/c = 3, 00, 000 × 1

30
= ₹ 50, 000

Amount debited to C's Capital A/c = 3, 00, 000 × 4

30
= ₹ 40, 000

Q20. P, Q and R are in partnership sharing profits and losses in the ratio of 5 : 4 : 3. On 31st March 2013, their balance sheet was as 8 Marks
follows:

It was decided that with effect from 1st April 2013, the profit sharing ratio will be 4 : 3 : 2. For this purpose the following
revaluations were made:
1. Furniture be taken at 80% of its value.
2. Stock be appreciated by 20%.
3. Plant & Machinery be valued at ₹ 4,00,000.
4. Create provision for doubtful debts for ₹ 10,000 on debtors.
5. Outstanding expenses be increased by ₹ 3,000.
Partners agreed that altered values are not to be recorded in the books and they also do not want to distribute the general
reserve.
You are required to post a single journal entry to give effect to the above. Also prepare the revised Balance Sheet.

Ans: ₹
Loss due to decrease in the value of Furniture 12,000
Loss due to decrease in the value of Plant & Machinery 20,000
Loss due to provision for doubtful debts 10,000
Loss due to increase in Outstanding Expenses 3,000 45,000
Profit due to increase in the value of Stock 60,000
Profit on Revaluation 15,000
Add: General Reserve 75,000
90,000

Old Ratio of P, Q and R = 5 : 4 : 3

New Ratio of P, Q and R = 4 : 3 : 2
Sacrifice or Gain :
5 4 1 1
P =
12
–
9
=
36
(Gain) 90, 000 ×
36
= ₹ 2, 500(Dr.)
4 3
Q = – = 0
12 9
3
R =
12
–
2

9
=
1

36
₹ 2, 500(Cr)
(Sacrifice) 90, 000 ×
1

36
=

Q21. Narang, Suri and Bajaj are partners in a firm sharing profits and losses in proportion of 1

2
,
1

6
and 1

3
respectively. The Balance 8 Marks
Sheet on April 1, 2020 was as follows:
 Bajaj retires from the business and the partners agree to the following:
1. Freehold premises and stock are to be appreciated by 20% and 15% respectively.
2. Machinery and furniture are to be depreciated by 10% and 7% respectively.
3. Bad Debts reserve is to be increased to ₹ 1,500.
4. Goodwill is valued at ₹ 21,000 on Bajaj's retirement.
5. The continuing partners have decided to adjust their capitals in their new profit sharing ratio after retirement of Bajaj.
Surplus/ deficit, if any, in their capital accounts will be adjusted through current accounts.
Prepare necessary ledger accounts and draw the Balance Sheet of the reconstituted firm.

Ans:

Working Note:
1. Bajaj's share in goodwill × Firm's goodwill × His share
2
= 21, 000 × = ₹ 7, 000
6
 2. Gaining ratio = 3 : 1 (same as old ratio because no information is given).
3. Contribution of remaining partners in retiring partners goodwill
Share of Narang = 7, 000 × = ₹ 5, 250
3

Share of suri = 70, 000 × ₹ 1, 750 1

4
=

4. Calculation of Capital in New ratio of remaining partners,

Capital after adjusments
Narang = 34,230
Suri = 31,410
Total Capital of New firm = 65,640

5. Share of capitan in New ratio of remaining partner

Narang's New capital = 65, 640 × = ₹ 49, 230
3

Suri New capital = 65, 640 × ₹ 16, 410 1

4
=

6. Profit saharing ratio of old partners

1 1 1 3:1:2
= : : = = 3 : 1 : 2
2 6 3 6

Q22. X and Y are in partnership sharing profits in the ratio of 2 : 3. With effect from 1st April, 2018, they agreed to share profits in the 6 Marks
ratio f 1 : 2. For this purpose goodwill of the firm is to be valued at two years' purchase of the average profit of last three years,
which were ₹ 1, 50,000 ₹ 1,60,000 and ₹ 2,00,000 respectively. The reserves appear in the books at ₹ 1,10,000. Partners decide
to continue showing Reserves in the books You are required to give effect to the change by passing a single journal entry.

