AHLCON PUBLIC SCHOOL ACCOUNTANCY CLASS XII ASSIGNMENT FUNDAMENTALS OF PARTNERSHIP

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1 AHLCON PUBLIC SCHOOL ACCOUNTANCY CLASS XII ASSIGNMENT FUNDAMENTALS OF PARTNERSHIP One Mark Questions 1. Why Profit and Loss Appropriation Account is prepared? 2. Do all firms of business organizations prepare the Profit and Loss Appropriation Account? 3. What should we do when appropriations are more than the profits? 4. Where would you record the interest on capital when capitals are fixed? 5. Amit and Sumit are partners in a firm having not partnership deed. Amit and Sumit have contributed Rs.2,00,000 and Rs.4,00,000 respectively as capitals. Sumit wants that profit should be distributed in the ratio of capitals and interest on capital should be 10% p.a. but Amit does not agree to this. State giving reason who is correct in this case. 6. How would you record the interest on drawings when capitals are fixed? 7. Name the method of calculating interest on drawings of the partners if different amounts are withdrawn on different dates. 8. A, B and C are partners sharing profits equally. They have decided that no interest on drawings is to be charged to any partner. But after one year D wants that interest on drawings should be charged to every partner. State how D can do this. Three/Four Marks Questions 1 1. David and John were partners in a firm sharing profits in the ratio of 4 : 1. Their capitals on were : David Rs.2,50,000 and John Rs.50,000. The partnership deed provided that David will get a commission of 10% on the net profit after allowing a salary of Rs.2,500 per month to John. The profit of the firm for the year ended was Rs.1,40,000. Prepare Profit and Loss Appropriation Account. 2. Suresh and Ramesh started business on with capitals of Rs.1,20,000 and Rs.80,000 respectively. During the year, Suresh introduced Rs.20,000 to the firm as additional capital on They withdrew Rs.1,000 per month for the house expenses in lieu of profit. Interest on capital is to be 10% per annum. Calculate the interest payable to Suresh and Rameshfor the year ending Vinod and Kumar started business on 1st April, 2013 with capitals of Rs.5,00,000 and Rs.3,00,000 respectively. On 1st October 2013 they decided that their capitals should be 4,00,000 each. The necessary adjustment in the capitals were made by introducing or withdrawing cash. Interest on capital is allowed at 8% p.a. Calculate the interest on Kumar s Capital on 31st March Find out interest on drawing of Mr. Sharma, if he withdrew Rs.3,000 in the beginning of every month for last six months.. Rate of interest on drawings is 6% p.a. 5. Find out interest on drawing of Mr. Verma, if he withdrew Rs.3,000 at the end of every

2 month for six months ended 31st March Rate of interest on drawings is 6% p.a. 6. Find out interest on drawing of Mr. Mohan, if he withdrew Rs.4,000 in the middle of every month for six months ended 31st March Rate of interest on drawings is 6% p.a. 7. On March 31, 2017 after the close of books of accounts, the capital accounts of X, Y and Z stood at Rs.48,000; 40,000 and Rs 24,000 respectively. The profits for the year Rs.72,000 was distributed equally. Subsequently it was discovered that interest on p.a. had been omitted. The profit sharing ratio was 2:2:1. Pass adjustment entry. 8. Ram and Shyam were partners in a firm sharing profits in the ratio of 3:5. Their fixed capitals were Rs.2,50,000 and Rs.4,50,000 respectively. After the final accounts of the year had been closed, it was found that interest on capital at 10% per annum as provided in the partnership agreement has not been credited to the capital accounts of the partners. Give necessary adjustment entry. 9. W, X, Y and Z are partners sharing profits and losses in the ratio of 4:3:3:2. Their fixed capitals on were Rs.30,000; Rs.45,000; 60,000 and 45,000 respectively. After preparing the final accounts for the year ended it was discovered that interest on p.a. was not allowed and interest on drawings amounting to Rs.1,000; 1,250; 750 and 500 respectively was not charged. Give necessary adjustment entry. 10. Vinod, Bitu and Chetan were partners in a firm. On their capitals were Rs.1,00,000; Rs.50,000 and Rs.50,000 respectively. As per the provisions of the partnership deed: (i) Chetan was entitled for a salary of Rs.10,000 p.a. (ii) Partners were entitled to interest on capital at 5% p.a. (iii) Profits were to be shared in the ratio of partner s capital. The net profit for the year of Rs.66,000 was divided equally without providing for the above terms. Give adjustment entry. 11. X and Y are sharing profits in the ratio of 3:2. Z was admitted for 1/6th share of profit with a minimum guaranteed amount of Rs.20,000. The firm earned a profit at the end of first financial year Rs.1,08,000. Find out the share of profit which X, Y and Z will get. 12. A, B and C were partners in a firm sharing profits in 2:3:5 ratio. A was guaranteed a minimum profit of Rs.1,00,000. Any deficiency on this account was to be borne by C. the net profit of the firm for the year ended was Rs.4,50,000. Prepare Profit and Loss Appropriation Account. 13. A, B and C are partners sharing profits in the ratio of 5:4:1. C is given a guarantee that his share of profits in any given year would be Rs.5,000. Deficiency, if any, would be borne by A and B equally. The profits for the year 2013 amounted to Rs.40,000. Pass necessary journal entries. Six Marks Questions 2 1. Ahmad, Bheem and Daniel are partners in a firm. On 1st April 2011 the balance in their capital accounts stood at Rs.8,00,000, Rs.6,00,000 and Rs.4,00,000 respectively. They shared

