NCERT Solutions for Class 12 Accounts Part 1 Chapter 3: Reconstitution of a Partnership Firm – Retirement/Death of a Partner

Anita, Jaya and Nisha are partners sharing profits and losses in the ratio of 1:1:1 Jaya retires from the firm. Anita and Nisha decided to share the profit in future in the ratio 4 :3. Calculate the gaining ratio.

Azad, Vijay and Amit are partners sharing profits and losses in the proportion of 1/4,1/8,10/16 and Calculate the new profit sharing ratio between continuing partners if (a) Azad retires; (b) Vijay retires; (c) Amit retires.

Calculate the gaining ratio in each of the above situations.

Anu, Prabha and Milli are partners. Anu retires. Calculate the future profit sharing ratio of continuing partners and gaining ratio if they agree to acquire her share : (a) in the ratio of 5:3; (b) equally.

Rahul, Robin and Rajesh are partners sharing profits in the ratio of 3 : 2 : 1. Calculate the new profit sharing ratio of the remaining partners if (i) Rahul retires; (ii) Robin retires; (iii) Rajesh retires.

Puja, Priya, Pratistha are partners sharing profits and losses in the ratio of 5 : 3 : 2. Priya retires. Her share is taken by Priya and Pratistha in the ratio of 2 : 1. Calculate the new profit sharing ratio.

Ashok, Anil and Ajay are partners sharing profits and losses in the ratio of 1/2, 3/10 and 1/5. . Anil retires from the firm. Ashok and Ajay decide to share future profits and losses in the ratio of 3 : 2. Calculate the gaining ratio.

Choose the correct option in the following questions:

Abhishek, Rajat and Vivek are partners sharing profits in the ratio of 5:3:2. If Vivek retires, the New Profit Sharing Ratio between Abhishek and Rajat will be–
(a) 3:2 (b) 5:3 (c) 5:2 (d) None of these

 The old profit sharing ratio among Rajender, Satish and Tejpal were 2:2:1. The new profit sharing ratio after Satish’s retirement is 3:2. The gaining ratio is
(a) 3 : 2 (b) 2 : 1
(c) 1 : 1 (d) 2 : 2

 Anand, Bahadur and Chander are partners. Sharing Profit equally on Chander’s retirement, his share is acquired by Anand and Bahadur in the ratio of 3 : 2. The new profit sharing ratio between Anand and Bahadur will be
(a) 8 : 7 (b) 4 : 5 (c) 3 : 2 (d) 2:3

4. In the absence of any information regarding the acquisition of share in profit of the retiring/deceased partner by the remaining partners, it is assumed that they acquire his/her share
(a) old profit sharing ratio (b) new profit sharing ratio (c) equal ratio (d) None of these

 On retirement/death of a partner, the retiring/deceased partner’s capital account will be credited with
(a) his/her share of goodwill
(b) goodwill of the firm
(c) shares of goodwill of remaining partners
(d) None of the above

 Gobind, Hari and Pratap are partners. On retirement of Gobind, the goodwill already appears in the Balance Sheet at T 24,000. The goodwill will be written off
(a) by debiting all partners’ capital accounts in their old profit sharing ratio
(b) by debiting remaining partners’ capital accounts in their new profit sharing ratio
(c) by debiting retiring partners’ capital accounts from his share of goodwill
(d) None of the above

Chaman, Raman and Suman are partners sharing profits in the ratio of 5:3:2. Raman retires, the new profit sharing ratio between Chaman and Suman will be 1:1. The goodwill of the firm is valued at Rs. 1,00,000 Raman’s share of goodwill will be adjusted
(a) by debiting Chaman’s Capital account and Suman’s Capital Account with Rs 15,000 each.
(b) by debiting Chaman’s Capital account and Suman’s Capital Account with Rs. 21,429 and 8,571 respectively.
(c) by debiting only Suman’s Capital Account with Rs. 30,000.
(d) by debiting Raman’s Capital account with Rs. 30,000.

On retirement/death of a partner, the remaining partner(s) who have gained
due to change in profit sharing ratio should compensate the
(a) retiring partners only.
(b) remaining partners (who have sacrificed) as well as retiring partners.
(c) remaining partners only (who have sacrificed).
(d) none of these.

