46 CBSE Term-II Accountancy XII

Chapter
Practice
PART 1
Objective Questions
l
Multiple Choice Questions
1. Aman, Nitin and Shubham are partners sharing profits in the ratio of 2:2:1. Nitin retired and his share is
taken by Shubham only. Calculate new profit sharing ratio of Aman and Shubham.
(a) 2:6 (b) 2:3 (c) 1:1 (d) 2:1
1 2 3
Ans. (b) Shubham’s New Profit Share = Old Profit Share + Share taken from Nitin = + =
5 5 5
2
Aman’s new profit share = (same as earlier)
5
2 3
New profit sharing ratio of Aman and Shubham = : = 2 : 3
5 5
2. In case of retirement of a partner, profit or loss on revaluation of assets and re-assessment of liabilities is
distributed among ……… in ……… profit sharing ratio.
(a) all the partners, old (b) all the partners, new
(c) other than retiring partner, old (d) other than retiring partner, new
Ans. (a) Profit or loss on revaluation is shared among all the partners in old profit sharing ratio with the view that the
retiring partner does not benefit or loose because of the change in the values of assets and liabilities.
3. Find the incorrect pair.
Column I Column II
A. Gaining ratio (i) Old Profit Ratio – New Profit Ratio
B. Retirement of a partner (ii) Relation with a firm of the partner comes to an end
C. Change in value of assets and liabilities (iii) Revaluation account
D. Amount payable to retiring partner (iv) Retiring partner’s loan account

Codes
(a) A-(i) (b) B-(ii) (c) C-(iii) (d) D-(iv)
Ans. (a) Gaining Ratio = New Profit Ratio – Old Profit Ratio
4. P, Q and R were partners in a firm. On 31st March, 2018, R retired. The amount payable to R ` 2,17,000
was transferred to his loan account. R agreed to receive interest on this amount as per the provisions of
Partnership Act, 1932. State the rate at which interest will be paid to R.
(a) 12% (b) 6% (c) 10% (d) None of these
Ans. (b) As per the Section 37 of Indian Partnership Act, 1932, retiring partner is entitled to get interest at the rate of 6%
on the unpaid amount.
CBSE Term-II Accountancy XII 47

5. What adjustments out of the following will be required at the time of retirement of a partner?
(i) Adjustment in profit sharing ratio (ii) Adjustment of reserve and surplus
(iii) Adjustment of goodwill (iv) Adjustment of capital (if agreed)
(v) Adjustments of profit/loss on revaluation of assets and liabilities
(vi) Computation of amount due to retiring partner and payment to him.
Alternatives
(a) (i), (ii), (iv), (v), (vi) (b) (i), (ii), (iii), (v), (vi) (c) (i), (ii), (iii), (iv), (vi) (d) All of these
Ans. (d) All of these
6. Rex, Tex and Flex are partners in a firm in the ratio of 5 : 3 : 2. As per their partnership agreement, the
share of deceased partner is to be calculated on the basis of profits and turnover of previous accounting
year. Tex expired on 31st December, 2019. Turnover till the date of death was `18,00,000. Their profits
and turnover for the year 2018-19 amounted to ` 4,00,000 and ` 20,00,000 respectively. An amount of
………… will be given to his executors as his share of profits till the date of death.
(a) ` 2,70,000 (b) ` 1,08,000 (c) ` 3,60,000 (d) ` 4,44,444
Ans. (b) Profit from the date of last balance sheet to the date of death
Turnover Till the Date of Death
= ´ Previous Year’s Profit
Previous Year’s Turnover
18, 00, 000
= ´ 4, 00, 000 = ` 3, 60, 000
20, 00, 000
Tex’s Share in Profits = 3,60,000 ´ 3/10 = ` 1,08,000
7. X, Y and Z are partners sharing profits and losses equally. Z retires. Firm’s goodwill at the time of
retirement is ` 3,60,000. Z being compensated by X and Y in the gaining ratio 1:1. Journalise the
transaction.
(a) X’s Capital A/c Dr 60,000
Y’s Capital A/c Dr 60,000
To Z ’s Capital A/c 1,20,000
(b) Y’s Capital A/c Dr 90,000
X’s Capital A/c Dr 30,000
To Z’s Capital A/c 1,20,000
(c) Z’s Capital A/c Dr 1,20,000
To X’s Capital A/c 60,000
To Y’s Capital A/c 60,000
(d) Z’s Capital A/c Dr 1,20,000
To X’s Capital A/c 30,000
To Y’s Capital A/c 90,000
1
Ans. (a) Z’s share of goodwill = 3,60,000 ´
= ` 1,20,000
3
1
Amount given by X to Z = 1,20,000 × = ` 60,000
2
1
Amount given by Y to Z = 1,20,000 × = ` 60,000
2
8. Match the columns (at the time of retirement of partners situations).
Column I Column II
(Items/Transactions) (Entry)
A. Increase in liabilities (i) Credit - Revaluation Account
B. Bad debts recovered (ii) Credit - Partners’ Capital Account
C. Accumulated losses (iii) Debit - Revaluation Account
D. Profit and loss (Cr) (iv) Debit - Partners’ Capital Account
48 CBSE Term-II Accountancy XII

Codes
A B C D A B C D
(a) (iii) (i) (ii) (iv) (b) (i) (iii) (iv) (ii)
(c) (i) (iii) (ii) (iv) (d) (iii) (i) (iv) (ii)
Ans. (d) Increment in liability is loss whereas bad debts recovered are profitable for the firm.
Accumulated losses reduce partners’ capital whereas profit and loss (credit) added into their capital.
9. On the death of a partner , his share in the profits of the firm till the date of his death is transferred to the
(a) debit of profit and loss account (b) credit of profit and loss account
(c) debit of profit and loss suspense account (d) credit of profit and loss suspense account
Ans. (c) Profit and Loss Suspense A/c Dr
To Deceased Partner’s Capital A/c
10. Unless agreed otherwise, it is presumed that the continuing partners gain in their ………… and hence
their ……… is same as their old profit sharing ratio.
(a) new profit sharing ratio, gaining ratio (b) new profit sharing ratio, sacrificing ratio
(c) old profit sharing ratio, sacrificing ratio (d) old profit sharing ratio, gaining ratio
Ans. (d) old profit sharing ratio, gaining ratio
11. How revaluation account will be affected if there is an increase in liability and decrease in asset by the
same amount?
(a) Profit on revaluation (b) Loss on revaluation (c) No profit, no loss (d) Cannot be determined
Ans. (c) Change in both the sides of revaluation account by the same amount nullify the effect of each other.
12. Anita, Rama and Chavi are partners sharing profits and losses in the ratio of 2:2:1. Rama died. At that
time, goodwill of the firm valued at ` 30,000. What contribution has to be made by Anita and Chavi in
order to pay Rama’s executor?
(a) ` 20,000 and ` 10,000 (b) ` 6,000 and ` 6,000 (c) ` 8,000 and ` 4,000 (d) ` 15,000 and ` 15,000
Ans. (c) Gaining Ratio = New Profit Sharing Ratio – Old Profit Sharing Ratio
2 2 10 6 4 1 1 5 3 2
Anita = - = - = ; Chavi = - = - =
3 5 15 15 15 3 5 15 15 15
Gaining Ratio = 4 : 2 or 2 : 1
2 2
Rama’s Share of Goodwill = 30,000 ´ = ` 12,000; Anita’s share = 12,000 ´ = ` 8,000
5 3
1
Chavi’s share = 12,000 ´ = ` 4,000
3
13. Riva, Meetu and Asha were partners in a firm sharing profits and losses in the ratio of 1 : 2 : 3. Meetu
died on 31st July, 2019. According to the partnership agreement, her share of profit from the closure of
last accounting year till the date of her death was to be calculated on the basis of aggregate profits of two
completed years before her death. Profits of the firm for the years ending 31st March, 2018 and 31st
March, 2019 were ` 46,000 and ` 44,000 respectively. The firm closes its books on 31st March every year.
Meetu’s share of profit till the date of her death will be (CBSE 2020)
(a) ` 20,000 (b) ` 5,000 (c) ` 10,000 (d) ` 45,000
Ans. (c) Average Profit of the Last 2 Years = 46,000 + 44,000 = ` 90,000
2 4
Meetu’s Share in the Profit till her Death = 90, 000 ´ ´ = ` 10,000
6 12
14. ……… goodwill is the excess of total capital of firm over the actual combined capital of partners.
(a) Hidden (b) Old (c) New (d) None of these
Ans. (a) Hidden
CBSE Term-II Accountancy XII 49