3 profits in the proportion of 5 : 3 : 2 respectively. Partners are entitled to interest on p.a. and salary to Rs.3,000 per month and a commission of Rs.12,000 to Daniel as per the provisions of the partnership deed. 2. Singh and Gupta decided to start a partnership firm to manufacture low cost jute bags as plastic bags were creating many environmental problems. They contributed capitals of Rs. 1, 00,000 and Rs. 50,000 on 1st April, 2012 for this. Singh expressed his willingness to admit Shakti as a partner without capital, who is specially abled but a very creative and intelligent friend of his. Gupta agreed to this. The terms of partnership were as follows : (i) Singh, Gupta and Shakti will share profits in the ratio of 2 : 2 : 1. (ii) Interest on capital will be 6% p.a. Due to shortage of capital, Singh contributed Rs. 25,000 on 30th September, 2012 and Gupta contributed Rs. 10,000 on 1st January, 2013 as additional capital. The profit of the firm for the year ended 31st March, 2013 was Rs. 1,68,900. (a) Identify any two values which the firm wants to communicate to the society. (b) Prepare Profit and Loss Appropriation Account for the year ending 31st March, Seema, Tanuja and Tripti were partners in a firm trading in garments. They were sharing profits in the ratio of 5 : 3 : 2. Their capitals on 1st April, 2012 were Rs. 3,00,000, Rs. 4,00,000 and Rs. 8,00,000 respectively. After the flood in Uttarakhand, all partners decided to help the flood victims personally. For this Seema withdrew Rs. 20,000 from the firm on 15th September, Tanuja instead of withdrawing cash from the firm took garments amounting to Rs. 24,000 on 1 st October from the firm and distributed those to the flood victims. On the other hand, Tripti withdrew Rs. 2,00,000 from her capital on 1st January, 2013 and provided a mobile medical van in the flood affected area. The partnership deed provides for charging interest on 6% p.a. After the final accounts were prepared it was discovered that interest on drawings had not been charged. Give the necessary adjusting journal entry and show the working notes clearly. Also state any two values which the partners wanted to communicate to the society. 3

4 AHLCON PUBLIC SCHOOL ACCOUNTANCY CLASS XII ASSIGNMENT GOODWILL: NATURE AND VALUATION One Mark Question 4 1. Define Goodwill. 2. List any four factors affecting goodwill. 3. How does the factor Quality of Products affect the goodwill of a firm? 4. How does the market situation affect the value of goodwill of a firm? 5. How does the nature of business affect the value of goodwill of a firm? 6. Describe the need for valuation of goodwill. 7. What is meant by Super Profit Method? 8. What are the four steps involved in calculating goodwill through Super Profit? 9. If the amount of super profit is negative, what does it indicate? 10. What do you mean by number of years purchase? Three/ Four Marks Questions 1. Compute the value of goodwill on the basis of four years purchases of the average profits based on the last five years ,000 ;2011- (40,000) Loss, ,000 ; ,000 ; , The following were the profit of a business firm: 2012 Rs.60,000 (including an abnormal gain Rs.25,000) 2013 Rs.1,20,000 (after charging an abnormal loss Rs.40,000) 2014 Rs.1,26,000 (excluding Rs.6,000 as insurance premium of property now to be insured) Calculate firm s goodwill at two year s purchase of the average profit of the last three years. 3. The books of a business firm showed that the capital employed on 31 December 2013 was Rs.20,00,000 and the profits for the last five years were: 2010 Rs.2,40, Rs.2,80, Rs.2,70, Rs.2,50, Rs.3,10, You are required to find out the value of goodwill based on 3 years purchase of the super profits of the business. Given that the normal rate of return is 10%. A and B are partners in a firm sharing profits in the ratio of 2 : 1. Their capitals are Rs.2,00,000 and Rs.1,50,000. Normal rate or return on the capital employed is 10%. Both partners will get annual salary of Rs.25,000 each. Profits of firm are : Year Profit/Loss , , ,20, 000

