TS Grewal chapter 6 – Retirement of a Partner, Question 22 to Question 28 solution of the 2021-22 Edition.
Note – we upload working note before the main solution because we want students would get full understanding about the question before moving forward in the solution.
Q.22- A, B and C were partners in a firm sharing profits in the ratio of 6 : 5 : 4. Their capitals were A −₹ 1,00,000; B − ₹ 80,000 and C − ₹ 60,000 respectively. On 1st April, 2009, A retired from the firm and the new profit sharing ratio between B and C was decided as 1 : 4. On A‘s retirement, the goodwill of the firm was valued at ₹ 1,80,000. Showing your calculations clearly, pass the necessary Journal entry for the treatment of goodwill on A’s retirement.
Solution:-
Working Notes:
WN1- Calculation of Gaining Ratio
A :B :C=6:5:4(Old ratio)
B :C=1:4 (New ratio)
Gaining Ratio = New Ratio – Old Ratio
B’s Gain = 1/5 − 5/15 = 3−5/15 = −2/15(Sacrifice)
C’s Gain = 4/5 − 4/15 = 12−4/15 = 8/15
WN2- Calculation of Retiring Partner’s Share of Goodwill
A’s share of goodwill = 1,80,000 × 6/15
= ₹ 72,000
B’s share of goodwill = 1,80,000 × 2/15
= ₹ 24,000
A’s and B’s share of goodwill be brought by C only. Therefore, C’s Capital A/c will be debited with
72,000 + 24,000 = ₹ 96,000
| Date | Particulars | L.F. | Debit Amt (₹) | CreditAmt (₹) |
| C’s Capital A/c…dr. | 96,000 | |||
| To A’s Capital A/c | 72,000 | |||
| To B’s Capital A/c | 24,000 |
Q. 23– Sangeeta, Saroj and shanti are partners sharing profits and losses in the ratio of 5 : 3 : 2. Z retired and on the date of his retirement, following adjustments were agreed upon:
(a) The value of Furniture is to be increased by ₹ 12,000.
(b) The value of stock to be decreased by ₹ 10,000.
(c) Machinery of the book value of ₹ 50,000 is to be depreciated by 10%.
(d) A Provision for Doubtful Debts @ 5% is to be created on debtors of book value of ₹ 40,000.
(e) Unrecorded Investment worth ₹ 10,000.
(f) An item of ₹ 1,000 included in bills payable is not likely to be claimed, hence should be written back.
Pass necessary Journal entries.
SOLUTION:-
Revaluation Account
| Particulars | Amt (₹) | Particulars | Amt (₹) | |
| Stock A/c | 10,000 | Furniture A/c | 12,000 | |
| Machinery A/c | 5,000 | Investments A/c | 10,000 | |
| Provision for Doubtful Debts A/c | 2,000 | Bills Payable A/c | 1,000 | |
| Profit transferred to: | ||||
| X’s Capital A/c 3,000 | ||||
| Y’s Capital A/c 1,800 | ||||
| Z’s Capital A/c 1,200 | 6,000 | |||
| 23,000 | 23,000 |
Journal
| S.R.no | Journal | Dr. (₹) | Cr. (₹) |
| (a) | Furniture A/c…dr. | 12,000 | |
| To Revaluation A/c (Being Increase in value transferred to Revaluation Account) | 12,000 | ||
| (b) | Revaluation A/c..dr. | 10,000 | |
| To Stock A/c (Being Decrease in Stock transferred to Revaluation Account) | 10,000 | ||
| (c) | Revaluation A/c…dr. | 5,000 | |
| To Machinery A/c (Being Decrease in value of machinery transferred to Revaluation Account) | 5,000 | ||
| (d) | Revaluation A/c…dr. | 2,000 | |
| To Provision for Doubtful Debts A/c (Being Increase in liabilities to Revaluation Account) | 2,000 | ||
| (e) | Investments A/c…dr. | 10,000 | |
| To Revaluation A/c (Being Increase in value transferred to Revaluation Account) | 10,000 | ||
| (f) | Bills Payable A/c…dr. | 1,000 | |
| To Revaluation A/c (Being Decrease in liabilities transferred to Revaluation Account) | 1,000 | ||
| (g) | Revaluation A/c…dr. | 6,000 | |
| To X’s Capital A/c | 3,000 | ||
| To Y’s Capital A/c | 1,800 | ||
| To Z’s Capital A/c (Being Revaluation profit transferred to Partners’ Capital Accounts) | 1,200 |
Q.24- A, B and C were partners, sharing profits and losses in the ratio of 2 : 2 : 1. B decides to retire on 31st March, 2021. On the date 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 Materials ₹ 20,000; Stock of Finished Goods ₹ 30,000 and Debtors ₹ 20,000.
