Class 12 Accountancy Chapter 3 Reconstitution of a Partnership Firm – Retirement/Death of a Partner

Key Concept: Calculation with Conditions

c) 15:11

[Solution Description]

To determine the new profit sharing ratio, we first find the total share acquired by X and Y from Z. Since Z’s share is 3 parts out of a total $$6 + 4 + 3 = 13$$, each part has a value of $$\frac{1}{13}$$. As X and Y are acquiring Z’s share equally, they each gain $$\frac{3}{2} \times \frac{1}{13} = \frac{3}{26}$$

– New share for X: $$6/13 + 3/26 = 12/26 + 3/26 = 15/26$$

– New share for Y: $$4/13 + 3/26 = 8/26 + 3/26 = 11/26$$

Hence, the new profit-sharing ratio is 15:11.

Key Concept: Journal Entry Analysis

b) Revaluation A/c

[Solution Description]

When an unrecorded liability is brought into the books, the revaluation account is debited and the liability account is credited. This can be represented by the following journal entry:

$\text{Revaluation A/c} \, \text{Dr.} \quad \text{To Liability A/c}$

Therefore, the revaluation account is debited in this situation.

Key Concept: Simple Calculation

b) Rs. 18,000

[Solution Description] To find the retiring partner’s share of goodwill, we multiply the total goodwill by the partner’s share. Given:

$$\text{Total Goodwill} = 90000$$

$$\text{Partner’s Share} = \frac{1}{5}$$

Thus, the retiring partner’s share of goodwill is calculated as follows:

$$\text{Retiring Partner’s Share} = 90000 \times \frac{1}{5} = 18000$$

This means the retiring partner’s share of goodwill is Rs. 18,000.

Key Concept: Conceptual Understanding

c) Displays the amount gained by remaining partners.

[Solution Description] The gaining ratio indicates how much additional profit share is acquired by the remaining partners from the retiring or deceased partner’s share. It helps in understanding how the profit distribution changes among the existing partners following such events and plays a crucial role in compensation adjustments.

Key Concept: Ratio Understanding

b) Rs. 90,000

[Solution Description]

The total ratio is $3 + 2 = 5$. The partner with the profit sharing ratio of 3 should get:

$$\text{New Capital} = \left(\frac{3}{5}\right) \times 150,000 = Rs. 90,000$$

However, this matches the current capital, implying no adjustment is needed as per the provided data.

Key Concept: Loan Account Balance

b) Liabilities side of the Balance Sheet

[Solution Description] The remaining balance of a retiring partner’s loan account is shown on the liabilities side of the Balance Sheet as it represents an obligation for the firm.

Key Concept: Profit Distribution

d) In the old profit-sharing ratio

[Solution Description] The loss on revaluation is distributed among partners in their old profit-sharing ratio as per the agreement prior to any recent changes.

Key Concept: Journal Entry Identification

b) Cash/Bank A/c Dr. To Partners’ Capital A/c

[Solution Description]

The correct journal entry for excess capital contributed by a partner involves debiting Cash/Bank A/c and crediting Partners’ Capital A/c. This reflects the inflow of cash into the business from the partner.

Key Concept: Deduction Impact

b) Reduces by Rs. 7,630

[Solution Description]

First, calculate the interest on drawings using the given data.

Assume the interest is calculated annually for simplicity,

$$\text{Interest} = 7000 \times 0.09$$

$$\text{Interest} = 630$$

The deductions will include both the drawings and the interest on drawings:

$$\text{Total Deductions} = 7000 + 630 = 7630$$

Thus, the final amount payable to the partner would be:

$$\text{Final Amount} = 50000 – 7630$$

$$\text{Final Amount} = 42370$$

Hence, the impact is a reduction in the retiring partner’s share by Rs. 7,630, leaving Rs. 42,370.

Key Concept: Goodwill Valuation

d) Rs. 54,000

[Solution Description]

To calculate the goodwill value, first find the average profit:

Average profit = $\frac{15,000 + 18,000 + 21,000}{3} = \frac{54000}{3} = 18,000$

Then multiply the average profit by the number of years’ purchase to get the goodwill:

Goodwill = $18,000 \times 3 = 54,000$

Therefore, the goodwill value is Rs. 54,000.