5 Calculate the value of goodwill on the basis of 2 years purchase of super profits. 5. A Business earned average profits of Rs.5,00,000 during the last few years and the normal rate of return in similar business is 10%. Find out the value of Goodwill by (i) Capitalization of Super Profit method and (ii) Super Profit method, if the goodwill is valued at 3 years purchase of super profit. The assets of the business were Rs.50,00,000 and its external liabilities Rs.9,00, Vinod and Kumar are partners in a firm. Their capitals were: Vinod Rs.6,00,000 and Kumar Rs.4,00,000. During the year 2014 the firm earned a profit of Rs.3,00,000. Calculate the value of goodwill of the firm assuming that the normal rate of return is 20%. 7. A Business has earned average profits of Rs.2,00,000 during the last few years and the normal rate of return in a similar type of business is 10%. Ascertain the value of Goodwill by Capitalisation method. Given that the value of Net Assets of the firm is Rs.16,40, Larson, William and Harry are partners in a firm with the capitals of Rs.1,87,500, Rs.1,50,000, Rs.1,12,500. Average profit of the business for last few years is Rs.72,000. Normal rate of return in a similar business is 10%. Calculate the value of goodwill by capitalization of super profit. 5

6 AHLCON PUBLIC SCHOOL ACCOUNTANCY CLASS XII ASSIGNMENT CHANGE IN PROFIT SHARING RATIO One Mark Questions 1. What is meant by Reconstitution of a Firm? 2. What is meant by Change in Profit Sharing Ratio? 3. Why are Reserves and Surplus distributed at the time of reconstitution of the firm? [1] 4. Why is it necessary to revalue the assets and liabilities of a firm on its reconstitution? Explain briefly. 5. Ram, Shyam and Mohan were partners sharing profits in the equal ratio. They have decided to share the profits in the ratio of 5 : 3 : 2 with retrospective effect. Calculate the sacrificing or Gain of the partners. 6. Mahesh, Verma and Mukesh were partner s sharing profits in the ratio of 4 : 3 : 2. The partners decided to share profits and losses in the ratio of 2 : 2 : 1. Calculate each partner s Gain or Sacrifice due to change in ratio. 7. What are accumulated profits? 8. What are accumulated losses? 9. What is sacrificing ratio? 10. What is the nature of Revaluation Account? Three/ Four Marks Questions 1. Ram, Shyam and Sundar are partners in a firm sharing profits and losses in the ratio of 3:2:1. In future they decided to share profits in the ratio of 6:5:2. For this purpose, the goodwill of the firm was valued at Rs.78,000. Pass necessary journal entry for the treatment of goodwill due to change in profit sharing ratio. 2. P, Q and R are partners sharing profits in the ratio of 4/9 : 1/3 : 2/9. They have decided to share profits in the ratio of 1 : 1 : 1. Goodwill of the firm is valued at Rs.10,800. Give Journal entries to record the above arrangement. 3. A, B and C are partners sharing profits and losses in the ratio of 3 : 1 : 1. On 1st January 2014, they decided to share profits in equal ratio. The goodwill of the firm is valued at Rs.45,000. Give necessary journal entry due to the change in profit sharing ratio. 4. Akshita, Bakshi and Chanda were partners in a firm sharing profits in 3 : 2 : 1 ratio. They decided to share the future profits in 5 : 3 : 2 ratio. For this purpose the goodwill of the firm was valued at Rs.60,000. Pass an adjustment entry for the treatment of goodwill due to change in profit sharing. 6