15. Which of the following statements is/are incorrect?

(i) Revaluation of asset is necessary because present value of assets is different from market value.
(ii) A partner can retire from the firm with the consent of all the partners only.
Codes
(a) Only (i) (b) Only (ii) (c) Both (a) and (b) (d) None of these
Ans. (c) Revaluation of asset is necessary because present value of assets is different from book value. Partner can also
retire in accordance with an express agreement by the partners or by giving notice in writing to all other partners of
his intention to retire, in case of retirement.
l
Assertion-Reasoning MCQs
Directions (Q. Nos. 1 to 4) There are two statements marked as Assertion (A) and Reason (R). Read the
statements and choose the appropriate option from the options given below.
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.
1. Assertion (A) Retirement of a partner results into a reconstitution of the firm.
Reason (R) In retirement, old partnership agreement discontinues and new partnership agreement come
into existence.
Ans. (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
2. Assertion (A) If the amount of any asset is understated, then revaluation account will be debited to
restore asset amount to its actual value.
Reason (R) Increase in the value of an asset is profit for the firm.
Ans. (d) If the amount of any asset is understated, then revaluation account will be credited to restore asset amount to its
actual value because increase in the value of an asset is profit for the firm.
3. Assertion (A) Accumulated profits and losses will be debited and credited to all the partners’ capital account.
Reason (R) Accomulated profits and losses are distributed among partners in old profit sharing ratio.
Ans. (d) Accumulated profits are credited and losses are debited to partners’ capital account in old profit sharing ratio.
4. Assertion (A) Profit or loss on the revaluation of assets and liabilities is a capital profit.
Reason (R) Capital profits are recurring in nature.
Ans. (c) The profit that is earned through capital items is called the capital profit. It is not recurring in nature.
l
Case Based MCQs
1. Direction Read the following case study and answer the question no. (i) to (iv) on the basis of the same.
Alpha, Beta and Gamma are partners sharing profits in the ratio of 3:2:1. Beta retired from the firm. On
that date, the balance sheet of the firm was as follows
Balance Sheet
as on 31st March, 2020
Liabilities Amt (`) Assets Amt (`)
Creditors 15,000 Bank 7,600
General Reserve 12,000 Furniture 41,000
Bills Payable 12,000 Stock 9,000
Outstanding Salary 2,200 Premises 80,000
Provision for Legal Damages 6,000 Debtors 6,000
Capital (–) Provision for Doubtful Debts (400) 5,600
Alpha 46,000
Beta 30,000
Gamma 20,000 96,000
1,43,200 1,43,200
50 CBSE Term-II Accountancy XII

Additional Information
(a) Premises to be appreciated by 20%, stock to be depreciated by 10% and provision for doubtful debts was
to be maintained @ 5% on debtors. Further, provision for legal damages is to be increased by ` 1,200 and
furniture to be brought upto ` 45,000.
(b) Goodwill of the firm is valued at ` 42,000.
(c) ` 26,000 from Beta’s capital account be transferred to his loan account and balance to be paid through
bank; if required, necessary loan may be obtained from bank.
(d) New profit sharing ratio of Alpha and Gamma is decided to be 5:1.
(i) What will be the gaining ratio of Alpha and Gamma?
(a) 1:1 (b) Entire Beta’s share taken by Gamma only
(c) Entire Beta’s share taken by Alpha only (d) None of these
Ans. (c) Old profit sharing ratio = 3:2:1; New profit sharing ratio = 5:1
Gaining Ratio = New Profit Sharing Ratio – Old Profit Sharing Ratio
5 3 1 1 1
Alpha = - = ; Gamma = - = 0
6 6 6 6 6
(ii) What is the value of Beta’s share of goodwill?
(a) ` 7,000 (b) ` 14,000
(c) ` 21,000 (d) Cannot be determined from the given data
1
Ans. (b) Beta’s share of goodwill = 42,000 ´ = ` 14,000
3
(iii) What will be correct journal entry for distribution of general reserve among partners?
(a) Alpha’s Capital A/c Dr 6,000
Beta’s Capital A/c Dr 4,000
Gamma’s Capital A/c Dr 2,000
To General Reserve A/c 12,000
(Being………………………….)
(b) General Reserve A/c Dr 12,000
To Alpha’s Capital A/c 6,000
To Beta’s Capital A/c 4,000
To Gamma’s Capital A/c 2,000
(Being………………….)
(c) Alpha’s Capital A/c Dr 12,000
To Beta’s Capital A/c 12,000
(Being………………………………………..)
(d) Alpha’s Capital A/c Dr 4,000
To Beta’s Capital A/c 4,000
(Being………………………………………..)
Ans. (b) General reserve are distributed among old partners in old profit sharing ratio.
3 2 1
Alpha’ share = 12,000 ´ = ` 6,000; Beta’ share = 12,000 ´ = ` 4,000; Gamma’ share =12,000 ´ = ` 2,000
6 6 6
(iv) 20% appreciation in the value of premises would be recorded as
(i) Revaluation A/c debited by ` 16,000 (ii) Revaluation A/c credited by ` 16,000
(iii) Premises increased by ` 16,000 in the assets side of the balance sheet
(iv) Premises decreased by ` 16,000 in the assets side of the balance sheet
Alternatives
(a) (i), (iv) (b) (ii), (iv) (c) (i), (iii) (d) (ii), (iii)
20
Ans. (d) Book value of premises = ` 80,000; 20% appreciation = 80,000 ´ = ` 16,000
100
As there is increase in the value of asset, it will be credited to revaluation account by ` 16,000 and premises’
increased value will be shown in the balance sheet.
CBSE Term-II Accountancy XII 51

2. Direction Read the following case study and answer the question no. (i) to (iv) on the basis of the same.
Arjun, Bhim and Nakul are partners sharing profits and losses in the ratio of 14:5:6. Bhim retires and gives
5
th of his share to Arjun and remaining share to Nakul. Goodwill of the firm is valued at 2 years’ purchases
25
of super profits based on average profits of last 3 years. Profit for the last 3 years are ` 50,000, ` 55,000 and
` 60,000 respectively. Normal profits for the similar firm are ` 30,000. Goodwill already exist in the books of
the firm at ` 75,000. Profit for the first year after Bhim’s retirement was ` 1,00,000.
(i) What will be gaining ratio of remaining partners?
(a) 26 : 19 (b) 1:4 (c) 4:1 (d) 19:26
5 5 1 5 20 4
Ans. (b) Profit surrendered by Bhim to Arjun = ´ = , Profit surrendered by Bhim to Nakul = ´ =
25 25 25 25 25 25
\ Gaining ratio of Arjun and Nakul would be 1:4
(ii) What will be the amount of super profit?
(a) ` 55,000 (b) ` 25,000 (c) ` 50,000 (d) None of these
Ans. (b) Average Profit = (50,000 + 55,000 + 60,000) / 3 = ` 55,000
Super Profit = Average Profit – Normal Profit = 55,000 – 30,000 = ` 25,000
(iii) The new profit sharing ratio of remaining partners would be
(a) 19:26 (b) 3:2 (c) 15:10 (d) 26:19
14 1 15 6 4 10
Ans. (b) New share of Arjun = + = ; New share of Nakul = + =
25 25 25 25 25 25
15 10
Thus, the new profit sharing ratio of Arjun and Nakul = : = 15 :10 or 3:2
25 25
(iv) Bhim’s share of goodwill will be
(a) ` 50,000 (b) ` 25,000 (c) ` 10,000 (d) ` 20,000
Ans. (c) Firm’s Goodwill = Super Profit ´ No. of years Purchase = 25 , 000 ´ 2 = ` 50,000
1
Bhim’s Share of Goodwill = Firm’s Goodwill ´ Partners’ Share = 50,000 ´ = ` 10,000
5

PART 2
Subjective Questions
l
Short Answer (SA) Type Questions
1. What are the various matters that need adjustments at the time of retirement of a partner? (NCERT)
Ans. Following are the adjustments required at the time of retirement of a partner
(i) Adjustment in profit sharing ratio (New profit sharing ratio and gaining ratio).
(ii) Adjustment for goodwill.
(iii) Adjustment of profit/loss arising on the revaluation of assets and reassessment of liabilities.
(iv) Adjustment of accumulated profits, reserves and losses.
(v) Computation of amount due to retiring partner and payment to retiring partner.
(vi) Adjustment of capitals (if agreed).
2. Explain the treatment of goodwill at the time of retirement or on the event of death of a partner. (NCERT)
Ans. In case of retirement or death of a partner, the adjustment for goodwill will be made through partner’s capital
accounts. The retiring or deceased partner’s capital account will be credited with his share of goodwill and
continuing partner’s capital accounts will be debited in their gaining ratio.
52 CBSE Term-II Accountancy XII