Ans:

Working Notes:
WN 1 Calculation of Goodwill
Goodwill = Avearge profit × Number of year's purchase
1,50,000+1,60,000+2,00,000
Avearge profit 3
= ₹ 1, 70, 000
∴ Goodwill = 1, 70, 000 × 2 = ₹ 3, 40, 000
WN 2 Calculation of Sacrificing (or Gaining) Ratio
Old Ratio (X and Y) = 2 : 3
New Ratio (X and Y) = 1 : 2
Sacrificing (or Gaining) Ratio = Old Ratio - New Ratio
′ 2 1 6−5 1
X s ratio = − = = (sacrifice)
5 3 15 15
′ 3 2 9−10 −1
Y s ratio = − = = (Gain)
5 3 10 15

WN 3 Adjustment of Goodwill
Amount to be credited X's capital = 3, 40, 000 ×
1

15
= ₹ 22, 667
Amount to be credited Y's capital = 3, 40, 000 × 1

15
= ₹ 22, 667

WN 4 Adjustment of General Reserve

Amount to be credited X's capital = 1, 10, 000 × 1

15
= ₹ 7, 333
Amount to be credited Y's capital = 1, 10, 000 × 1

15
= ₹ 7, 333

WN 5 Net Adjustment of Goodwill and General Reserve

Q23. A and B are partners in a firm. The net profit of the firm is divided as follows: 1

2
to A, 1

3
to B and 1

6
carried to a Reserve. They 8 Marks
admit C as a partner on 1st April, 2018 on which date, the Balance Sheet of the firm was:
 Following are the required adjustments on admission of C:
1. C brings in ₹ 25,000 towards his capital.
2. C also brings in ₹ 5,000 for th share of goodwill.
1

3. Stock is undervalued by 10%.

4. Creditors include a contingent liability of ₹ 4,000, which has been decided by the court at ₹ 3,200.
5. In regard to the Debtors, the following Debts proved Bad or Doubtful-
₹ 2,000 due from X- bad to the full extent;
₹ 4,000 due from Y- insolvent, estate expected to pay only 50%.
You are required to prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.

Ans:

Working Notes
WN1
Old Ratio
A : B
1 1
:
2 3

= 3 : 2
 Sacrificing Ratio = 3 : 2
WN2
Distribution of Reserve
A will get = 10, 000 ×
3

5
= ₹ 6, 000
B will get = 10, 000 × 2

5
= ₹ 4, 000

WN3
Distribution of Premium for Goodwill
A will get = 5, 000 × = ₹ 3, 000
3

B will get = 5, 000 ×

2

5
₹ 2, 000
=

Q24. A and B share profits in the proportions of and Their Balance Sheet as at March 31, 2018 was as follows: 8 Marks
3 1
.
4 4

On April 1, 2018, C was admitted into partnership for share on the following terms:
1
th
4

1. That C pays ₹ 1,00,000 as his capital.

2. That C pays ₹ 50,000 for goodwill. Half of this sum is to be withdrawn by A and B.
3. That stock and fixtures be reduced by 10% and a 5% provision for doubtful debts be created on Sundry Debtors and Bills
Receivable.
4. That the value of land and buildings be appreciated by 20%.
5. There being a claim against the firm for damages, a liability to the extent of ₹ 10,000 should be created.
6. An item of ₹ 6,500 included in sundry creditors is not likely to be claimed and hence should be written back.
Record the above transactions (journal entries) in the books of the firm assuming that the profit sharing ratio between A and B
has not changed. Prepare the new Balance Sheet on the admission of Mr. C.

Ans:
Q25. A and B were in partnership sharing profits and losses in the ratio of 3 : 1. On 1st April, 2018 they admit C as a partner on the 8 Marks
following terms:
1. That C brings ₹ 1,00,000 as his capital and ₹ 50,000 for goodwill, half of which to be withdrawn by A and B.
2. The value of land and buildings to be appreciated by 15 percent that the of stocks and machinery & fixtures to be reduced
by 7 and 5 percent respectively.
3. That provision for doubtful debts be made at 5 percent.
4. That ₹ 15,000 be provided for an unforeseen liability.
5. That C to be given th share and the profit sharing ratio between A and B to remain the same.
1

6. That ₹ 11,000 is to be received as commission, hence to be accounted for.

The Balance Sheet of the old partnership as at 31st March, 2018 stood as:

Give necessary journal entrie, ledger accounts and the balance sheet of the newly constituted firm.