 Vijay, Ajay and Mohan are friends. They passed B (Hons) from Delhi University in June, 2013. They decided to business of computer hardware.
On 1st of August, 2013, they introduced the capital of Rs. 50,000, Rs.30,000 and Rs. 20,000 respectively and started the business in partnership at Delhi. The profit sharing ratio decided between there was 4:2:1. The business was running successfully. But on 1st February, 2019, due to certain unavoidable circumstances and family circumstances, Ajay decided to settle in Pune and decided to retire from the partnership on 31st March, 2020; with the consent of partners, Ajay retires as on 31st March, 2020, the position of assets and liabilities are as follows

On the date of retirement, the following adjustments were to be made
(1) Firm’s goodwill was valued at Rs. 1,48,000.
(2) Assets and Liabilities are to be valued as under; Stock Rs. 72,000; Land and Buildings Rs. 1,35,600; Debtors Rs. 63,000; Machinery Rs.1,50,000; Creditors Rs. 84,000.
(3) Vijay to bring Rs. 1,20,000 and Mohan Rs. 30,000 as additional capital.
(4) Ajay was to be paid Rs. 97,200 in cash and the balance of his Capital Account to be transferred to his Loan Account Work out the amount

retired on the date of Balance Sheet and the following adjustments were to be made
(a) Stock was depreciated by 10%.
(b) Factory building was appreciated by 12%.
(c) Provision for doubtful debts to be created up to 5%.
(d) Provision for legal charges to be made at Rs. 265.
(e) The goodwill of the firm to be fixed at Rs. 10,000.
(f) The capital of the new firm to be fixed at Rs. 30,000. The continuing partners decide to keep their capitals in the new profit sharing ratio of 3:2.
Work out the final balances in capital accounts of the firm and the amount to bh brought in and/or withdrawn by A and C to make their capitals proportionate to then new profit sharing ratio.

R, S and M were carrying on business in partnership
sharing profits in the ratio of 3 : 2 : 1 respectively. On March 31,
2011, Balance Sheet of the firm stood as follows

Shyam retired on the above mentioned date on the following terms
(a) Buildings to be appreciated by ? 8,800.
(b) Provision for doubtful debts to be made @ 5% on debtors.
(c) Goodwill of the firm to be valued at ? 9,000.
(d) Rs.5,000 to be paid to S immediately and the balance due to him to be treated as a loan carrying interest @ 6% per annum.
Prepare the balance sheet of the reconstituted firm.

 On December 31, 2007, the Balance Sheet of Pinki, Qureshi and Rakesh showed as under

The partnership deed provides that the profit be shared in the ratio of 2:1:1 and that in the event of death of a partner, his executors be entitled to be paid out
(a) The capital of his credit at the date of last Balance Sheet.
(b) His proportion of reserves at the date of last Balance Sheet.
(c) His proportion of profits to the date of death based on the average profits of the last three completed years, plus 10%.
(d) By way of goodwill, his proportion of the total profits for the three preceding years. The net profit for the last three years were
                          Rs.
2005              16,000
2006              16,000
2007              15,400

Rakesh died on April 1, 2007. He had withdrawn Rs. 5,000 to the date of his death. The investment were sold at par and R’s Executors were paid off. Prepare Rakesh’s Capital Account that of his executors.

 What are the different ways in which a partner can retire from the firm?

Write the various matters that need adjustments at the time of retirement of partners.

 Distinguish between sacrificing ratio and gaining ratio.

Why do firm revaluate assets and reassess their liabilities on retirement or on the event of death of a partner?

 Why a retiring/deceased partner is entitled to a share of goodwill of the firm?

Explain the modes of payment to a retiring partner.

Discuss the various methods of computing the share in profits in the event of death of a partner.

 How will you compute the amount payable to a deceased partner?

 Explain the treatment of goodwill at the time of retirement or on the event of death of a partner.

aresh, Raj Kumar and Bishwajeet are equal partners. Raj Kumar decides to retire. On the date of his retirement, the Balance Sheet of the firm showed the following : General Reserves Rs.36,000 and Profit and Loss Account (Dr) Rs. 15,000.
Pass the necessary journal entries to the above effect.

Aparna, Manisha and Sonia are partners sharing profits in the ratio of 3 : 2 :1. Manisha retires and goodwill of the firm is valued at Rs. 1,80,000. Aparna and Sonia decided to share future profits in the ratio of 3 : 2. Pass necessary journal entries.

Sangeeta, Saroj and Shanti are partners sharing profits in the ratio of 2 : 3 : 5. Goodwill is appearing in the books at a value of Rs. 60,000. Sangeeta retires and goodwill is valued at Rs. 90,000. Saroj and Shanti decided to share future profits equally. Record necessary journal entries.