The following journal entry will be recorded

Continuing Partner’s Capital A/cs Dr (in the gaining ratio)
To Retiring/Deceased Partner’s Capital A/c (with his share of goodwill)
(Retiring/Deceased partner’s share of goodwill adjusted to continuing partners in the gaining ratio)
3. Ajay, Pranav and Vijay are in partnership sharing profits in the ratio of 4 : 3 : 1. Pranav takes retirement
on 30th June, 2019. The firm’s profits for various years were : 2014 (profit ` 3,24,444), 2015
(profit ` 80,000), 2016 (profit ` 10,000), 2017 (loss ` 10,000), 2018 (profit ` 40,000) and 2019
(profit ` 50,000).
Ajay and Vijay decided to share future profits in the ratio of 3 : 2. Goodwill is to be valued on the basis of
2 years’ purchase of average profit of 4 completed years immediately preceding the year of retirement of
a partner. Pass the journal entry to record Pranav’s share of goodwill.
Ans. JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
2019
Jun 30 Ajay’s Capital A/c ( 22,500 ´ 4 / 15 ) Dr 6,000
Vijay’s Capital A/c ( 22,500 ´ 11 / 15 ) Dr 16,500
To Pranav’s Capital A/c 22,500
(Being the Pranav’s share of goodwill credited to Pranav and debited to Ajay
and Vijay in their gaining ratio of 4 : 11)

Working Notes
1. Gaining Ratio = New Share - Old Share
3 4 24 - 20 4 2 1 16 - 5 11
Ajay’s gain = - = = ; Vijay’s gain = - = =
5 8 40 40 5 8 40 40
4 11
Gaining ratio of Ajay and Vijay = : = 4 : 11
40 40
80, 000 + 10, 000 + ( 10, 000 ) + 40, 000
2. Average profit of 4 years = = ` 30, 000
4
Firm’s goodwill = 30, 000 ´ 2 = ` 60, 000
3
Pranav’s share of goodwill = 60, 000 ´ = ` 22,500
8
4. A, B, C, D and E were partners in a firm sharing profits and losses in the ratio of 5 : 4 : 3 : 2 : 1
respectively. Unfortunately, D and E met with a tragic car accident in which both of them died. The
goodwill of the firm was valued at ` 1,50,000 and A, B and C decided to share the future profits and
losses in the ratio of 4 : 6 : 5 respectively. Give the journal entries to record the above.
Ans. JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
B’s Capital A/c Dr 20,000
C’s Capital A/c Dr 20,000
To D’s Capital A/c 20,000
To E’s Capital A/c 10,000
To A’s Capital A/c 10,000
(Being the goodwill adjusted by debiting gaining partners
and crediting sacrificing partners)
CBSE Term-II Accountancy XII 53

Working Note
Statement Showing the Required Adjustment for Goodwill
Particulars A (`) B (`) C (`) D (`) E (`)
Right of Goodwill before Death of D and E (5 : 4 : 3 : 2 : 1) 50,000 40,000 30,000 20,000 10,000
Right of Goodwill after Death of D and E (4 : 6 : 5) 40,000 60,000 50,000 — —
Gain ( + ) / Sacrifice ( - ) ( - ) 10,000 ( + ) 20,000 ( + ) 20,000 ( - ) 20,000 ( - ) 10,000

Alternatively

Particulars A B C
A. Their New Shares 4/15 6/15 5/15
B. Their Old Shares 5/15 4/15 3/15
C. Difference being Gain/ Sacrifice (A - B ) (1/15) (Sacrifice) 2/15 (Gain) 2/15 (Gain)

Note In this case, A has also sacrificed his share to the extent of 1/15 in favour of B and C. They are required to
compensate A for such sacrifice.
5. X, Y and Z are partners sharing profits and losses in the ratio of 2 : 2 : 1. Y retires from the firm on 31st
March, 2020. On the date of Y’s retirement, the following balances appeared in the books of the firm
Advertisement suspense account ` 25,000
Contingency reserve ` 15,000
Workmen’s compensation reserve ` 20,000
Loss in business account ` 15,000
Pass the necessary journal entries for the adjustment of these items on Y’s retirement.
Ans. JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
2020
Mar 31 Contingency Reserve A/c Dr 15,000
Workmen’s Compensation Reserve A/c Dr 20,000
To X’s Capital A/c 14,000
To Y’s Capital A/c 14,000
To Z’s Capital A/c 7,000
(Being the contingency reserve and workmen’s compensation reserve
transferred to capital accounts on Y’s retirement)
Mar 31 X’s Capital A/c Dr 16,000
Y’s Capital A/c Dr 16,000
Z’s Capital A/c Dr 8,000
To Advertisement Suspense A/c 25,000
To Loss in Business A/c 15,000
(Being the amount of advertisement suspense account and loss in business
account transferred to capital accounts on Y’s retirement)

6. X, Y and Z were partners in a firm sharing profits in 2 : 2 : 1 ratio. X died on 1st July, 2019. On that date,
the goodwill of the firm was valued at ` 22,500. On the death of a partner, his share of profit in the year of
death was to be calculated on the basis of the average profits of the last four years. The profit for the last
four years were
2015-16 ` 80,000
2016-17 ` 72,000
2017-18 ` 84,000
2018-19 ` 56,000 (Loss)
Pass necessary journal entries.
54 CBSE Term-II Accountancy XII

Ans. JOURNAL

Date Particulars LF Amt (Dr) Amt (Cr)

Y’s Capital A/c Dr 6,000
Z’s Capital A/c Dr 3,000
To X’s Capital A/c 9,000
(Being goodwill adjusted)
Profit and Loss Suspense A/c Dr 4,500
To X’s Capital A/c 4,500
(Being deceased partner’s share of profit transferred)

Working Notes
2
1. X’s share of goodwill = 22,500 ´ = ` 9,000 (to be adjusted by Y and Z in the ratio 2 : 1)
5
80, 000 + 72, 000 + 84, 000 + ( 56, 000 )
2. Four year’s average profit = = ` 45,000; X’s share of profit
4
2 3
= 45,000 ´ ´ = ` 4,500
5 12
7. Monu, Nigam and Shreya were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 1. The
firm closes its books on 31st March every year. As per the terms of partnership deed on the death of any
partner, the share of goodwill of the deceased partner will be calculated on the basis of 50% of the net
profits credited to the partners’ capital acount during the last four completed years before death. Monu
died on 1st July, 2015. The profits for last four years were
Years Profits ( ` )
2011-12 97,000
2012-13 1,05,000
2013-14 30,000
2014-15 84,000

His share of profit in the year of his death was to be calculated on the basis of sales. Sales for the year
ended 31st March, 2015 amounted to ` 21,00,000. From 1st April, 2015 to 30th June, 2015 the firm’s sales
were ` 2,00,000.
Pass necessary journal entries relating to the amount of goodwill and profit to be transferred to Monu’s
capital account. Also show your workings clearly. (All India (C) 2016)
Ans. JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
Nigam’s Capital A/c ( 79, 000 ´ 3 / 4) Dr 59,250
Shreya’s Capital A/c ( 79, 000 ´ 1 / 4) Dr 19,750
To Monu’s Capital A/c 79,000
(Being amount of goodwill transferred to Monu’s capital account)
Profit and Loss Suspense A/c Dr 4,000
To Monu’s Capital A/c 4,000
(Being share of profit transferred to deceased partner’s capital account)

Working Notes
1. Calculation of Share of Goodwill
50 4
Monu’s share in goodwill = ( 97, 000 + 1, 05 , 000 + 30, 000 + 84, 000 ) ´ ´ = ` 79, 000
100 8
2. Calculation of Share in Profit
84, 000 4
Monu’s share in profit = ´ 2, 00, 000 ´ = ` 4, 000
21, 00, 000 8
CBSE Term-II Accountancy XII 55