Following was agreed among the partners on B’s retirement:
(a) Building to be appreciated by 20%.
(b) Plant and Machinery to be reduced by 10%.
(c) A Provision of 5% on Debtors to be created for Doubtful Debts.
(d) Stock of Raw Materials to be valued at ` 18,000 and Finished Goods at ₹ 35,000.
(e) An Old Computer previously written off was sold for ₹ 2,000 as scrap.
(f) Firm had to pay ₹ 5,000 to an injured employee.
Pass necessary Journal entries to record the above adjustments and prepare the Revaluation Account.
Solution:-
Revaluation Account
| Particulars | Amt ( ₹) | Particulars | Amt ( ₹) | |
| Plant and Machinery (40,000 × 10%) | 4,000 | Building (1,00,000 × 20%) | 20,000 | |
| Provision for Doubtful Debts | 1,000 | Stock of Finished Goods | 5,000 | |
| Stock of Raw Materials | 2,000 | Computer | 2,000 | |
| Workmen’s Compensation Claim | 5,000 | |||
| Profit transferred to: | ||||
| A’s Capital A/c 6,000 | ||||
| B’s Capital A/c 6,000 | ||||
| C’s Capital A/c 3,000 | 15,000 | |||
| 27,000 | 27,000 |
Journal
| Particulars | L.F. | Dr. Amt ( ₹) | Cr. Amt ( ₹) |
| (a) Building A/c…dr. | 20,000 | ||
| Stock of Finished Good A/c…dr. | 5,000 | ||
| Computer A/c…dr. | 2,000 | ||
| To Revaluation A/c (Being Increase in value Assets transferred to Revaluation Account) | 27,000 | ||
| (b) Revaluation A/c…dr. | 12,000 | ||
| To Plant and Machinery A/c | 4,000 | ||
| To Provision for Doubtful Debts A/c | 1,000 | ||
| To Stock of Raw Material A/c | 2,000 | ||
| To Workmen’s Compensation Claim A/c (Being Decrease in value of Assets and increase in Liabilities transferred to Revaluation Account) | 5,000 | ||
| (c) Revaluation A/c…dr. | 15,000 | ||
| To A’s Capital A/c | 6,000 | ||
| To B’s Capital A/c | 6,000 | ||
| To C’s Capital A/c (Being Revalution Profit transferred to Partners’ Capital accounts) | 3,000 |
Q.25- Punit, Ramit and Akshit were partners sharing profits equally. Akshit retired on 1st April, 2021. Punit and Ramit decided to continue the business and share profits in the ratio of 3: 2. They also decided to give effect to the change in values of assets and liabilities without changing their book values.
The book values and their revised values were as follows:
| Book Value (₹) | Revised Value (₹) | |
| Land | 5,50,000 | 8,50,000 |
| Building | 2,50,000 | 2,10,000 |
| Computers | 1,00,000 | 70,000 |
| Computer Softwares | 5,00,000 | 4,00,000 |
| Sundry Creditors | 70,000 | 60,000 |
| Workmen Compensation Claim | – | 5,000 |
Pass an adjustment entry.