Ans:
 Note:
Calculation of Cash Balance: ₹
Opening Balance 40,000
(+) Amount of Capital brought in by the new partner in Cash 1,00,000
(+) Amount of Goodwill brought in by the new partner in Cash 50,000
1,90,000

(–) Amount of Goodwill withdrawn by the old partners in Cash 25,000

Balance 1, 65, 000
––––––––––
––––––––––

Q26. A and B were partners in a firm sharing profits in 3 : 1 ratio. They admitted C as a partner for 1

4
th share in the future profit. 8 Marks
C was to bring ₹ 60,000 for his capital. The Balance Sheet of A and B as at 1st April, 2018, the date on which C was admitted,
was:

The other terms agreed upon were:

1. Goodwill of the firm was valued at ₹ 24,000.
2. Land and Building were valued at ₹ 65,000 and Plant and Machinery at ₹ 60,000.
3. Provision for Doubtful Debts was found in excess by ₹ 400.
4. A liability of ₹ 1,200 included in Sundry Creditors was not likely to arise.
5. The capitals of the partners be adjusted on the basis of C's contribution of capital to the firm.
6. Excess of shortfall, if any, be transferred to Current Accounts.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.

Ans:
Working Notes:
WN1
Old Ratio
A : B

3 : 1

Sacrificing Ratio 3 : 1
WN2
C's share of Goodwill = 24, 000 ×
1

4
= ₹ 6, 000
A will get = 6, 000 ×
3

4
₹ 4, 500
=

B will get = 6, 000 × = ₹ 1, 500

1

As C has not brought his share of goodwill in cash, hence, his share shall be debited to his current account.
WN3: Distribution of Revaluation Profit
A will get = 16, 600 × = ₹ 12, 450
3

B will get = 16, 600 × = ₹ 4, 150

1

WN4: Adjustment of Capital

Total Capital of the firm after C’s admission = 60,000 × 4 = 2,40,000
Less: C’s Capital = 60,000
¯¯
¯¯¯
¯¯¯
¯¯¯
¯¯¯
¯¯¯
1,

Combined Capital of A and B = 80, 000

––––––––
––––––––

A's proportionate Capital = 1, 80, 000 ×

3

4
=₹ 1, 35, 000
A's proportionate CapitaB = 1, 80, 000 × 1

4
= ₹ 45, 000
 WN5:

Q27. The following was the Balance Sheet of Arun, Bablu and Chetan sharing profits and losses in the ratio of 8 Marks
6 5 3
: :
14 14 14

respectively.

They agreed to take Deepak into partnership and give him a share of 1

8
on the following terms:
1. That Deepak should bring in ₹ 4,200 as goodwill and ₹ 7,000 as his Capital;
2. That furniture be depreciated by 12%;
3. That stock be depreciated by 10% ;
4. That a Reserve of 5% be created for doubtful debts;
5. That the value of land and buildings having appreciated be brought upto ₹ 31,000;
6. That after making the adjustments the capital accounts of the old partners (who continue to share in the same proportion
as before) be adjusted on the basis of the proportion of Deepak’s Capital to his share in the business, i.e., actual cash to be
paid off to, or brought in by the old partners as the case may be.
Prepare Cash Account, Profit and Loss Adjustment Account (Revaluation Account) and the Opening Balance Sheet of the new
firm.

Ans:
Working Note:
1.

2. Calculation of new profit sharing Ratio,

1
Deepak Share =
8
1 7
Remaining Share = 1 − =
8 8
6 7 42
Arun's New Share = × =
14 8 112
5 7 35
Bablu's New Share = × =
14 8 112
3 7 21
Chetan's New Share = × =
14 8 112

New Profit sharing ratio of Arun, Bablu, Chetan and Deepak

42 35 21 1
: : :
112 112 112 8
42 35 21 14
or : : :
112 112 112 112

= 42 : 35 : 21 : 14

or 6 : 5 : 3 : 2
th
Calculation of capital of Arun, Bablu, and Chetan in the new firm Deepak bring ₹ 7,000 for 1

