RKG INSTITUTE BY CA PARAG GUPTA
B - 193 ,SECTOR 52 , NOIDA
RETIREMENT
Class 12 - Accountancy
Time Allowed: 1 hour and 30 minutes Maximum Marks: 40
1. At the time of retirement of a partner, profit on revaluation is credited to: [1]
a) Capital Accounts of the remaining partners b) Capital Account of retiring partner
in their new profit-sharing ratio.
c) Capital Accounts of the remaining partners d) Capital Accounts of all partners in the old
in their old profit-sharing ratio. profit-sharing ratio.
2. A, B and C are partners sharing profits in the ratio of 5 : 2 : 1. If the new ratio on the retirement of A is 3 : 2, [1]
what will be the gaining ratio?
a) 3 : 2 b) 11 : 14
c) 2 : 3 d) 14 : 11
3. X, Y and Z have been sharing profits in the ratio of 4 : 2 : 1, Z retires. X and Y take Z’s share equally. New [1]
profit sharing ratio will be:
a) 9 : 5 b) 5 : 3
c) 4 : 2 d) 5 : 2
4. Assertion (A): Nisha, Okra and Piya are partners. Nisha retires and her capital account after making adjustment [1]
for reserves and profit on revaluation exists at ₹90,000. Okra and Piya have agreed to pay her ₹1,30,000 in full
settlement of his claim. It implies that ₹ 40,000 (₹ 1,30,000 - ₹ 90,000) is Nisha's share of goodwill of the firm.
This will be treated by debiting ₹ 40,000 in Okra's and Piya's Capital Accounts in their gaining ratio and
crediting Nisha's Capital A/c.
Reason (R): If the firm has agreed to settle the account of retiring partner by paying him/her a lump-sum
amount, then amount paid to him/her in excess of his adjusted capital shall be treated as his/ her share of
goodwill.
a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.
c) A is true but R is false. d) A is false but R is true.
5. Assertion (A): At the time of retirement of a partner, besides the Retiring Partner, if a continuing partner also [1]
sacrifices his profit share, he along with the retiring partner will get share in firm's goodwill equal to the profit
share sacrificed.
Reason (R): Goodwill is paid by the Gaining Partners to the Sacrificing Partners for sacrificing their profit
share.
a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.
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c) A is true but R is false. d) A is false but R is true.
6. Fill in the blanks: [2]
(a) On retirement of a partner, Creditors of ₹ 20,000 not likely to be claimed will be ________ to [1]
Revaluation A/c.
(b) On retirement of a partner, goodwill will be credited to the Capital Account of ________. [1]
7. Tarun, Abhishek, Kamal and Vivek were partners in a firm sharing profits in the ratio of 5 : 3 : 2 : 2. Kamal [3]
retired on 31st March, 2022. Tarun, Abhishek and Vivek decided to share future profits equally. On Kamal's
retirement goodwill of the firm was valued at ₹ 9,00,000. Showing your working clearly, pass the necessary
journal entry for treatment of goodwill on Kamal's retirement. It was decided not to show goodwill in the books
of the firm.
8. X, Y and Z were in partnership sharing profits and losses equally. Y retired from the firm. After adjustments, his [3]
Capital Account shows a credit balance of ₹ 75,000 as on 1st April, 2023. Y was paid ₹ 15,000 immediately on
retirement and the balance amount is to be paid in three equal annual instalments along with interest @ 5% p.a.
pass the journal entry and Prepare Y's Loan Account until he is paid the entire amount due to him. The firm
closes its books on 31st March every year.
9. Karan, Raj, Sahil and Govind were partners in firm sharing profits in the ratio of 3 : 2 : 2 :1. On 1st February, [3]
2023, Govind retired and the new profit sharing ratio decided between Karan, Raj and Sahil was 3 : 1 : 1. On
Govind’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 Govind’s retirement.
10. Saurav, Basant and Pooja were partners in a firm sharing profits equally. Basant retired on 30th September, 2022. [4]
Profit till the date of retirement was to be estimated based on last year's profit. Profit for the year ended 31st
March, 2022, was ₹ 3,60,000.