8. X, Y and Z are partners sharing profits in the ratio of 4 : 3 : 1. Y retires, giving his share of profits to X and
Z for ` 32,400; ` 14,400 being paid by X and ` 10,000 by Z. You are required to give necessary journal
entries to record the transfer of Y’s share to X and Z. X and Z bring the necessary amount.
Ans. JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
X’s Capital A/c Dr 14,400
Z’s Capital A/c Dr 18,000
To Y’s Capital A/c 32,400
(Being Y’s share of goodwill credited to him by debiting gaining partners in their gaining
ratio of 4 : 5)
Cash/Bank A/c Dr 32,400
To X’s Capital A/c 14,400
To Z’s Capital A/c 18,000
(Being amount brought by X and Z to pay Y on his retirement)
Y’s Capital A/c Dr 32,400
To Cash/Bank A/c 32,400
(Being amount paid to Y on his retirement for selling his share)

9. Surender, Ramesh, Naresh and Mohan are partners in a firm sharing profits in 2:1:2:1 ratio. On the retirement
of Naresh, the goodwill was valued at ` 2,16,000. Surender, Ramesh and Mohan decided to share future profits
equally. Pass the necessary journal entry for the treatment of goodwill without opening goodwill account.
Ans. JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
Ramesh’s Capital A/c Dr 36,000
Mohan’s Capital A/c Dr 36,000
To Naresh’s Capital A/c 72,000
(Being Naresh’s share of goodwill adjusted to remaining partners)

Working Note
Calculation of Gaining Ratio; Gaining Ratio = New Share – Old Share
1 2 2-2 0 1 1 2 -1 1 1 1 2 -1 1
Surender = - = = = 0 ; Ramesh = - = = ; Mohan = - = =
3 6 6 6 3 6 6 6 3 6 6 6
2
Gaining ratio of Ramesh and Mohan = 1 : 1; Naresh’s share of goodwill = 2,16, 000 ´ = ` 72, 000
6
10. X, Y and Z are partners sharing profits in the ratio of 4 : 3 : 2. On 1st April, 2017, Y gave a notice to retire
from the firm. X and Z decided to share future profits in the ratio of 1 : 1. The capital accounts of X and Z
after all adjustments showed a balance of ` 21,500 and ` 40,250 respectively. The total amount to be paid
to Y was ` 47,750. This amount was to be paid by X ` 33,250 and by Z ` 14,500. Pass necessary journal
entries in the books of the firm for the above transactions. Show your working clearly.
Ans. JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
2017
Apr 1 Cash A/c Dr 47,750
To X’s Capital A/c 33,250
To Z’s Capital A/c 14,500
(Being cash to be paid to Y brought in by X and Z)
Apr 1 Y’s Capital A/c Dr 47,750
To Cash A/c 47,750
(Being cash paid to Y for his capital)
56 CBSE Term-II Accountancy XII

11. Kavi, Ravi, Kumar and Guru were partners in a firm sharing profits in the ratio of 3 : 2 : 2 : 1. On 1st
February, 2017, Guru retired and the new profit sharing ratio decided between Kavi, Ravi and Kumar
was 3 : 1 : 1. On Guru’s retirement, the goodwill of the firm was valued at ` 3,60,000.
Showing your working notes clearly, pass necessary journal entry in the books of the firm for the
treatment of goodwill on Guru’s retirement. (CBSE 2017)
Ans. JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
2017
Feb 1 Kavi’s Capital A/c Dr 81,000
To Ravi’s Capital A/c 18,000
To Kumar’s Capital A/c 18,000
To Guru’s Capital A/c 45,000
(Being amount of goodwill adjusted)

Working Notes
1. Calculation of Gaining Ratio
Gaining Ratio = New Share - Old Share
3 3 24 - 15 9 1 2 8 - 10 æ 2 ö
Kavi = - = = ; Ravi = - = =ç ÷
5 8 40 40 5 8 40 è 40 ø
1 2 8 - 10 æ 2 ö
Kumar = - = =ç ÷
5 8 40 è 40 ø
2. Calculation of Share of Goodwill
1
Guru’s Share of Goodwill = 3, 60, 000 ´ = ` 45 , 000
8
9
Kavi Gains = 3, 60, 000 ´ = ` 81, 000
40
2 2
Ravi Sacrifices = 3, 60, 000 ´ = ` 18, 000 ; Kumar Sacrifices = 3, 60, 000 ´ = ` 18, 000
40 40
12. Aditi, Kartik and Tina were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. On
31st March, 2019, their balance sheet was as follows
Balance Sheet of Aditi, Kartik and Tina
as at 31st March, 2019
Liabilities Amt (`) Assets Amt (`)
Creditors 96,000 Furniture 4,30,000
Capital Stock 1,50,000
Aditi 3,00,000 Debtors 83,000
Kartik 2,00,000 Cash 33,000
Tina 1,00,000 6,00,000
6,96,000 6,96,000

Aditi died on 1st November, 2019. It was agreed that

(i) Goodwill of the firm be valued at ` 1,00,000.
(ii) Profit for the year 2019-20 be taken as having accrued at the same rate as the previous year 2018-19. Profit
for the year 2018-19 was ` 96,000.
(iii) Half the amount was paid to Aditi’s executors immediately and the remaining half will be paid in two equal
annual instalments with interest @ 6% p.a.
Pass the necessary journal entries to record the above transactions in the books of the firm on the date of
her death. (CBSE 2020)
CBSE Term-II Accountancy XII 57

Ans. JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
2019
Nov 1 Kartik’s Capital A/c Dr 30,000
Tina’s Capital A/c Dr 20,000
To Aditi’s Capital A/c 50,000
(Being deceased partner’s share of goodwill transferred to her capital account)
Nov 1 Profit and Loss Suspense A/c Dr 28,000
To Aditi’s Capital A/c 28,000
(Being Aditi’s share of profit till the date of death credited to Aditi’s capital account)
Nov 1 Aditi’s Capital A/c Dr 3,78,000
To Aditi’s Executors A/c 3,78,000
(Being share of deceased partner transferred to executors account)
Nov 1 Aditi’s Executors A/c Dr 1,89,000
To Bank A/c 1,89,000
(Being half the amount paid to executors)

Working Notes
5 5 7
Aditi’s Share of Goodwill = 1,00,000 ´ = ` 50,000 ; Aditi’s Share of Profit = 96,000 ´ ´ = ` 28,000
10 10 12
13. Aan, Shaan and Mahan were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. On 31st
March, 2019, their balance sheet was as follows
Balance Sheet of Aan, Shaan and Mahan
as at 31st March, 2019
Liabilities Amt (`) Assets Amt (`)
Creditors 1,20,000 Furniture 3,70,000
Capital Stock 1,50,000
Aan 2,00,000 Debtors 75,000
Shaan 3,00,000 Bank 1,25,000
Mahan 1,00,000 6,00,000
7,20,000 7,20,000

Mahan died on 1st December, 2019. The following terms were agreed upon on Mahan death
(i) Goodwill of the firm was valued at ` 80,000.
(ii) Profit for the year 2019 - 20 be taken as having accrued at the same rate as the previous year. Profits for
the year 2018 -19 were ` 60,000.
(iii) Half the amount was paid to Mahan executors immediately.
Pass the necessary journal entries to record the above transactions in the books of the firm. (CBSE 2020)
Ans. JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
2018
Dec 1 Aan Capital A/c Dr 8,000
Shaan Capital A/c Dr 8,000
To Mahan Capital A/c 16,000
(Being distribution of goodwill)
Dec 1 Profit and Loss Suspense A/c Dr 4,000
To Mahan Capital A/c 4,000
(Being profit transferred)
58 CBSE Term-II Accountancy XII

Date Particulars LF Amt (Dr) Amt (Cr)

Dec 1 Mahan Capital A/c Dr 1,20,000
To Mahan Executors A/c 1,20,000
(Being amount due to executors of Mahan)
Dec 1 Mahan Executors A/c Dr 60,000
To Bank A/c 60,000
(Being half amount paid to Mahan)

Working Note
Total Goodwill = ` 80,000
1 4 1
Mahan’s Share of Goodwill = 80, 000 ´ = ` 16, 000 ; Mahan’s Share of Profit = 60, 000 ´ ´ = ` 4,000
5 12 5
Amount Due = 1,00,000 + 16,000 + 4,000 = ` 1,20,000
14. X, Y and Z were partners in a firm sharing profits in 3 : 2 : 1 ratio. The firm closes its books on 31st
March every year. Y died on 12th June, 2019. On Y’s death, the goodwill of the firm was valued at
` 60,000.
His share in the profits of the firm till the time of his death was to be calculated on the basis of previous
year’s profit which was ` 1,50,000. According to Y’s will, the executors should donate his share to an
orphanage for girls.
Pass necessary journal entries for the treatment of goodwill and Y’s share of profit at the time of his
death.
Ans. JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
2019
Jun 12 X’s Capital A/c Dr 15,000
Z’s Capital A/c Dr 5,000
To Y’s Capital A/c 20,000
(Being the goodwill adjusted)
Jun 12 Profit and Loss Suspense A/c Dr 10,000
To Y’s Capital A/c 10,000
(Being Y’s share of profit till the date of death transferred to his capital account)
Jun 12 Y’s Capital A/c Dr 30,000
To Y’s Executor’s A/c 30,000
(Being amount due to Y transferred to his executor’s account)