7 5. Sumit,Bunty and Chandra are partners in a firm sharing profits in the ratio of 3:3:2. They decided to share profits equally w.e.f. April 1, On that date, the profit and loss account showed the credit balance of Rs.24,000. Instead of closing the Profit and Loss Account, it was decided to record an adjustment entry reflecting the change in the profit sharing ratio. Record necessary journal entry to effect to the same. 6. Vinod, Sunita and Simran are partners in a firm sharing profits in the ratio of 3:2:1. They decided to share profits equally w.e.f April 1, On that date the profit and loss account showed the credit balance of Rs.60,000 and a balance of Rs.30,000 in general reserve. Instead of closing profit and loss account, it was decided to record an adjustment entry reflecting the change in the profit sharing ratio. Give necessary journal entry to give effect to the same. 7. Krishan and Kumar are partners in a firm sharing profits in the ratio of 3:2. They decided to share future profits equally. On the date of change in profit sharing ratio the profit and loss account showed a debit balance of Rs.20,000. Give necessary entry to give affect to the same. 8. Elephant, Fish and Giraffe are partners sharing profits in the ratio of 7:6:5. Their fixed capitals are Rs.1,40,000; Rs.80,000 and Rs.1,60,000 respectively. It is now decided that the total capital of the firm should be Rs.7,20,000 and should be in the profit sharing ratio of the partners. Calculate the amount of capital to be contributed by the individual partners and record necessary journal entry for the same. Six Marks Questions 1. X and Y are partners in a firm sharing profits in the ratio of 2:3. The Balance Sheet of the [6] firm as on is given below : Liabilities Amount Assets Amount Capital Accounts : Land 5,00,000 X 8,00,000 Buildings 6,00,000 Y 12,00,000 20,00,000 Plant 8,00,000 Creditors 3, 10,000 Furniture 1, 20,000 Expenses outstanding 70,000 Stock 1, 80,000 Debtors 1, 50,000 Cash 30,000 23, 80,000 23, 80,000 7

8 The partners decided to share profits in equal ratio with effect from The following adjustments were agreed upon: (a) The goodwill of the firm was valued at Rs.4, 00,000 but it was not to appear in books. (b) Land was valued at 8,00,000, Plant at 7,20,000 and furniture at 1,00,000 and were to appear at revalued amounts in the Balance Sheet. Pass necessary journal entries to give effect to the above. 8

9 AHLCON PUBLIC SCHOOL ACCOUNTANCY CLASS XII ASSIGNMENT ADMISSION OF A PARTNER One Mark Questions 1. State any two rights acquired by a newly admitted partner. 2. What is the main purpose of admitting a new partner in a firm? 3. Distinguish between sacrificing ratio and gaining ratio. 4. Vinod and Kumar are partners sharing profits in the ratio of 3:2. They admitted Mohan as a new partner for 1/5th share in the future profit. Calculate new profit sharing ratio of the partners. 5. What do you mean by Hidden Goodwill? 6. What compensation is paid by a new partner to the sacrificing partners for sacrificing their share in his favour? Three/Four Marks Questions 1. A and B were partners in a firm sharing profits in the ratio of 3:2. They admitted Z and M as new partners. The new profit sharing ratio will be 2:2:1:1. Z and M brought in Rs.11,00,000 each for their respective capitals and also necessary amount of premium for goodwill in cash. Goodwill was valued at Rs.9,60,000 for the firm. Calculate the sacrificing ratio of X and Y and pass necessary journal entries for the above transactions in the books of the firm. 2. (a) Ashu and Bindu are partners in a firm sharing profits in the ratio of 3 : 2. Chameli is admitted as a partner. Ashu and Bindu surrender 1/2 of their respective shares in favour of Chameli. Find the new profit sharing ratio and also the sacrificing ratio. (b) Chameli is to bring his share of premium for goodwill in cash. The goodwill of the firm is estimated at Rs.80,000. Pass necessary entries for the record of goodwill in the above case. 3. AK and BK are partners in a firm sharing profits in the ratio of 5 : 3. They admit CK into the partnership for 3/10th share in profits, which he takes 1/10th from AK and 1/10th from BK. CK brings in Rs.15,000 as premium in cash out of his share of Rs.39,000. Goodwill account does not appear in the books of AK and BK. Give necessary journal entries. 4. X and Y are partners in a firm sharing profits in 3:2 ratio. They admitted Z as a new partner and the new profit sharing ratio will be 2:1:1. Z brought Rs.20,000 for her share of goodwill. Goodwill already appeared in the books at Rs.10,000. Give necessary journal entries. 9