Calculate Basant's share of profit till his retirement and pass Journal entry/entries for the same when:
i. The profit-sharing ratio between Saurav and Pooja does not change; and
ii. The new profit-sharing ratio between Saurav and Pooja changes to 3 : 2
11. A, B and C are partners sharing profits in the ratio of 5 : 3 : 2. C retires and A and B agree to share future profits [4]
in the ratio of 6 : 4. Goodwill is to be taken at two year’s purchase of the average profits of the last 5 years,
which were ₹ 10,000; ₹ 25,000; ₹ 15,000 (loss); ₹ 36,000 and ₹ 44,000 respectively.
At the date of C’s retirement, following balances appeared in the books of the firm:
General Reserve 1,20,000
Profit & Loss Account (Dr.) 30,000
C's Capital 2,00,000
You are required to record necessary journal entries in the books of the firm and prepare C’s Capital Account on
his retirement.
12. Kajal, Diya and Karan were partners sharing profits in the ratio of 2 : 1 : 1. On 31st March, 2023, their Balance [4]
Sheet was as under:
Liabilities ₹ Assets ₹
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Trade creditors 53,000 Bank 60,000
Employees' Provident Fund 47,000 Debtors 60,000
Kajal's Capital 2,00,000 Stock 1,00,000
Diya's Capital 1,00,000 Fixed Assets 2,40,000
Karan's Capital 80,000 Profit and Loss A/c 20,000
4,80,000 4,80,000
Kajal retired on 1st April, 2023. For this purpose, the following adjustments were agreed upon:
i. Goodwill of the firm was valued at 2 years' purchase of average profits of three completed years preceding
the date of retirement. The profits for the year: 2020-21 were ₹ 1,00,000 and for 2021-22 were ₹ 1,30,000.
ii. Fixed Assets were to be increased to ₹ 3,00,000.
iii. Stock was to be valued at 120%.
iv. The amount payable to Kajal was transferred to her loan account.
Prepare Revaluation Account, Capital Accounts of the partners and the Balance Sheet of the reconstituted firm.
13. A, B and C were in partnership sharing profits in proportion to their capitals. Their Balance Sheet as at 2023 [6]
March, 31 was as follows:
Liabilities ₹ Assets ₹
Creditors 15,600 Cash 16,000
Reserve 6,000 Debtors 20,000
A's Capital 90,000 Less: Provision for Doubtful Debts (400) 19,600
B's Capital 60,000 Stock 18,000
C's Capital 30,000 Machinery 48,000
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 be appreciated by 10%.
ii. Provision for bad and doubtful debts be increased to 5% on debtors.
iii. Machinery 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 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 P & L A/c.
viii. The partners decide to fix the capital of the new firm as ₹ 1,20,000 in the profit sharing ratio.
ix. B to be paid ₹ 9,000 in cash and the balance to be transferred to his Loan Account.
Prepare the Revaluation Account, Partner’s Capital Accounts and the Balance Sheet of the new firm after B's
retirement.
14. Ravi, Mohan and Pandey were partners in a firm sharing profits and losses in the ratio of 7 : 8 : 9. On 31st [6]
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March, 2022, their Balance Sheet was as follows:
Balance Sheet of Ravi, Mohan and Pandey as at 31st March, 2022
Liabilities Amount ₹ Assets Amount ₹
Creditors 1,41,000 Bank 27,000
Stock 91,000
Debtors 2,10,000
General Reserve 24,000 Less : Provision for
Capitals: doubtful debts 10,000 2,00,000
Ravi 3,00,000 Machinery 3,00,000
Mohan 4,00,000 Land and Building 10,00,000
Pandey 8,43,000 15,43,000 Profit and Loss Account (Loss of 2021 22) 90,000
17,08,000 17,08,000
On 31st March, 2022, Mohan retired from the firm on the following terms:
i. Goodwill of the firm was valued at ₹ 4,80,000.
ii. Mohan's share of goodwill will be credited to his capital account without opening goodwill account.
iii. Debtors of ₹ 10,000 will be written off and a provision of 10% for bad and doubtful debts will be created on
debtors.
iv. Machinery will be depreciated by 10% and land and building will be appreciated by 5%.
v. The balance in Mohan's Capital Account will be transferred to his loan account.
Prepare Revaluation Account and Capital Account on Mohan's retirement, in the books of the firm.
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