Solution:-
| Puneet | Ramit | Akshit | |
| Old Ratio | 1 | 1 | 1 |
| New Ratio | 3 | 2 | Retired |
Punit = 1/3 – 3/5 = 5-9/15 = -4/15 (Gain)
Ramit = 1/3 – 2/5 = 5-6/15 = -1/15 (Gain)
Akshat = 1/3 – 0/5 = 5-0/15 = 5/15 =1/3 (Sacrifice)
SHARE OF SACRIFICE FOR AKSHAT, RETIRING PARNTER
Sacrificing ratio of Akshat is 1/3
Compensating amount = 1,35,000 × 1/3 = 45,000
Share of Compensating amount by Punit and Ramit in sacrificing ratio (4:1)
Punit = 45,000 × 4/5 = 36,000
Ramit = 45,000 × 1/5 = 9,000
An adjustment entry:
| Particulars | Dr. (₹) | Cr. (₹) |
| Punit’s Capital A/c Dr. Ronit’s Capital A/c Dr. To Akshat’s Capital A/c | 36,000 9,000 | 45,000 |
Q.26- X, Y and Z are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. Z retires from the firm on 31st March, 2021. On the date of Z’s retirement, the following balances appeared in the books of the firm:
General Reserve ₹ 1,80,000
Profit and Loss Account (Dr.) ₹ 30,000
Workmen Compensation Reserve ₹ 24,000 which was no more required
Employees’ Provident Fund ₹ 20,000
Pass necessary Journal entries for the adjustment of these items on Z ‘s retirement.
SOLUTION:-
Working Notes:
WN1– Calculation of Share in Credit Balance of Reserves
| Total Credit Balance of Reserves | = General Reserve + WCF = 1,80,000 + 24,000 = 2,04,000 |
X‘s share = 2,04,000 × 3/6 = 1,02,000
Y‘s share = 2,04,000 × 2/6 = 68,000
Z‘s share = 2,04,000 × 1/6 = 34,000
WN2– Calculation of Share in Debit Balance of Profit and Loss A/c
X‘s share = 30,000 ×3/6 = 15,000
Y‘s share = 30,000 ×2/6 = 10,000
Z‘s share = 30,000 ×1/6 = 5,000
Note: Employees’ Provident Fund will not be distributed as it is a liability and not accumulated profit.
Journal
| Date | Particulars | L.F. | Debit Amt ( ₹) | Credit Amt ( ₹) |
| Mar.31 | General Reserve A/c…dr. | 1,80,000 | ||
| Workmen Compensation Reserve A/c…dr. | 24,000 | |||
| To X’s Capital A/c | 1,02,000 | |||
| To Y’s Capital A/c | 68,000 | |||
| To Z’s Capital A/c (Being Accumulated profits distributed among partners in old ratio) | 34,000 | |||
| 2 | X’s Capital A/c | 15,000 | ||
| Y’s Capital A/c | 10,000 | |||
| Z’s Capital A/c | 5,000 | |||
| To Profit and Loss A/c (Being Debit balance in Profit and Loss A/c distributed among partners in old ratio) | 30,000 |
Q.27- Asha, Naveen and Shalini were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Goodwill appeared in their books at a value of ₹ 80,000 and General Reserve at ₹ 40,000. Naveen decided to retire from the firm. On the date of his retirement, goodwill of the firm was valued at ₹ 1,20,000. The new profit-sharing ratio decided among Asha and Shalini is 2 : 3.
Record necessary Journal entries on Naveen’s retirement.