Key Concept: Critical Thinking, Multi-step Calculation

c) \$32,000

[Solution Description]

First, incorporate the hidden reserves into the adjusted capital account:

$$\text{Adjusted Capital with Reserves} = 110,000 + 8,000 = 118,000$$

Now, determine the hidden goodwill by finding the excess of payment over the adjusted capital:

$$\text{Hidden Goodwill} = 150,000 – 118,000 = 32,000$$

Hence, the hidden goodwill amounts to \$32,000.

Key Concept: Treatment of Goodwill

d) Gaining Ratio Method

[Solution Description] If goodwill is not present in the books during a partner’s retirement, it must be valued and adjusted through the capital accounts of the continuing partners, increasing or decreasing their balances according to their gaining ratios.

Key Concept: Gaining vs Old Ratio

b) 19:11

[Solution Description]

The retiring partner Z has a share of $$\frac{1}{5}$$. X and Y acquire this share in the ratio of 4:1.

Let the gain by X = $4k$,

Let the gain by Y = $k$.

Solving for k:

$$4k + k = \frac{1}{5}$$

$$5k = \frac{1}{5}$$

Dividing both sides by 5:

$$k = \frac{1}{25}$$

Therefore, X gains $$\frac{4}{25}$$, and Y gains $$\frac{1}{25}.$$

Their old ratio was 3:2:

Gaining ratio comparison:

$$X: \frac{3}{5} + \frac{4}{25} = \frac{19}{25}$$

$$Y: \frac{2}{5} + \frac{1}{25} = \frac{11}{25}$$

Thus, the gaining ratio is 19:11 compared to the old ratio of 3:2.

Key Concept: Revaluation of Assets

c) Each increases by Rs. 5,000

[Solution Description]

The increase in asset value leads to an increase in partners’ capital accounts by the gain on revaluation. The gain is:

$$\text{Gain} = 60000 – 50000 = 10000$$

Since X and Y share profits equally, each partner’s capital account increases by:

$$\text{Increase per Partner} = \frac{10000}{2} = 5000$$

Therefore, each partner’s capital account increases by Rs. 5,000.

Key Concept: Gaining Ratio from New Ratio

c) 1:0

[Solution Description]

To find the gaining ratio, first determine the old shares and acquired share:

Old shares are $$A = \frac{5}{10},$$ $$B = \frac{3}{10},$$ $$C = \frac{2}{10}$$

The new ratio between A and B is 7:3.

New shares are $$A = \frac{7}{10}$$ and $$B = \frac{3}{10}$$.

Gaining Share for A = New Share – Old Share = $\frac{7}{10} – \frac{5}{10} = \frac{2}{10}$

Gaining Share for B = New Share – Old Share = $\frac{3}{10} – \frac{3}{10} = 0$.

Hence, the gaining ratio of A and B is 1:0.

Key Concept: Balance Sheet Placement

b) Liabilities side

[Solution Description] The retiring partner’s loan account represents a liability to the firm. Therefore, until it is completely paid off, this balance is presented on the liabilities side of the balance sheet.

Key Concept: Intermediate Calculation

a) 5:4

[Solution Description] To find the gaining ratio between B and C, we need to first calculate their gaining shares using the formula $$\text{Gaining Share} = \text{New Share} – \text{Old Share}$$. Let’s denote old share of B as $$OS_B = \frac{3}{8}$$ and for C as $$OS_C = \frac{1}{4}$$. The new profit-sharing ratios are given by:

$$NS_B = \frac{7}{12}, \quad NS_C = \frac{5}{12}$$

Now calculate:

$GS_B = NS_B – OS_B = \frac{7}{12} – \frac{3}{8} = \frac{14}{24} – \frac{9}{24} = \frac{5}{24}$

$GS_C = NS_C – OS_C = \frac{5}{12} – \frac{1}{4} = \frac{10}{24} – \frac{6}{24} = \frac{4}{24}$

Therefore, the gaining ratio is $$GS_B : GS_C = \frac{5}{24} : \frac{4}{24} = 5:4$$.

Key Concept: Journal Entry Identification

c) Profit and Loss A/c

[Solution Description] When accumulated losses are transferred to partners’ capital accounts, the credit entry goes to the Profit and Loss A/c.