8
share of profit.
Hence total capital of the new firm = 7, 000 × 8

1
= 56, 000

6
Arun's Capital = 56, 000 × = 21, 000
16
5
Bablu's Capital = 556, 000 × = 17, 000
16
3
Chetan's Capital = 56, 000 × = 10, 500
16

Q28. On 31st March, 2016 the Balance Sheet of A and B, who are partners in a firm sharing profits in the ratio of 3 : 2 was as follows: 8 Marks

On 1st April, 2016 they agreed to admit C into partnership for 1

5
th share of profits on the following terms:
 1. Provision for doubtful debts would be increased by ₹ 20,000.
2. The value of land and building would be increased to ₹ 1,80,000.
3. The value of stock would be increased by ₹ 40,000.
4. The liability against workmen's compensation reserve is determined at ₹ 20,000.
5. C brought in as his share of goodwill ₹ 1,00,000 in cash.
6. C would bring further cash as would make his capital equal to 20% of the total capital of the new firm, after the above
revaluation and adjustments are carried out.
Prepare Revaluation Account, Partner's Capital Accounts and Balance Sheet of the firm after C's admission.

Ans:

Working Note:
Calculation of C’s Capital.
C joins the firm for th share. The share of A and B in the new firm is 1–
1 1 4
= th.
5 5 5

The Capital of A and B, after all adjustments, come to ₹ 5, 80, 000(₹ 3, 40, 000 + ₹ 2, 40, 000)
Therefore the total capital of the firm will be ₹ 5, 80, 000 × = ₹ 7, 25, 000
5

C’s Capital in new firm = ₹ 7, 25, 000 ×

20

100
₹ 1, 45, 000
=

Q29. A, B and C are partners sharing profits and losses in the ratio of 4 : 3 : 3 respectively. Their Balance Sheet as at 31st March, 2018 8 Marks
is:
 On 1st April, 2018, B retires from the firm on the following terms:
1. Goodwill of the firm is to be valued at ₹ 14,000.
2. Stock, Land and Building are to be appreciated by 10%.
3. Plant and Machinery and Electronic Typewriter are to be depreciated by 10%.
4. Sundry Debtors are considered to be good.
5. There is a liability of ₹ 2,000 for the payment of outstanding salary to the employee of the firm. This liability has not been
shown in the above Balance Sheet but the same is to be recorded now.
6. Amount payable to B is to be transferred to his Loan Account.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of A and C after B's retirement.

Ans:
 Working Note:
Adjustment of Goodwill
Old Ratio (A, B and C) = 4 : 3 : 3
B retires from the firm.
∴ Gaining Ratio = 4 : 3

Goodwill of the firm = ₹ 14,000

B’s Share of Goodwill = 14, 000 × 3

10
= ₹ 4, 200
This share of goodwill is to be distributed between A and C in their gaining ratio (i.e. 4 : 3).
A's share = 4, 200 × = ₹ 2, 400
4

C'a share = 4, 200 ×

3

7
₹ 1, 800
=

Q30. Following is the Balance Sheet of X, Y and Z as at 31st March, 2018. They shared profits in the ratio of 3 : 3 : 2: 8 Marks

On 1st April, 2018, Y decided to retire from the firm on the following terms:
1. Stock to be depreciated by ₹ 12,000.
2. Advertisements Suspense Account to be written off.
3. Provision for Doubtful Debts to be increased to ₹ 6,000.
4. Fixed Assets be appreciated by 10%.
5. Goodwill of the firm, valued at ₹ 80,000 and the amount due to the retiring partners to be adjusted in X's and Z's
Capital Accounts.
Prepare Revaluation Accoun, Partners' Capital Accounts and the Balance Sheet to give effect to the above.