Working Notes
1. Gaining Ratio = New Share - Old Share
3 3 9-6 3 1 1 3-2 1
X= – = = ; Z= – = = Þ Gaining ratio = 3 : 1
4 6 12 12 4 6 12 12
2. Calculation of Goodwill
2
60, 000 ´ = ` 20, 000 ; to be shared by X and Z in their gaining ratio, i.e. 3 : 1.
6
3 1
X will share = 20, 000 ´ = ` 15 , 000 ; Z will share = 20, 000 ´ = ` 5 , 000
4 4
3. Calculation of Y’s Share in Profit
2 73
1,50, 000 ´ ´ = ` 10, 000
6 365
CBSE Term-II Accountancy XII 59

15. The balance sheet of A,B and C who were sharing profits and losses in the ratio of 1/2, 1/3 and 1/6
respectively, was as follows on 1st April, 2014.
Balance Sheet
as at 1st April, 2014
Liabilities Amt (`) Assets Amt (`)
Bills Payable 6,400 Cash 25,650
Sundry Creditors 12,500 Bills Receivable 5,400
Capital Debtors 17,800
A 40,000 Stock 22,300
B 25,000 Furniture 3,500
C 20,000 85,000 Plant and Machinery 9,750
Profit and Loss A/c 4,500 Building 24,000
1,08,400 1,08,400

A retired from the business on 1st April, 2014 and his share in the firm was to be ascertained on the
revaluation of the assets as follows
Stock ` 20,000; Furniture ` 3,000; Plant and Machinery ` 9,000; Building ` 20,000; ` 850 was to be
provided for doubtful debts. The goodwill of the firm was valued at ` 6,000.
A was to paid ` 11,500 in cash on retirement and the balance to be transferred to his loan account.
Prepare revaluation account and partners’ capital accounts on the date of A’s retirement.
Ans. Dr Revaluation Account Cr
Particulars Amt (`) Particulars Amt (`)
To Stock A/c 2,300 By Loss Transferred to
To Furniture A/c 500 A’s Capital A/c 4,200
To Plant and Machinery A/c 750 B’s Capital A/c 2,800
To Building A/c 4,000 C’s Capital A/c 1,400 8,400
To Provision for Doubtful Debts A/c 850
8,400 8,400

Dr Partners’ Capital Account Cr

Particulars A (`) B (`) C (`) Particulars A (`) B (`) C (`)
To A’s Capital A/c ¾ 2,000 1,000 By Balance b/d 40,000 25,000 20,000
To Revaluation A/c (Loss) 4,200 2,800 1,400 By Profit and Loss A/c 2,250 1,500 750
To Cash A/c 11,500 ¾ ¾ By B’s Capital A/c 2,000 ¾ ¾
To A’s Loan A/c 29,550 ¾ ¾ By C’s Capital A/c 1,000 ¾ ¾
To Balance c/d ¾ 21,700 18,350
45,250 26,500 20,750 45,250 26,500 20,750
Working Note
Calculation of A’s Share of Goodwill
1
Firm’s goodwill = ` 6,000 ; A’s share of goodwill = 6, 000 ´ = ` 3, 000
2
To be contributed by B and C in their gaining ratio i.e. 2 : 1
2 1
B = 3, 000 ´ = ` 2, 000 ; C = 3, 000 ´ = ` 1, 000
3 3
60 CBSE Term-II Accountancy XII

l
Long Answer (LA) Type Questions
1. A, B and C are partners sharing profits in the ratio of 4:3:1. B retired, giving his share of profit to A and C for
` 8,100 in which ` 3,600 being paid by A and ` 4,500 by C. Profit for the year after B’s retirement was
` 10,500. A and C bring the necessary amount.
You are required
(i) To calculate new profit sharing ratio between A and C.
(ii) To give the journal entries to record the above transactions.
Ans. (i) A and C paid ` 8,100 to B in the ratio of ` 3,600 and ` 4,500 i.e. 4:5. Hence, they will divide B’s profit share
between themselves in the same ratio. i.e. 4:5.
3 4 1 3 5 5
Their ganing ratio will be A = ´ = ; B = ´ =
8 9 6 8 9 24
Now, their new profit sharing ratio will be
New Ratio = Old Ratio + Gaining Ratio
4 1 2 1 5 1
New Ratio of A = + = ; New Ratio of B = + =
8 6 3 8 24 3
\New ratio of A and C will be 2:1.
(ii) JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
A’s Capital A/c Dr 3,600
C’s Capital A/c Dr 4,500
8,100
To B’s Capital A/c
(Being B’s share of goodwill credited to him in gaining ratio 4:5)
Cash A/c Dr 8,100
To A’s Capital A/c 3,600
To C’s Capital A/c 4,500
(Being amount brought in by A and C to pay B)
B’s Capital A/c Dr 8,100
To Cash A/c 8,100
(Being amount paid to B on his retirement)
Profit and Loss Appropriation A/c Dr 10,500
To A’s Capital A/c 7,000
To C’s Capital A/c 3,500
(Being amount of profit distributed after B’s retirement in their new profit sharing ratio)

Working Notes
2 1
1. A’s share of profit = 10,500 ´ = ` 7,000 2. C’s share of profit = 10,500 ´ = ` 3,500
3 3
2. Mahesh, Mukesh and Raju were partners in a firm sharing profit and losses in the ratio of 2 : 1 : 1. Their
balance sheet as at 31st March, 2019 was as follows
Balance Sheet
as at 31st March, 2019
Liabilities Amt (`) Assets Amt (`)
Creditors 10,200 Cash in Hand 680
General Reserve 10,880 Cash at Bank 17,000
Capital Furniture 30,600
Mahesh 34,000 Stock 13,600
Mukesh 17,000 Debtors 20,400
Raju 17,000 68,000 Bills Receivable 6,800
89,080 89,080
CBSE Term-II Accountancy XII 61

On 30th June, 2019 Raju retired. As per the provisions of a partnership deed, he was entitled to the following
(i) The capital to his credit at the date of last balance sheet.
(ii) Interest on capital @ 10% p.a.
(iii) Share of goodwill on the basis of three years’ purchase of the average profits of last three years.
The profit of the firm during the previous three years were
(a) ` 17,000 (b) ` 30,600 (c) ` 23,800.
Prepare Raju’s capital account.
Ans. Dr Raju’s Capital Account Cr
Particulars Amt (`) Particulars Amt (`)
To Raju’s Loan A/c 37,995 By Balance b/d 17,000
æ 3ö 425
By Interest on Capital A/c ç17, 000 ´ 10% ´ ÷
è 12 ø
By Mahesh’s Capital A/c 11,900
By Mukesh’s Capital A/c 5,950
By General Reserve A/c 2,720
37,995 37,995

Working Note
17,000 + 30,600 + 23,800 71,400
Average profit = = = ` 23,800
3 3
1
Firm’s goodwill = 23, 800 ´ 3 = ` 71, 400 ; Raju’s share of goodwill = 71, 400 ´ = ` 17,850
4
to be contributed by Mahesh and Mukesh in gaining ratio, i.e. 2 : 1.
3. Kanika, Sakshi and Aroha are partners sharing profits and losses as 25%, 35% and 40%. Kanika decided to
retire with the consent of other partners and sold her share to Sakshi. Goodwill was valued at two and a half
years’ purchase of the average profits of three years. Profits of these three years were ` 1,50,000,
` 1,70,000 and ` 1,60,000. Reserve fund stood in the balance sheet at ` 1,30,000 at the time of
retirement.
You are required to record necessary journal entries regarding above adjustment on Kanika’s retirement.
Also prepare her capital account to find out the amount due to her, when her capital balance in the
balance sheet was ` 1,25,000 before any of the above adjustment.
Ans. JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)