Key Concept: Advanced Revaluation, Complex Goodwill Valuation

b) \$39,000

[Solution Description]

We calculate the net adjustment required due to both revaluation and goodwill.

Firstly, revalue the buildings:

Increase = 20% of \$50,000 = \$10,000

New value = \$50,000 + \$10,000 = \$60,000

Fixtures depreciate:

Decrease = 10% of \$10,000 = \$1,000

New value = \$10,000 – \$1,000 = \$9,000

Net change in asset values:

$$\text{Net Change} = (\$60,000 – \$50,000) + (\$9,000 – \$10,000) = \$10,000 – \$1,000 = \$9,000$$

Including goodwill valuation, the total adjustment:

$$\text{Adjustment} = \text{Goodwill} + \text{Revaluation} = \$30,000 + \$9,000 = \$39,000$$

Therefore, the net adjustment required in D’s capital account is \$39,000.

Key Concept: Interest and Drawings, Adjustments and Settlements

b) Rs. 44,800

[Solution Description]

We need to calculate the interest on drawings first:

$$\text{Interest on drawings} = 12,000 \times \frac{10}{100} = 1,200$$

Then adjust this along with accumulated losses against B’s capital:

$$\text{Net amount due} = 50,000 – 1,200 – 4,000 = 44,800$$

Thus, the net amount due to Partner B is Rs. 44,800.

Key Concept: Provision Adjustments

d) Review and adjust provision amounts as necessary

[Solution Description] During the retirement of a partner, provisions for doubtful debts are reviewed and adjusted if necessary, based on current estimates to ensure accurate representation of expected receivables.

Key Concept: Partner Entitlement

a) True

[Solution Description] According to partnership laws and agreements, a deceased partner’s estate is typically entitled to receive the deceased partner’s share of accumulated profits up to the date of death.

Key Concept: Strategic Decision Making, Advanced Reasoning

c) Increase by \$120,000

[Solution Description]

The total goodwill recognized internally is \$240,000. Allocate this goodwill according to the gaining ratios among partners A, B, and C, who have ratios of 5:3:2. Calculate partner A’s share as follows: $\frac{5}{10} \times 240,000 = 120,000$. Thus, partner A’s capital account will increase by \$120,000.

Key Concept: Adjusting Capitals

c) \$13,333.33

[Solution Description]

To adjust Partner D’s capital account, we calculate D’s share in the accumulated losses using the given sharing ratio 4:3:2. The total ratio parts are $4 + 3 + 2 = 9$. Partner D’s part is 4.

$$\text{D’s Loss Share} = \frac{4}{9} \times 30000 = \frac{120000}{9} = 13333.33$$

Therefore, \$13,333.33 will be deducted from Partner D’s capital account.

Key Concept: Gaining Ratio Calculation

c) 2:1

[Solution Description] The old ratios for Pooja and Neha were 4/10 and 5/10 respectively. Their new agreed ratio is 3:2 or equivalently 3/5 and 2/5. The gaining ratio is calculated as: $$\text{Pooja’s Gain} = 3/5 – 4/10 = 2/10$$, and $$\text{Neha’s Gain} = 2/5 – 5/10 = -1/10$$. Normalizing these gains gives us a gaining ratio of 2: (-1), which simplifies to 2:1.

Key Concept: Gaining Ratio Calculation

b) 11:5

[Solution Description] Initially, the profit-sharing ratio among A, B, and C is 4:3:1. When B retires, his share (3/8) has to be distributed between A and C. According to the agreement, A and C each receive half of B’s share. Thus:

– B’s share = $$\frac{3}{8}$$

– Each gets = $$\frac{3}{8} \times \frac{1}{2} = \frac{3}{16}$$

Now adding this to their original shares:

– A’s new share = $$\frac{4}{8} + \frac{3}{16} = \frac{8}{16} + \frac{3}{16} = \frac{11}{16}$$

– C’s new share = $$\frac{1}{8} + \frac{3}{16} = \frac{2}{16} + \frac{3}{16} = \frac{5}{16}$$

Therefore, the new profit-sharing ratio is 11:5.

Key Concept: Journal Entry Identification

c) Partners’ Capital A/c Dr. To Bank A/c

[Solution Description] For withdrawing excess capital from a partner’s account, the entry is: Partners’ Capital A/c Dr. To Cash / Bank A/c.