Ans:
Working Notes:
WN1: Adjustment of Goodwill
Old ratio
X Y Z

= 3 : 3 : 2

Gaining ratio
X Z

= 3 : 2

Y's share of goodwill = 80, 000 × 3

8
= ₹ 30, 000
X's gain in goodwill = 30, 000 × 3

5
₹ 18, 000
=

Z's gain in goodwill = 30, 000 × = ₹ 12, 000

2

WN2: Distribution of General Reserve

X's share = 80, 000 × = ₹ 30, 000
3

Y's share = 80, 000 × = ₹ 30, 000

3

Z's share = 80, 000 × = ₹ 20, 000

2

WN3: Writing-off Advisement Suspense

 X's share = 16, 000 × 3

8
= ₹ 6, 000
Y's share = 16, 000 × 3

8
= ₹ 6, 000

Z's share = 16, 000 × 2

8
= ₹ 4, 000

WN4: Writing-off Profit and Loss (Loss)

X's share = 4, 000 × = ₹ 1, 500
3

Y's share = 4, 000 ×

3
₹ 1, 500
8
=

Z's share = 4, 000 × = ₹ 1, 000

2

Q31. The Balance Sheet of X, Y and Z who were sharing profits in the ratio of 5 : 3 : 2 as at 31st March, 2018 is as follows: 8 Marks

X retired on 31st March, 2018 and Y and Z decided to share profits in future in the ratio of 3 : 2 respectively.
The other terms on retirement were:
1. Goodwill of the firm is to be valued at ₹ 80,000.
2. Fixed Assets are to be depreciated to ₹ 57,500.
3. Make a Provision for Doubtful Debts at 5% on Debtors.
4. A liability for claim, included in Creditors for ₹ 10,000, is settled at ₹ 8,000.
5. The amount to be paid to X by Y and Z in such a way that their Capitals are proportionate to their profit-sharing ratio and
leave a balance of ₹ 15,000 in the Bank Account.
Prepare Profit and Loss Adjustment Account and Partners' Capital Accounts.

Ans:

Working Notes
WN1: Calculation of Gaining Ratio
Old Ratio (X, Y and Z) = 5 : 3 : 2
New Ratio (Y and Z) = 3 : 2
Gaining Ratio = New Ratio – Old Ratio
Y's share = − 3

5
=
10
3 3

10

Z's share = 2

5
−
10
2
=
2

10

Hence, gaining ratio is 3 : 2.

WN2: Adjustment of Goodwill
Total Goodwill of the Firm = 80,000
X's share in goodwill =
5
× 80, 000
10

= 40,000
To be borne by Gaining partners in their Gaining Ratio i.e. 3 : 2
∴ Y's share = 40, 000 ×
3
= 24, 000
5

Z's share = 40, 000 × 2

5
= 16, 000

WN3: Adjustment of Capital

X’s Capital before adjustment = 1,19,750
Y’s Capital before adjustment = 61,850
Z’s Capital before adjustment = 32,900

Total Capital of New Firm = X's Capital + Y's Capital + Z's Capital + Closing balance of Bank Account - Available Bank Balance
= 1,19,750 + 61,850 + 32,900 + 15,000 - 32,000
= ₹ 1,97,500
New profit sharing ratio = 3 : 2
Y's share New Capital = × 1, 97, 500 = 1, 18, 500
3

Z's share in New Capital = 2

5
× 1, 97, 500 = 79, 000

WN4:

Q32. A, B and C are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1.Their Balance Sheet as at 31st March, 2018 is: 8 Marks

B retires on 1st April, 2018 on the following terms:

1. Provision for Doubtful Debts be raised by ₹ 1,000.
2. Stock to be depreciated by 10% and Furniture by 5%.
3. There is an outstanding claim of damages of ₹ 1,100 and it is to be provided for.
4. Creditors will be written back by ₹ 6,000.
5. Goodwill of the firm is valued at ₹ 22,000.
6. B is paid in full with the cash brought in by A and C in such a manner that their capitals are in proportion to their profit-
sharing ratio and Cash in Hand remains at ₹ 10,000.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of A and C.
Ans:

Working Notes:
WN1: Calculation of Profit Sharing Ratio
Old Ratio (A, B and C) = 3 : 2 : 1
B retires from the firm.
∴ New Ratio (A and C) = 3 : 1 and

Gaining Ratio = 3 : 1
WN2: Adjustment of Goodwill
Goodwill of the firm = ₹ 22,000
B’s Share of Goodwill = 22, 000 × = ₹ 7, 333
2