Sakshi’s Capital A/c Dr 1,00,000

To Kanika’s Capital A/c 1,00,000
(Being Kanika’s share of goodwill adjusted in Sakshi’s capital account)
Reserve Fund A/c Dr 1,30,000
To Kanika’s Capital A/c ( 1, 30, 000 ´ 25 / 100) 32,500
To Sakshi’s Capital A/c ( 1, 30, 000 ´ 35 / 100) 45,500
To Aroha’s Capital A/c ( 1, 30, 000 ´ 40 / 100) 52,000
(Being transfer of reserve fund to partners’ capital accounts in their old ratio i.e. 25:35:40)
62 CBSE Term-II Accountancy XII

Dr Kanika’s Capital Account Cr

Particulars Amt (`) Particulars Amt (`)

To Kanika’s Loan A/c 2,57,500 By Balance b/d 1,25,000

By Sakshi’s Capital A/c (Share of goodwill) 1,00,000
By Reserve Fund A/c 32,500
2,57,500 2,57,500

Working Note
Calculation of Value of Goodwill and Kanika’s Share of Goodwill
Total Profits 1,50,000 + 1,70,000 + 1,60,000 4,80,000
Average Profit = = = = ` 1,60,000
Number of Years 3 3
Goodwill = Average Profit ´ Number of Years’ Purchase = 1,60,000 ´ 2.5 = ` 4 ,00 ,000
25
Thus, Kanika’s share of goodwill = 4,00,000 ´ = ` 1,00,000
100
4. The balance sheet of A, B and C, who were sharing profits in the ratio of 5 : 3 : 2 as at 31st March, 2020
was as follows
Balance Sheet
as at 31st March, 2020
Liabilities Amt (`) Assets Amt (`)
Creditors 1,10,000 Bank 88,000
Employees Provident Fund 22,000 Debtors 2,20,000
Profit and Loss A/c 1,87,000 Stock 1,76,000
Capital A/c Fixed Assets 1,32,000
A 88,000
B 1,36,400
C 72,600 2,97,000
6,16,000 6,16,000

A retired on 31st March, 2020. It was agreed that

(i) Goodwill of the firm was valued ` 1,76,000. (ii) Fixed assets are to be depreciated by ` 5,500.
(iii) Make a provision for doubtful debts at 5% on debtors. (iv) New profit sharing ratio of B and C will be 2 : 3.
(v) A liability for claim, included in creditors for ` 22,000 is settled at `17,600.
The amount to be paid to A ` 2,63,450 and to B ` 4,510 and cash brought in by C ` 2,12,960 by leaving a
balance of ` 33,000 in the bank.
Prepare revaluation account and partners’ capital account.
Ans. Dr Revaluation Account Cr
Particulars Amt (`) Particulars Amt (`)
To Fixed Assets 5,500 By Creditors 4,400
To Provision for Doubtful Debts 11,000 By Loss Transferred to
A’s Capital A/c 6,050
B’s Capital A/c 3,630
C’s Capital A/c 2,420 12,100
16,500 16,500
CBSE Term-II Accountancy XII 63

Dr Partners’ Capital Account Cr

Particulars A (`) B (`) C (`) Particulars A (`) B (`) C (`)
To Revaluation A/c 6,050 3,630 2,420 By Balance b/d 88,000 1,36,400 72,600
(Loss) By Profit and Loss A/c 93,500 56,100 37,400
To A’s Capital A/c — 17,600 70,400 By B’s Capital A/c 17,600 — —
To Bank 2,63,450 4,510 — By C’s Capital A/c 70,400 — —
To Balance c/d — 1,66,760 2,50,140 By Bank A/c — — 2,12,960
2,69,500 1,92,500 3,22,960 2,69,500 1,92,500 3,22,960

Working Notes
1. Calculation of Gaining Ratio
Gaining Ratio = New Ratio – Old Ratio
2 3 4 -3 1 3 2 6 -2 4
B= - = = , C= - = = Þ Gaining ratio =1 : 4
5 10 10 10 5 10 10 10
5
2. A’s share of goodwill = 1, 76, 000 ´ = ` 88,000 to be contributed by B and C in 1 : 4.
10
5. A, B and C are partners with profit sharing ratio 5 : 3 : 2. Their balance sheet is as follows
Balance Sheet
as at ...
Liabilities Amt (`) Assets Amt (`)
Creditors 80,000 Bank 40,000
Bills Payable 60,000 Debtors 60,000
General Reserve 30,000 Furniture 40,000
Reserve for Contingency 20,000 Investment 30,000
Workmen Compensation Fund 40,000 Building 1,00,000
Provident Fund 40,000 Prepaid Insurance 10,000
Capital A/cs Goodwill 20,000
A 40,000 Patents 30,000
B 30,000 Profit and Loss 40,000
C 30,000 1,00,000
3,70,000 3,70,000

Adjustments
(i) C takes retirement, new ratio of A and B is 3:2.
(ii) ` 10,000 given to C in cash and balance transferred to C’s loan account.
(iii) Prepaid insurance is no more required.
(iv) ` 10,000 unrecorded typewriter has to be shown in the balance sheet.
(v) Investment is valued at ` 20,000 and is taken over by A at this value.
(vi) Make 5% provision for discount on creditors.
(vii) Outstanding repair bills due ` 10,000.
(viii) Provident fund decreased by 10,000.
(ix) Accrued commission ` 5,000.
(x) Building increased by 20%.
(xi) Goodwill of the firm valued at ` 40,000.
Prepare necessary ledgers.
64 CBSE Term-II Accountancy XII

Ans. Dr Revaluation Account Cr

Particulars Amt (`) Particulars Amt (`)
To Prepaid Insurance A/c 10,000 By Typewriter A/c (Unrecorded) 10,000
To Investment A/c 10,000 By Provision for Creditors A/c 4,000
To Outstanding Repair Bill A/c 10,000 By Provident Fund A/c 10,000
To Profit Transferred to By Accrued Commission A/c 5,000
A’s Capital A/c 9,500 By Building A/c 20,000
B’s Capital A/c 5,700
C’s Capital A/c 3,800 19,000
49,000 49,000

Dr Partners’ Capital Account Cr

Particulars A (`) B (`) C (`) Particulars A (`) B (`) C (`)
To Investment A/c 20,000 — — By Balance b/d 40,000 30,000 30,000
To Goodwill A/c 10,000 6,000 4,000 By General Reserve A/c 15,000 9,000 6,000
To Profit and Loss A/c 20,000 12,000 8,000 By Reserve for Contingency A/c 10,000 6,000 4,000
To C’s Capital A/c 4,000 4,000 — By Workmen Compensation Fund A/c 20,000 12,000 8,000
To Cash A/c — — 10,000 By A’s Capital A/c — — 4,000
To C’s Loan A/c — — 37,800 By B’s Capital A/c — — 4,000
To Balance c/d 40,500 40,700 — By Revaluation A/c (Profit) 9,500 5,700 3,800
94,500 62,700 59,800 94,500 62,700 59,800

Dr Bank Account Cr
Particulars Amt (`) Particulars Amt (`)
To Balance b/d 40,000 By C’s Capital A/c 10,000
By Balance c/d 30,000
40,000 40,000

Balance Sheet
as at …
Liabilities Amt (`) Assets Amt (`)
Creditors (80,000 - 4,000) 76,000 Bank 30,000
Outstanding Repair Bill 10,000 Typewriter (Unrecorded) 10,000
Provident Fund (40,000 – 10,000) 30,000 Accrued Commission 5,000
Bills Payable 60,000 Building (1,00,000 + 20,000) 1,20,000
C’s Loan 37,800 Debtors 60,000
Capital A/s Furniture 40,000
A 40,500 Patents 30,000
B 40,700 81,200
2,95,000 2,95,000

Working Notes
1. Calculation of Gaining Ratio
Gaining Ratio = New Share – Old Share
3 5 6 -5 1 2 3 4 -3 1
A = - = = ; B = - = =
5 10 10 10 5 10 10 10
Gaining ratio = 1 : 1
2
2. C’s Share in Goodwill Goodwill = 40, 000 ´ = ` 8, 000
10
` 8,000 given by continuing partners in gaining ratio, i.e. 1 : 1.
CBSE Term-II Accountancy XII 65

6. A, B and C were in partnership sharing profits in proportion to their capitals. Their balance sheet on 31st
March, 2019 was as follows
Balance Sheet
as at 31st March, 2019
Liabilities Amt (`) Assets Amt (`)
Creditors 15,600 Cash 16,000
Reserve 6,000 Debtors 20,000
Capital A/cs (-) Provision for Doubtful Debts (400) 19,600
A 90,000 Stock 18,000
B 60,000 Machinery 48,000
C 30,000 1,80,000 Buildings 1,00,000
2,01,600 2,01,600