10 10 5. Vinod and David are partners in a firm sharing profits in the ratio of 3:2. On January 1, 2014 they admit Kumar as a new partner for 1/6th share in the future profits. Kumar brought Rs.1,00,000 for his capital but could not bring any amount for goodwill. The firm s goodwill on Kumar s admission was valued at Rs.75, 000. Give necessary journal entries. 6. VK and KK are partners in a firm sharing profits in the ratio of 2:3. On January 1, 2014 they admit PK as a new partner for 1/4th share in the profits. PK brought Rs.80,000 as capital and Rs.18,000 for his 1/4th share in profits. The new profit sharing ratio of VK, KK and PK will be 3:3:2. VK and KK decided to withdraw the premium paid by PK. Record necessary journal entries. 7. EK and FK were partners in a firm sharing profits in the ratio of 3 : 1. They admitted GK as a new partner on for 1/3rd share. It was decided that EK, FK and GK will share future profits equally. GK brought Rs.50,000 in cash and Machinery worth Rs.70,000 for his share of profit as premium for goodwill. Showing your working clearly, give necessary entries. 8. X and Y are partners sharing profits in the ratio of 4:3. They admit Z as a new partner. The profit sharing ratio of X, Y and Z will be 2:3:1. Calculate the gain or sacrifice of old partners. 9. A, B, C and D are in partnership sharing profits and losses in the ratio of 36:24:20: Respectively. E joins the partnership for 20% share. A, B, C and D would share profits in future in 3/10; 4/10; 2/10; 1/10. Calculate the new profit sharing ratio after E s admission. 11. X and Y divide profits and losses in the ratio of 3:2. Z is admitted in the firm as new partner with 1/6th share, which he acquires, from X and Y in the ratio of 1:1. Calculate new profit sharing ratio of all partners. Six/Eight Marks Questions 1. P and S are partners in a firm sharing profits in the ratio of 3:2. Their Balance Sheet on 31 st March 2013 was as follows: Liabilities Rs Assets Rs Bank overdraft Creditors Provision for bad debts General Reserve V s Loan P s capital S s capital 20,000 30,000 1,000 15,000 20,000 1,00,000 1,80,000 Cash Debtors Bills Receivable Stock Building Land 8,000 30,000 40,000 50,000 90,000 1,48,000 3,66,000 3,66,000 V is admitted into the partnership giving her 1/8 th share in profits subject to the following terms:

11 (i) V s Loan will be converted into his capital. (ii) The Goodwill of the firm was valued at Rs.80,000 and V brought his share of goodwill premium in cash. (iii) Provision for bad debts was to be made equal to 5% of the debtors. (iv) Stock was to be depreciated by 5%. (v) Land was to be appreciated by 10%. Prepare Revaluation A/c, Partners Capital A/cs and the balance sheet of new firm. 2. Ram and Shyam are partners in a firm sharing profits in the ratio of 3:1. Their Balance Sheet on 31 st March 2013 was as follows: Liabilities Rs Assets Rs Creditors Workmen s Compensation Fund General reserve Ram s capital Shyam s capital 2,800 1,200 2,000 6,000 4,000 Cash Debtors 48,000 Less : Provision 4,800 Stock Investments 2,000 6,000 3,000 5,000 16,000 16,000 Mohan is admitted into the partnership giving her 1/5 th share in profits subject to the following terms: a. Mohan shall bring in Rs.6, 000 as his share of premium. b. That unaccounted accrued income of Rs.100 is provided for. c. The Market Value of Investment was Rs.4, 500. d. A debtor whose dues of Rs.500 were written off as bad debts paid Rs.400 in full settlement. e. A claim of Rs.200 on account of workmen s compensation to be provided for. Mohan to bring to Rs.5, 000 as his share of capital. Prepare Revaluation A/c, Partners Capital A/c and the balance sheet of new firm. 3. Krishna and Suresh are partners in a firm sharing profits in the ratio of 3: 2. Their [6] balance sheet was as follows on : Liabilities Amount Assets Amount General Reserve Sundry Creditors Capitals : Krishna 30,000 Suresh 20,000 5,000 15,000 50,000 Plant & Machinery Patents Furniture Stock Debtors Cash 30,000 5,000 3,000 16,000 15,000 1,000 70,000 70,000 On that date Mohan is admitted as a partner for 1/5 th share on the following terms: (a) He is to contribute Rs.14,000 as his share of capital which includes his share of premium for goodwill. 11