This share of goodwill is to be distributed between A and C in their gaining ratio (i.e. 3 : 1).
A's share = 7, 333 × = ₹ 5, 500
3

4
 C's share = 7, 333 × 1

4
₹ 1, 833
=

WN3: Adjustment of Partners’ Capital after B’s Retirement

Amount to be brought in by A and C = Cash to be paid to B + Minimum Balance of Cash − Existing Balance of Cash

= 48,200 + 10,000 − 18,000 = ₹ 40,200

Combined Capital of A and C after of all adjustments = 35,800 + 28,600 = ₹ 64,400

∴ Total Capital of the Firm = Amount to be brought in by A and C + Combined Capital of A and C

= 40,200 + 64,400 = 1,04,600

A's New capital = 1, 04, 600 × 3

4
=₹ 78, 450
C's New capital = 1, 04, 600 × = ₹ 26, 150
1

Q33. A, B and C were partners, sharing profits and losses in the ratio of 2 : 2 : 1. B decides to retire on 31st March, 2018. On the date 6 Marks
of his retirement, some of the assets and liabilities appeared in the books as follows: Creditors ₹ 70,000; Building ₹ 1,00,000;
Plant and Machinery ₹ 40,000; Stock of Raw Material,s ₹ 20,000; Stock of Finished Goods ₹ 30,000 and Debtors ₹ 20,000.
The following was agreed among the partners on B's retirement:
1. Building to be appreciated by 20%.
2. Plant and Machinery to be depreciated by 10%.
3. A Provision of 5% on Debtors to be created for Doubtful Debts.
4. Stock of Raw Materials too be valued at ₹ 18,000 and Finished Goods at ₹ 35,000.
5. An Old Computer previously written off was sold for ₹ 2,000 as scrap.
6. Firm had to pay ₹ 5,000 to an injured employee.
Pass necessary journal entries to record the above adjustments and prepare the Revaluation Account.

Ans:
Q34. X, Y & Z were partners sharing profits in the ratio 3 : 2 : 1. On 31st March, 2008, their Balance Sheet stood as under: 6 Marks

Z died on May 31st 2008. It was agreed that:

1. Goodwill was valued at 3 years’ purchase of the average profits of the last five years, which were, 2003: ₹ 40,000; 2004:
₹ 40,000; 2005: ₹ 30,000; 2006: ₹ 40,000 and 2007: ₹ 50,000.
2. Machinery was valued at ₹ 70,000, Patents at ₹ 20,000 and Buildings at ₹ 66,000.
3. For the purpose of calculating Z’s share of profits till the date of death, it was agreed that the same be calculated based on
the average profits for the last 2 years.
4. The executor of the deceased partner is to be paid the entire amount due by means of a cheque.
Prepare Z’s Capital Account to be rendered to the executor and also a Journal entry for the settlement of the amount due to Z’s
executors.

Ans:
Working notes:

Working note (2):

Goodwill = Average profit X
2,00,000
= × 3
5

= 1,20,000/-
1
Z’s share of goodwill = 1, 20, 000 × = 20, 000/−
6

Working note (3):

1 2
Z’s share of profit = Average profit × ×
6 12
1 2
= 45000 × ×
6 12

= 1250/-
Q35. X, Y and Z are partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. Their Balance Sheet as at 31st March, 2018 was 8 Marks
as follows:
 Z died on 1st April, 2018, X and Y decide to share future profits and losses in ratio of 3 : 5. It was agreed that:
1. goodwill of the firm be valued 2 years' purchase of average of four completed years' profits which were : 2014-15 → ₹
1

1,00,000; 2015-16 → ₹ 80,000; 2016-17 → ₹ 82,000.

2.
Stock undervalued by ₹ 14,000 and machinery overvalued by ₹ 13,600.
All debtors are good. A debtor whose dues of ₹ 400 were written off as bad debts paid 50% in full settlement.
Out of the amount of insurance premium which was debited entirely to Profit and Loss Account, ₹ 2,200 be carried forward
as an unexpired insurance premium.
₹ 1,000 included in Sundry Creditors is not likely to arise.
A claim of ₹ 1,000 on account of Workmen Compensation to be provided for.
3. Investment be sold for ₹ 8,200 and a sum of ₹ 11,200 be paid to executor of Z immediately. The balance to be paid in four
equal half-yearly installments together with interest @ 8% p.a. at half year rest.
Show Reavaluation Account, Capital Accounts of Partners and the Balance Sheet of the new firm.
Note: Firm enjoys bank overdraft facility.