Himanshu, Gagan and Naman are partners sharing profits and losses in the ratio of 3 : 2 :1 On March 31, 2007, Naman retires. The various assets and liabilities of the firm on the date were as follows Cash Rs.10,000, Building Rs. 1,00,000, Plant and Machinery Rs. 40,000, Stock Rs. 20,000, Debtors Rs. 20,000 and Investments Rs. 30,000.
The following was agreed upon between the partners on Naman’s retirement
(i) Building to be appreciated by 20%.
(ii) Plant and Machinery to be depreciated by 10%.
(iii) A provision of 5% on debtors to be created for bad and doubtful debts.
(iv) Stock was to be valued at Rs. 18,000 and Investment at Rs. 35,000.
Record the necessary journal entries to the above effect and prepare the revaluation account.

 Digvijay, Brijesh and Parakaram were partners in a firm sharing profits in the ratio of 2 : 2 : L Their Balance Sheet as on March 31, 2007 was as follows

Brijesh retired on March 31, 2007 on the following terms
(i) Goodwill of the firm was valued at ? 70,000 and was not to appear in the books.
(ii) Bad debts amounting to ? 2,000 were to be written off.
(iii) Patents were considered as valueless.
Prepare revaluation account, partners’ capital accounts and the balance sheet of Digvijay and Parakaram after Brijesh’s retirement

 Radha, Sheela and Meena were in partnership sharing profits and losses in
the proportion of 3:2:1. On April 1, 2007, Sheela retires from the firm. On that
date, their Balance Sheet was as follows:

The terms were
(a) Goodwill of the Firm was valued at ? 13,000.
(b) Expenses owing to be brought down to ? 3,750.
(c) Machinery and Loose Tools are to be valued at 10% less than their book value.
(d) Factory premises are to be revalued at ? 24,300.
Prepare
1. Revaluation account
2. Partners’capital accounts
3. Balance sheet of the firm after retirement of Shee

Pankaj, Naresh and Saurabh are partners sharing profits in the ratio of 3 : 2 :
1. Naresh retired from the firm due to his illness. On that date the Balance
Sheet of the firm was as follows:

Additional Information
(i) Premises have appreciated by 20%, stock depreciated by 10% and provision for doubtful debts was to be made 5% on debtors. Further, provision for legal damages is to be made for Rs. 1,200 and furniture to be brought up to Rs. 45,000.
(ii) Goodwill of the firm be valued at Rs. 42,000.
(iii) Rs. 26,000 from Naresh’s Capital account be transferred to his loan account and balance be paid through bank; if required, necessary loan may be obtained from Bank.
(iv) New profit sharing ratio of Pankaj and Saurabh is decided to be 5 :1.
Give the necessary ledger accounts the balance sheet of the firm after Naresh’s retirement.

Puneet, Pankaj and Pammy are partners in a business sharing profits and
losses in the ratio of 2 : 2 : 1 respectively. Their balance sheet as on March 31,
2007 was as follows:

Mr. Pammy died on September 30, 2007. The partnership deed provided the
following:
(i) The deceased partner will be entitled to his share of profit up to the date of
death calculated on the basis of previous year’s profit.
(ii) He will be entitled to his share of goodwill of the firm calculated on the
basis of 3 years’ purchase of average of last 4 years’ profit. The profits for
the last four financial years are given below:
for 2003–04; Rs. 80,000; for 2004–05, Rs. 50,000; for 2005–06, Rs. 40,000;
for 2006–07, Rs. 30,000.
The drawings of the deceased partner up to the date of death amounted to
Rs. 10,000. Interest on capital is to be allowed at 12% per annum.
Surviving partners agreed that Rs. 15,400 should be paid to the executors
immediately and the balance in four equal yearly instalments with interest
at 12% p.a. on outstanding balance.
Show Mr. Pammy’s Capital account, his Executor’s account till the settlement
of the amount due

 Following is the Balance Sheet of Prateek, Rockey and Kushal as on March 31, 2007.

Rockey died on June 30, 2007. Under the terms of the partnership deed, the executors of a deceased partner were entitled to
(a) Amount standing to the credit of the Partner’s capital account.
(b) Interest on capital at 5% per annum.
(c) Share of goodwill on the basis of twice the average of the past three years’ profit.
(d) Share of profit from the closing date of the last financial year to
the date of death on the basis of last year’s profit.
Profits for the year ending on March 31, 2005, March 31, 2006 and March 31, 2007 were Rs. 12,000, Rs. 16,000 and Rs.14,000 respectively. Profits were shared in the ratio of capitals.
Pass the necessary journal entries and draw up Rockey’s capital account to be rendered to his executor.