On the above date, B retired owing to ill health and the following adjustments were agreed upon
(i) Buildings to be appreciated by 10%.
(ii) Provision for doubtful debts to be increased to 5% of debtors.
(iii) Machinery to be depreciated by 15%.
(iv) Goodwill of the firm be valued at ` 36,000 and be adjusted into the capital accounts of A and C who will
share profits in future in the ratio of 3 : 1.
(v) A provision to be made for outstanding repairs bill of ` 3,000.
(vi) Included in the value of creditors is ` 1,800 for an outstanding legal claim, which is not likely to arise.
(vii) Out of the insurance premium paid, ` 2,000 is for the next year. The amount was debited to profit and loss
account.
(viii) B to be paid ` 9,000 in cash and balance to be transferred to his loan account.
Prepare the revaluation account, partners’ capital account and the balance sheet of the new firm after B’s
retirement.
Ans. Dr Revaluation Account Cr
Particulars Amt (`) Particulars Amt (`)
To Provision for Doubtful Debts A/c 600 By Building A/c 10,000
To Machinery A/c 7,200 By Creditors A/c 1,800
To Outstanding Repair A/c 3,000 By Prepaid Insurance A/c 2,000
To Profit Transferred to
A’s Capital A/c 1,500
B’s Capital A/c 1,000
C’s Capital A/c 500 3,000
13,800 13,800

Dr Partners’ Capital Account Cr

Particulars A (`) B (`) C (`) Particulars A (`) B (`) C (`)
To B’s Capital A/c 9,000 — 3,000 By Balance b/d 90,000 60,000 30,000
To Cash A/c — 9,000 — By Reserve A/c 3,000 2,000 1,000
To B’s Loan A/c — 66,000 — By Revaluation A/c (Profit) 1,500 1,000 500
To Balance c/d 85,500 — 28,500 By A’s Capital A/c — 9,000 —
By C’s Capital A/c — 3,000 —
94,500 75,000 31,500 94,500 75,000 31,500
66 CBSE Term-II Accountancy XII

Balance Sheet
as at 31st March, 2019
Liabilities Amt (`) Assets Amt (`)
Outstanding Repairs 3,000 Building 1,10,000
Creditors 13,800 Debtors 20,000
Capital A/cs ( - ) Provision for Doubtful Debts (1,000) 19,000
A 85,500 Machinery 40,800
C 28,500 1,14,000 Prepaid Insurance 2,000
B’s Loan A/c 66,000 Stock 18,000
Cash 7,000
1,96,800 1,96,800

Working Notes
1. Calculation of Gaining Ratio
Old ratio Þ 3 : 2 : 1 ; New ratio Þ 3 : 1
3 3 9-6 3 1 1 3-2 1
Gaining Ratio = New Share - Old Share Þ A = - = = ,C= - = =
4 6 12 12 4 6 12 12
Gaining Ratio = 3 : 1
2. Calculation of B’s Share of Goodwill
Firm’s goodwill = ` 36, 000
2
B’s share of goodwill = 36,000 ´ = ` 12, 000 to be contributed by A and C in their gaining ratio, i.e. 3 : 1.
6
3. Dr Cash Account Cr

Particulars Amt (`) Particulars Amt (`)

To Balance b/d 16,000 By B’s Capital A/c 9,000
By Balance c/d 7,000
16,000 16,000

7. Chintan, Ayush and Sudha were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. On
31st March, 2019, their Balance Sheet was as follows

Balance Sheet of Chintan, Ayush and Sudha

as at 31st March, 2019
Liabilities Amt (`) Assets Amt (`)
Capital Plant and Machinery 90,000
Chintan 90,000 Furniture 60,000
Ayush 60,000 Stock 30,000
Sudha 40,000 1,90,000 Debtors 60,000
Provident Fund 30,000 (–) Provision for Doubtful Debts (5,000) 55,000
General Reserve 20,000 Cash at Bank 15,000
Creditors 10,000
2,50,000 2,50,000

Chintan retired on the above date and it was agreed that

(i) Debtors of ` 5,000 were to be written-off as bad debts and a provision of 5% on debtors for bad and
doubtful debts was to be created.
(ii) Goodwill of the firm on Chintan’s retirement was valued at ` 1,00,000 and Chintan’s share of the same will
be adjusted by debiting the capital accounts of Ayush and Sudha.
(iii) Stock was revalued at ` 36,000.
(iv) Furniture was undervalued by ` 9,000.
(v) Liability for workmen’s compensation of ` 2,000 was to be created.
(vi) Chintan was to be paid ` 20,000 by cheque and the balance was to be transferred to his loan account.
Pass the necessary journal entries in the books of the firm on Chintan’s retirement. (CBSE 2020)
CBSE Term-II Accountancy XII 67

Ans. JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
2019
Mar 31 General Reserve A/c Dr 20,000
To Chintan’s Capital A/c ( 5 / 10) 10,000
To Ayush’s Capital A/c ( 3 / 10) 6,000
To Sudha’s Capital A/c ( 2 / 10) 4,000
(Being general reserve distributed among the old partners)
Mar 31 Bad Debts A/c Dr 5,000
To Debtors A/c 5,000
(Being bad debts written-off)
Mar 31 Provision for Bad Debts A/c Dr 5,000
To Bad Debts A/c 5,000
(Being bad debts met out of provision for bad debts)
Mar 31 Revaluation A/c Dr 2,750
To Provision for Bad Debts A/c 2,750
(Being creation of provision for bad debts)
Mar 31 Ayush’s Capital A/c Dr 30,000
Sudha’s Capital A/c Dr 20,000
To Chintan’s Capital A/c (WN1) 50,000
(Being goodwill adjusted in gaining ratio)
Mar 31 Stock A/c Dr 6,000
To Revalution A/c 6,000
(Being value of stock increased)
Mar 31 Furniture A/c Dr 9,000
To Revaluation A/c 9,000
(Being furniture which was undervalued brought to its book value)
Mar 31 Revaluation A/c Dr 2,000
To Workmen’s Compensation Claim A/c 2,000
(Being liability of workmen’s compensation claim created)
Mar 31 Revaluation A/c Dr 10,250
To Chintan’s Capital A/c 5,125
To Ayush’s Capital A/c 3,075
To Sudha’s Capital A/c 2,050
(Being profit on revaluation transferred to old partners)
Mar 31 Chintan’s Capital A/c (WN2) Dr 1,55,125
To Bank A/c 20,000
To Chintan’s Loan A/c 1,35,125
(Being paid to Chintan ` 20,000 by cheque and balance transferred to his
loan account)

Working Notes
5
1. Chintan’s Share of Goodwill = 1, 00, 000 ´ = ` 50, 000
10
Chintan’s Share divided in Gaining Ratio
3 2
Ayush = 50, 000 ´ = ` 30,000 ; Sudha = 50, 000 ´ = ` 20,000
5 5
2. Chintan’s Balance = 90, 000 + 10, 000 + 50, 000 + 5 ,125 = ` 1,55 ,125
68 CBSE Term-II Accountancy XII

8. V, W and X were carrying out a business as partners and sharing profits in the ratio of 2 : 1 : 1. Their
balance sheet as at 31st December, 2019 is as follows
Balance Sheet
as at 31st December, 2019
Liabilities Amt (`) Assets Amt (`)
Bills Payable 10,600 Buildings 70,000
Sundry Creditors 11,000 Plant and Machinery 78,000
Capital A/cs Stock 16,000
V 75,000 Debtors 22,000
W 50,000 (–) Provision for Doubtful Debts (400) 21,600
X 55,000 1,80,000 Bank 7,500
Profit and Loss A/c 1,400 Cash 9,900
2,03,000 2,03,000

V decided to retire on that date because of health problems. In this regard, following adjustments were agreed
upon
(i) The value of buildings to be increased to ` 96,000.
(ii) The provision for bad and doubtful debts on debtors to be maintained at 3%.
(iii) Plant and machinery should be valued at 20% less.
(iv) Goodwill of the firm is valued at ` 36,000 and V’s share is to be adjusted in the remaining partners’
accounts.
You are required to prepare revaluation account, partners’ capital accounts and balance sheet.