Ans:
Working Notes
WN1: Calculation of Gaining Ratio and Share of Goodwill
Gaining Ratio = New Ratio - Old Ratio
X's gain = − 3

8
5
= −
10
(Sacrifice)
5

40

Y's gain =
5 3 13
− =
8 10 40

Z's share of goodwill = 70, 000 × 10

2
= ₹ 14, 000
X's share of goodwill = 70, 000 × 40
5
= ₹ 8, 750

WN2: Calculation of Goodwill

Goodwill = Average Profit × No. of years' Purchase
= 28,000 × 2.5 = ₹ 70,000
Total Profits of past years given
Average Profit = Number of years

=1,00,000+80,000+82,000−1,50,000
=
4
₹ 28, 000
=

Q36. Krishna and Arjun are partners in a firm. They share profits in the ratio of 4 : 1. They decided to dissolve the firm on 31st March, 8 Marks
2018 at which date their Balance Sheet stood as:

The realisation shows the following results:

1. Goodwill was sold for ₹ 1,000.
2. Debtors were realised at book value less 10%.
3. Trademarks were realised for ₹ 800.
4. Machinery and Stock in Trade were taken over by Krishna for ₹ 14,400 and ₹ 3,600 respectively.
5. An unrecorded asset estimated at ₹ 500 was sold for ₹ 200.
6. Creditors for goods were settled at a discount of ₹ 80. The expenses on realisation were ₹ 800.
Prepare Realisation Account Partners Capital Accounts and Bank Account.
Ans:

Q37. Pass the journal entries for the following transactions on the dissolution of the firm of Pand Q after various assets (other than 6 Marks
cash) and outside liabilities have been transferred to Realisation Account:
1. Stock ₹ 2,00,000. 'P' took over 50% of stock at a discount of 10%. Remaining stock was sold at a profit of 25% on cost.
2. Debtors ₹ 2,25,000. Provision for Doubtful Debts ₹ 25,000. ₹ 20,000 of the book debts proved bad.
3. Land and Building (Book value ₹ 12,50,000) sold for ₹ 15,00,000 through a broker who changed 2% commission.
4. Machinery (Book value ₹ 6,00,000) was handed over to a creditor at a discount of 10%.
5. Investment (Book value ₹ 60,000) realised at 125%.
6. Goodwill of ₹ 75,000 and prepaid fire insurance of ₹ 10,000.
7. There was an old furniture in the firm which had been written off completely in the books. This was sold for ₹ 10,000.
8. 'Z' an old customer whose account for ₹ 20,000 was written off as bad in the previous year, paid 60%.
9. 'P' undertook to pay Mrs. P's loan of ₹ 50,000.
10. Trade creditors ₹ 1,60,000. Half of the trade creditors accepted Plant and Machinery at an agreed valuation of ₹ 54,000 and
cash in full settlement of their claims after allowing a discount of ₹ 16,000.
Remaining trade creditors were paid 90% in final settlement.

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Q38. Aman and Harsh were partners in a firm. They decided to dissolve their firm. Pass necessary journal entries for the following 6 Marks
after various assets (other than cash and bank) and third party liabilities have been transferred to Realisation Account:
1. There was furniture worth ₹ 50,000. Aman took over 50% of the furniture at 10% discount and the remaining furniture was
sold at 30% profit on book value.
2. Profit and Loss Account was showing a credit balance of ₹ 15,000 on the date of dissolution.
3. Harsh's loan of ₹ 6,000 was discharged at ₹ 6,200.
4. The firm paid realisation expenses amounting to ₹ 5,000 on behalf of Harsh who had to bear these expenses.
5. There was a bill for ₹ 1,200 under discount. The bill was received from Soham who proved insolvent and a first and final
dividend of 25% was received from his estate.
6. Creditors, to whom the firm owed ₹ 6,000, accepted stock of ₹ 5,000 at a discount of 5% and the balance in cash.

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