RETIREMENT OF A PARTNER Question 1 Choose the correct answer: i) At the time of retirement of a partner, profit on revaluation will be credited to (A) Capital Account of retiring partner (B) Capital Accounts of all partners in the old profit sharing ratio. (C) Capital Accounts of the remaining partners in their old profit sharing ratio (D) Capital Accounts of the remaining partners in their new profit sharing ratio ii) Which of the following transactions is debited to Revaluation Account? (A) Increase in the value of Furniture (B) Increase in Provision for Doubiful Debis (C) Greditors discharged at a discount (D) Loss on revaluation of all assets and reassessment of all liabilities iii) Pick the odd one out; (A) Iris calculated at the time of retirement of a partner if there is a change in the profit sharing ratio. (B) Icis the ratio in which the remaining partners take the outgoing partners profit share. (C) It is the difference between old profit share and new profit share (D) Itis the difference between new profit share and old profit share iv) What is the journal entry to record the settlement made to retiring partner? (A) Retiring partners’ capital account Dr; Cash Cr (B) Retiring partners’ capital account Dr; Retiring partners loan account Cr (C) Retiring partners’ capital account Dr; Cash account Cr; Retiring partners loan account Cr (D) One of the above v) A, Band C are partners in a firm sharing profits in the ratio 2:2:1. C retired and A and B decided to acquire C’s share in profit in the ratio 2:1, Calculate the new profit sharing ratio between A and B. (A) 2:1 (B) 22 (C) 7:8 (D) 8:7 Dr. Unni Jose Unni,jose@aol.comvi) Retiring partners are eligible for; (A) Balance of capital account (B) Accumulated profits (©) Revaluation profits (D) All of the above vii) A.B and C are partners sharing profits in the ratio 3:2:1. C retired and A and B agreed to share the future profits equally. Goodwill of the firm is valued at Rs. 60,000 on the day of C’s retirement. The journal entry to record goodwill contributed by C will be: (A) A’s capital account Dr 6000; B’s capital account Dr 4000; C’s capital Cr 10,000 (B) A’s capital account Dr 10000; C’s capital Cr 10,000 (C) A’s capital account Dr 6000; C’s capital Cr 6000 (D) A’s capital account Dr 5000; B’s capital account Dr 5000; C's al Cr 10,000 Old ratio of partners is used : (A) To write off existing goodwill (B) To Distribute revaluation profit/ losses (©) To distribute accumulated profits (D) All of the above ix) A, B and C are partners sharing profits equally. Mr. A retired on 1* April 2021. He took over stock costing Rs. 20,000 at a discount of 10%. The journal entry to record to same will be: (A) A’s capital Dr 20,000; Stock Cr 20,000 (B) Stock Dr 20,000; A’s capital account Cr 18,000; Revaluation Account Cr 2000 (C) A’s capital account Dr 18,000; Revaluation Account Dr 2000; Stock Cr 20,000 (D) Stock Cr 20,000; A’s capital Cr 20,000 x) A,B and C are partners sharing profits equally. B retired from the firm and A and C acquired B’s profits in the ratio 2:3. The new profit sharing ratio of A and C will be: (A) 78 (B) 1:1 (C)23 (D) 3:2 )B fyB fic [vd [wo [wo [wis [vid figc [oA Dr. Unni Jose Unni,jose@acl.comQuestion 2 The Balance Sheet of Amar , Akber and Anthoni who where sharing profit in the ratio of 4:3:2 stood as following on 31st March 2021. Balance Sheet as on 31st March 2021 Stock 25,000 Provident Fund Cash at Bank 2,500 General Reserve 4,500 | Debtors 15,500 Capital: Advertising Expenditure A/c 9,000 Amar 40,000 Plant & Machinery 34,000 Akber 30,000 Building 45,000 Anthoni 25,000 95,000 TOTAL 1,31,000 TOTAL 1,31,000 Akber retired on the above date on the following terms : (i The assets and liabilities revalued as follows: Stock 22,000; Plant and Machinery 42,00 uilding 50,000 (ii) 20% of general reserve is kept for provision for doubtful debts (iii) The Goodwill of the entire firm be fixed at Rs. 10,800 and Akber’s share of the same be adjusted into the accounts of Amar and Anthoni who are to share the profits in future in the ratio of (iv) Capitals of Amar and Anthoni to be proportionate to their new profit sharing ratio and also they have decided to pay Akbar immediately by the money brought by Amar and Anthoni in their profit sharing ratio after leaving a sum of Rs.5000 as cash balance for the working capital requirement. For this purpose actual cash is to be brought in or paid off. Calculate the amount brought in / withdrawn by Amar and Anthoni. Question 3 A and B are partners sharing profits equally. Their balance sheet as on 31.3.2021 is as follows; [Liabilities Assets Assets Amount Creditors 12,330 | Cash in hand 13,000 General reserve 2,000 | Debtors 10,200 Capital: Closing stock 6,730 Dr. Unni Jose Unni,jose@aol.comA 19,030 Building 19,300 B 18,870 37900 | Goodwill | 3,000 52,230 52,230 B retired on 1 April, 2021 a) The