Ans. Dr Revaluation Account Cr

Particulars Amt (`) Particulars Amt (`)
To Provision for Doubtful Debts A/c 260 By Buildings A/c 26,000
To Plant and Machinery A/c 15,600
To Profit Transferred to
V’s Capital A/c 5,070
W’s Capital A/c 2,535
X’s Capital A/c 2,535 10,140
26,000 26,000

Dr Partners’ Capital Account Cr

Particulars V (`) W (`) X (`) Particulars V (`) W (`) X (`)
To V’s Capital A/c — 9,000 9,000 By Balance b/d 75,000 50,000 55,000
To V’s Loan A/c 98,770 — — By Profit and Loss A/c 700 350 350
To Balance c/d — 43,885 48,885 By Revaluation A/c 5,070 2,535 2,535
(Profit)
By W’s Capital A/c 9,000 — —
By X’s Capital A/c 9,000 — —
98,770 52,885 57,885 98,770 52,885 57,885
CBSE Term-II Accountancy XII 69

Balance Sheet
as at 31st December, 2019
Liabilities Amt (`) Assets Amt (`)
Bills Payable 10,600 Buildings 96,000
Sundry Creditors 11,000 Plant and Machinery 62,400
V’s Loan 98,770 Stock 16,000
Capital Debtors 22,000
W 43,885 (-) Provision for Doubtful Debts (660) 21,340
X 48,885 92,770 Bank 7,500
Cash 9,900
2,13,140 2,13,140

Working Notes
1. Calculation of Gaining Ratio
Gaining Ratio = New Share - Old Share
1 1 2 -1 1 1 1 2 -1 1
W’s Gain = - = = ; X’s Gain = - = =
2 4 4 4 2 4 4 4
Gaining ratio of W and X = 1 : 1
2. Treatment of Goodwill
2
V’s share of goodwill = 36, 000 ´ = ` 18, 000
4
JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
W’s Capital A/c Dr 9,000
X’s Capital A/c Dr 9,000
To V’s Capital A/c 18,000
(Being V’s share of goodwill adjusted among W and X in their gaining ratio)
Chapter Test
Multiple Choice Questions
1. Which of the following statements is/are correct?
(i) Interest is payable @ 6% per annum on the amount remaining unpaid to the executor of deceased partner.
(ii) Contingency reserve, profit and loss account (credit ) balance and deferred revenue expenditure account are
credited to capital accounts of existing partners in old profit sharing ratio at the time of retirement of old partner.
Alternatives
(a) Only (i) (b) Only (ii) (c) Both (a) and (b) (d) None of these

2. Increase in the liability at the time of retirement of a partner is

(a) credited to revaluation account (b) debited to profit and loss account
(c) debited to revaluation account (d) credited to partners’ capital account

3. V, S and T are partners in a firm with profit sharing ratio 3 : 2 : 1 respectively. The extract of their balance sheet is as
follows
Liabilities Amt (`) Assets Amt (`)
Workmen Compensation
Reserve 48,000

At the time of retirement of T, if liability for workmen compensation to the extent of ` 24,000 is to be created, then at
what amount will workmen compensation reserve be shown in new balance sheet?
(a) ` 48,000 (b) ` 72,000 (c) ` 24,000 (d) Not to be shown in new balance sheet

4. Match the following.

Column I Column II
A. Employees Provident Fund (i) Accumulated loss
B. Advertisement Expenditure (ii) Statutory liability
C. Machinery Replacement (iii) Accumulated profit
Fund
D. General Reserve (iv) Accumulated depreciation

Codes
A B C D
(a) (iii) (ii) (i) (iv)
(b) (iii) (ii) (iv) (i)
(c) (ii) (i) (iv) (iii)
(d) (i) (ii) (iv) (iii)
5. A, B and C were partners sharing profits and losses in the ratio of 4:3:1. B retires and gives her share of profit to A for
` 3,500 and to C for ` 2,100. The gaining ratio of A and C will be
(a) 4:1 (b) 2:1 (c) 5:3 (d) 3:5

Short Answer (SA) Type Questions

1. A, B and C are partners sharing profit and loss
in the ratio of 2 : 2 : 1. B retires from the firm on 31st March, 2018. On the date of B’s retirement, the following
balances appeared in the books
of the firm.
Particulars Amt (`)
Advertisement suspense account 50,000
Contingency reserve 30,000
Workmen’s compensation reserve 40,000
Loss in business account 30,000

Pass the necessary journal entries for the adjustment of these items on B’s retirement.
CBSE Term-II Accountancy XII 71

2. Modi, Shah and Dharma are three partners of a firm doing work of constructions and maintaining equality in the
different societies of India. They shared profits in the ratio of 1 : 2 : 2 from last
6 years.
On 31st May, 2019, Dharma died and his share is taken by Modi and Shah in the ratio of 1 : 3. For this situation,
goodwill of the firm is valued at ` 2,00,000 on this date. Pass the journal entries for treatment of goodwill on Dharma’s
death. Also, calculate new ratio.
3. A, B and C are partners sharing profits in the ratio of 4 : 3 : 1 respectively. It is provided under the partnership deed
that on the death of any partner, his share of goodwill is to be valued at one half of the net profits credited to his
account during the last 4 completed years and share of profit to the date of death is to be based on average profits of
the last three completed years, plus 10% (books of accounts are closed on 31st December). B died on 14th March, 2018.
The firm’s profits for the last 4 calender years were as follows I (Profit ` 1,20,000), II (Profit ` 60,000), III (Losse ` 20,000)
and IV (Profit ` 80,000).
Pass journal entries to adjust B’s share of goodwill and profit assuming that profit sharing ratio between A and C in
future will be 3 : 2.
4. X, Y and Z were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Goodwill appeared in their books at a value of
` 60,000 and general reserve at ` 20,000. Y decided to retire from the firm. On the date of his retirement, goodwill of
the firm was valued at ` 2,40,000. The new profit sharing ratio decided among X and Z was 2 : 3. Record necessary
journal entries on Y’s retirement.
Long Answer (LA) Type Questions
1. Kavya, Manya and Navita were partners sharing profits as 50%, 30% and 20% respectively. On 31st March, 2016, their
balance sheet stood as follows
Balance Sheet of Kavya, Manya and Navita
as at 31st March, 2016
Liabilities Amt (`) Assets Amt (`)
Creditors 1,40,000 Fixed Assets 8,90,000
General Reserve 1,00,000 Investments 2,00,000
Capital Stock 1,30,000
Kavya 6,00,000 Debtors 4,00,000
Manya 5,00,000 (—) Provision for Bad Debts (30,000) 3,70,000
Navita 4,00,000 15,00,000 Bank 1,50,000
17,40,000 17,40,000

On the above date, Kavya retired and Manya and Navita agreed to continue the business on the following terms
(i) Firm’s goodwill was valued at ` 60,000 and it was decided to adjust Kavya’s share of goodwill in the capital
accounts of continuing partners.
(ii) There was a claim for workmen’s compensation to the extent of ` 4,000.
(iii) Investments were revalued at ` 2,13,000.
(iv) Fixed assets were to be depreciated by 10%.
(v) Kavya was to be paid ` 20,000 through a bank draft and the balance was transferred to her loan account.
Prepare revalutation and partner’s capital account.
2. Kavya, Navya and Heena are partners sharing profits and losses in the ratio of 2 : 2 : 1. Heena retires on 31st March,
2018. The balance sheet of the firm as at 31st December, 2017 stood as follows
Balance Sheet
as at 31st December, 2017
Liabilities Amt (`) Assets Amt (`)
Capital Land and Building 20,00,000
Kavya 12,00,000 Investments 2,50,000
Navya 12,00,000 Stock 5,00,000
Heena 8,00,000 32,00,000 Sundry Debtors 8,00,000
General Reserve 8,00,000 Cash in Hand 2,00,000
Sundry Creditors 2,00,000 Cash at Bank 4,50,000
42,00,000 42,00,000

In order to arrive at the balance due to Heena, it was mutually agreed that
72 CBSE Term-II Accountancy XII

(i) Land and building be valued at ` 24,00,000.

(ii) Investments to be valued at ` 2,00,000.
(iii) Stock be taken at ` 6,00,000.
(iv) Goodwill be valued at two years’ purchase of the average profit of the past five years.
(v) Heena’s share of profits upto the date of retirement be calculated on the basis of average profit of the preceding
three years. The profits of the preceding five years were as under

Years Profits (`)

2013 4,00,000
2014 4,70,000
2015 6,00,000
2016 5,50,000
2017 6,50,000

(vi) Amount payable to Heena to be transferred to his loan account carrying interest @ 10% per annum.
You are required to prepare revaluation account, partners’ capital accounts and the balance sheet as at 31st March, 2018.

Answers
Multiple Choice Questions For Detailed Solutions
1. (a) 2. (c) 3. (c) 4. (c) 5. (c) Scan the code