SOLUTION:-
Calculation of Gaining Ratio:
Gain of a Partner = New Share – Old Shares
Asha’s Gain (Sacrifice) = 2/5 – 5/10 = 4-5/10 = (-)1/10
Shalini’s Gain (Sacrifice)= 3/5 – 2/10 = 6-2/10 = 4/10
Therefore, Both Asha and Naveen would be compensated by Shalini in the ratio of 1:3
Asha’s Sacrifice for 1/10th Share = 1,20,000 × 1/10 = 12,000
Naveen’s Sacrifice for 3/10th Share = 1,20,000 × 3/10 = 36,000
Journal
| Date | Particulars | L.F. | Debit Amt (₹) | Credit Amt (₹) |
| 1 | Asha’s Capital A/c…dr. | 40,000 | ||
| Naveen’s Capital A/c…dr. | 24,000 | |||
| Shalini’s Capital A/c…dr. | 16,000 | |||
| To Goodwill A/c (Being Existing goodwill written off amongst existing partners in old ratio) | 80,000 | |||
| 2 | General Reserves A/c | 40,000 | ||
| To Asha’s Capital A/c | 20,000 | |||
| To Naveen’s Capital A/c | 12,000 | |||
| To Shalini’s Capital A/c (Being General Reserves distributed among all partners in old ratio) | 8,000 | |||
| 3 | Shalini’s Capital A/c | 48,000 | ||
| To Asha’s Capital A/c | 12,000 | |||
| To Naveen’s Capital A/c (Being Goodwill adjusted by debiting gaining partner and crediting sacrificing partner and retiring partner) | 36,000 |
Q.28- Ram, Laxman and Bharat are partners sharing profits in the ratio of 3 : 2 : 1. Goodwill is appearing in the books at a value of ₹ 1,80,000. Laxman retires and at the time of his retirement, goodwill is valued at ₹ 2,52,000. Ram and Bharat decided to share future profits in the ratio of 2 : 1. The Profit for the first year after Laxman’s retirement amount to ₹ 1,20,000. Give the necessary Journal entries to record goodwill and to distribute the profit. Show your calculations clearly.
SOLUTION:-
Working Notes:
WN1- Calculation of Gaining Ratio
Ram : Laxman :Bharat = 3:2:1(Old ratio)
Ram : Bharat = 2:1 (New ratio)
Gaining Ratio = New Ratio – Old Ratio
Ram’s Gain = 2/3 − 3/6 = 4−3/6 = 1/6
Bharat’s Gain = 1/3 − 1/6 = 2−1/6 = 1/6
Ram:Bharat = 1:1
WN2: Calculation of Retiring Partner’s Share of Goodwill
Laxman’s share of goodwill = 2,52,000 × 2/6 = ₹ 84,000
Laxman’s share of goodwill will be brought by Ram and Bharat in their gaining ratio 1:1
Therefore, Ram’s Capital A/c will be debited with 84,000 × 1/2 =₹ 42,000
And, Bharat’s Capital A/c will be debited with 84,000 × 1/2 = ₹ 42,000
Note– The entry for distributing profit as given in the book is wrong. The profit will be distributed between Ram & Bharat and not Ram and Laxman (since Laxman has retired)
Journal
| Date | Particulars | L.F. | Debit Amt (₹) | Credit Amt (₹) |
| 1 | Ram’s Capital A/c…dr. | 90,000 | ||
| Laxman’s Capital A/c…dr. | 60,000 | |||
| Bharat’s Capital A/c…dr. | 30,000 | |||
| To Goodwill A/c(Being Goodwill written off) | 1,80,000 | |||
| 2 | Ram’s Capital A/c…dr. | 42,000 | ||
| Bharat’s Capital A/c…dr. | 42,000 | |||
| To Laxman’s Capital A/c(Being Adjustment of Laxman’s share of goodwill) | 84,000 | |||
| 3 | Profit & Loss Appropriation A/c…dr. | 1,20,000 | ||
| To Ram’s Capital A/c | 80,000 | |||
| To Bharat’s Capital A/c(Being Profit on revaluation transferred to Partners’ Capital A/c) | 40,000 |
Top site ,.. amazaing post ! Just keep the work on !