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 Sheet on April 1, 2007
was as follows:

Bajaj retires from the business and the partners agree to the following
(a) Freehold premises and stock are to be appreciated by 20% and 15% respectively.
(b) Machinery and furniture are to be depreciated by 10% and 7% respectively.
(c) Bad Debts reserve is to be increased to Rs. 1,500.
(d) Goodwill is valued at Rs. 21,000 on Bajaj’s retirement.
(e) The continuing partners have decided to adjust their capitals in their new profit sharing ratio after the retirement of Bajaj. Surplus/deficit, if any, in their capital accounts will be adjusted through current accounts.

 The Balance Sheet of Rajesh, Pramod and Nishant who were sharing profits in
proportion to their capitals stood as on March 31, 2007:

Pramod retired on the date of Balance Sheet and the following adjustments were made
(a) Stock was valued at 10% less than the book value.
(b) Factory buildings were appreciated by 12%.
(c) Reserve for doubtful debts be created up to 5%.
(d) Reserve for legal charges to be made at Rs. 265.
(e) The goodwill of the firm is fixed at Rs. 10,000.
(f) The capital of the new firm will be fixed at Rs. 30,000. The continuing partners decide to keep their capitals in the new profit sharing ratio of 3 : 2.
Pass journal entries and prepare the balance sheet of the reconstituted firm after transferring the balance in Pramod’s capital account to  his loan account.

Following is the Balance Sheet of Jain, Gupta and Malik as on March 31, 2002.

The partners have been sharing profits in the ratio of 5:3:2. Malik decides to
retire from business on April 1, 2002 and his share in the business is to be
calculated as per the following terms of revaluation of assets and liabilities :
Stock, Rs.20,000; Office furniture, Rs.14,250; Plant and Machinery Rs.23,530;
Land and Building Rs.20,000.
A provision of Rs.1,700 to be created for doubtful debts. The goodwill of the firm
is valued at Rs.9,000.
The continuing partners agreed to pay Rs.16,500 as cash on retirement of
Malik, to be contributed by continuing partners in the ratio of 3:2. The balance
in the capital account of Malik will be treated as loan.
Prepare Revaluation account, capital accounts, and Balance Sheet of the
reconstituted firm.

Arti, Bharti and Seema are partners sharing profits in the proportion of 3:2:1
and their Balance Sheet as on March 31, 2003 stood as follows :

Bharti died on June 12, 2003 and according to the deed of the said partnership,
her executors are entitled to be paid as under :
(a) The capital to her credit at the time of her death and interest thereon @
10% per annum.
(b) Her proportionate share of the reserve fund.
(c) Her share of profits for the intervening period will be based on the sales
during that period, which were calculated as Rs.1,00,000. The rate of profit
during the past three years it had been 10% of sales.
(d) Goodwill according to her share of profit to be calculated by taking twice
the amount of the average profit of the last three years is less than 20%. The profits
of the previous years were :
2001 – Rs.8,200
2002 – Rs.9,000
2003 – Rs.9,800
The investments were sold for Rs.16,200 and her executors were paid out. Pass
the necessary journal entries and write the account of the executors of Bharti.

Nithya, Sathya and Mithya were partners sharing profits and losses in the
ratio of 5:3:2. Their Balance Sheet as on December 31, 2002 was as follows :

Mithya dies on May 1, 2002. The agreement between the executors of Mithya
and the partners stated that :
(a) Goodwill of the firm be valued at 2.1/2 times the average profits of last four
years. The profits of four years were : in 1998, Rs.13,000; in 1999, Rs.12,000; in 2000, Rs.16,000; and in 2001, Rs.15,000.
(b) The patents are to be valued at Rs.8,000, Machinery at Rs.25,000 and
Premises at Rs.25,000.
(c) The share of profit of Mithya should be calculated on the basis of the profit
of 2002.
(d) Rs.4,200 should be paid immediately and the balance should be paid in 4
equal half-yearly instalments carrying interest @ 10%.
Record the necessary journal entries to give effect to the above and write the
executor’s account till the amount is fully paid. Also prepare the Balance Sheet
of Nithya and Sathya as it would appear on May 1, 2002 after giving effect to
the adjustments