goodwill of the firm was valued at % 9,000 b) 20% of the general reserve was kept aside as provision for doubtful debts, ©) There was a piece of furniture valued at 2 2,060 which was unrecorded in the books of the firm. 4d) A decided to pay off B by giving him this piece of furniture and the balance after a year. ‘You are required to prepare B’s Capital Account. Question 4 Naresh, Dhruv and Azeem are partners sharing profits in the ratio of 5:3:7. Naresh retires from the firm, Dhruv and Azeem decided to share profits in the ratio of 2:3. The adjusted capital accounts of Dhruv and Azeem at the time of Naresh’s retirement showed the balances of ¥ 33,000 and & 70,500 respectively. ‘The total amount to be paid to Naresh is & 90,500 which is paid in cash immediately by the firm, the cash being contributed by Dhruv and Azeem in such a way that their capitals become proportionate to their new profit-sharing ratio and the firm maintains a minimum cash balance of 2 5,000 from its existing balance of @ 20,000. You are required to pass journal entries to record: + Payment made to the retiring partner + Cash brought in by the remaining partners to pay off the retiring partner Question 5 Ravi, Vijay and Sujay were partners sharing profits in the ratio of 1/2: 1/3: 1/6 Vijay decided to retire, his share being taken up by the remaining partners in the ratio 1:4. On Vijay’s retirement, a loss of @ 12,000 was determined upon revaluation of assets and liabilities. You are required to: (a) Calculate the new profit-sharing ratio of the remaining partners. (b) Pass the journal entry to write off the loss on revaluation of assets and liabilities. Dr. Unni Jose Unni,jose@aol.comQuestion 6 A, B and C are partners sharing profits and losses in the ratio of 3 : 2: 1. (On 31.3.2021, B decides to retire and their capital accounts on that date are A ~ 2 60,000; B~8 45,000 and C ~ 8 50,000. Their current accounts on that date are A ~ 5,000 (CR); B — 2,300 (DR) and C ~ & 3,000 (CR). The partnership deed provided that, in case of retirement, the retiring partner should be entitled toa share of the goodwill of the firm to be calculated on the average of the profits of last three years" ending on 31.3.2010 which comes to 212,000. Balance sheet as on 31.03.2021 shows a balance of 81,20,000 in general reserve and 21,00,000 in workmen compensation reserve, claim against workmen compensation is amounted to 40,000. Amount due to B has been transferred to his loan account. Calculate the amount due to Mr. B on 31.03.2021. Question 7 A, Band C are partners sharing prot balance sheet as on 31. 03. 2021. the ratio 2:2:1. Following the extracts from their [Liabilities [Amount | Assets Amount | ‘Creditors 40,000 | Investments (MV 30,000) 28,000 Employees provident fund 20,000 | Goodwill 25,000 Investment fluctuation fund 12,500 Loan from Mr. B 18,000, Capitals: A 60,000 B 80,000 c 1,20,000 On the above date, A retired from the firm and agreed on the following points: i) Creditors of 2 10,000 were settled by the firm at a discount of 10% ii) Goodwill of the firm is valued at = 20,000, ili) New profit-sharing ratio of the new firm will be equal. iv) Amount payable to Mr. A has been transferred to his loan account. Prepare capital account of Mr. A to calculate his claim. Dr. Unni Jose Unni,jose@aol.comQuestion 8 X, Y and Z are partners sharing profits equally. The adjusted balances of their capital accounts stood at %120,000; & 58,000 and % 50,000 respectively on the date of Z’s retirement. ‘The continuing partners have decided to bring in necessary cash to pay off Z and also decided to readjust their capitals based on the profit-sharing ratio. Deficiency of capital needs to be adjusted through current account and shortage by cash, Pass necessary journal entries for the capital adjustments of X and Y. Question 9 A.B and C are equal partners in a firm. B retires and his claim including his capital and his share of goodwill is = 40,000. He is paid in kind, a vehicle valued at % 20,000 which is unrecorded in the books of the firm till the date of retirement and the balance in cash. You are required to give the journal entries for recording the payment to B in the books of the firm Question 10 Following is the extract from Balance sheet of X,Y and Cas on 31* March 2021. Liabilities Amount | Assets ‘Amount Creditors 20,000 | Advertisement suspense 30,000 Workmen compensation reserve 30,000 General reserve 50,000 Capitals: x 1,00,000, Y 80,000 Zz 1,20,000 On 1* April 2021, Y retired and the following points were agreed on; 2) 40% of the general reserve is to be kept aside for provision for doubtful debrs. b)_Y is paid % 1,00,000 to settle his claim. ©) The new profit-sharing ratio between X and Z. is decided to be 2:1. Calculate gaining ratio and write the journal entry to record goodwill at the time of retirement. Dr. Unni Jose Unni,jose@aol.com