12 (b) Goodwill is valued at 2 years purchase of the average profits of the last 4 years, which were Rs.10,000; Rs.9,000; Rs.8,000 and Rs.13,000 respectively. (c) Plant & Machinery to be written down to Rs.25,000 and patents written up by Rs.8,000. Prepare Revaluation A/c, Partners Capital A/cs and Balance Sheet of new firm. 4. A and B are partners in a firm sharing profits in the ratio of 2:1. Their Balance Sheet on (6) 31 st March 2013 was as follows: Liabilities Rs Assets Rs Bills Payable Sundry creditors Outstanding expenses A s capital B s capital 10,000 58,000 2,000 1,80,000 1,50,000 Cash in Hand Cash at Bank Sundry Debtors Stock in Hand Plant and Machinery Building 10,000 40,000 60,000 40,000 1,00,000 1,50,000 4,00,000 4,00,000 C is admitted into the partnership giving her 1/4 th share in profits subject to the following terms: a. C will bring in Rs.1, 00,000 as his capital and Rs.60,000 as his share of goodwill for 1/4 th share in profits. b. Plant is to be appreciated to Rs.1, 20,000 and the value of buildings is to be appreciated by 10%. c. Stock is found overvalued by Rs.4, 000. d. A Provision for bad and doubtful debts is to be created at 5% of debtors. e. Creditors were unrecorded to the extent of 10,000. Prepare necessary ledgers, Balance Sheet and Journal entries. 5. Ram and Shyam were partners in a firm sharing profits in the ratio of 3: 2. On [6] Their Balance Sheet was as follows: Liabilities Amount Assets Amount Sundry Creditors Workmen Compensation fund General Reserve Capitals : Ram 10,000 Shyam 10,000 10,000 5,000 15,000 20,000 Plant and Machinery Land and Building Debtors 12,000 Less: Provision 1,000 Stock Cash 10,000 8,000 11,000 12,000 9,000 50,000 50,000 On the above date Mohan was admitted as a new partner in the firm on the following terms: (i) Provision of doubtful debts would be increased by Rs.2, 000. (ii) The value of land and building would be increased to Rs.18,

13 (iii) The value of stock would be increased by Rs.4, 000. (iv) The liability against Workmen s Compensation Fund is determined at Rs.2, 000. (v) Mohan brought in as his share of goodwill Rs.10, 000 in cash. (vi) Mohan would bring further cash as would make his capital equal to 20% of the total capital of new firm after the above revaluation and adjustments are carried out. Prepare Revaluation A/c, Partners Capital A/cs and Balance Sheet of new firm. 6. A and B are partners in a firm sharing profits in the ratio of 3: 2. Their balance sheet was as follows on : Liabilities Amount Assets Amount General Reserve Sundry Creditors Capitals : A 60,000 B 50,000 10,000 50,000 1,10,000 Goodwill Plant & Machinery Furniture Investments Stock Debtors Cash 5,000 65,000 15,000 20,000 20,000 30,000 15,000 1,70,000 1,70,000 On that date C is admitted as a partner on the following terms: (a) C is to bring capital Rs.40, 000 and Goodwill Rs.15, 000. (b) Partners agreed to share the future profits in the ratio of 5:3:2. (c) Investments will be appreciated by 20% and furniture depreciated by 10%. (d) One customer who owed the firm Rs.2, 000 becomes insolvent and nothing could be realized from him. (e) Creditors will be written back by Rs.2, 000. (f) Outstanding bills for repairs Rs.1, 000 will be provided for. (g) Interest accrued on investments Rs.2, 000. (h) Capital of the partners shall be proportion to their profit sharing ratio. For this Adjustments to be made through cash. Prepare Revaluation A/c, Partners Capital A/cs and Balance Sheet of new firm. 7. A and B are partners in a firm sharing profits in the ratio of 3:1. Their Balance Sheet on [6] 31 st March 2013 was as follows: Liabilities Rs Assets Rs Creditors General reserve A s capital B s capital 70,000 10,000 50,000 80,000 Land and Building Plant and Machinery Investments Stock Debtors 35,000 40,000 70,000 26,000 30,000 13

14 Less : Provision 1,000 Cash 34,000 10,000 2,10,000 2,10,000 C is admitted into the partnership giving her 1/4 th share in profits. C to bring Rs.60, 000 as her capital, subject to following terms: (i) Goodwill of the firm to be valued at Rs.24,000 (ii) Land and Building were valued at Rs.65,000 and Plant and Machinery at Rs.60,000 (iii) Provision for bad and doubtful debts was found in excess by Rs.400 (iv) A Liability of Rs.1, 200 included in sundry creditors was not likely to arise. (v) The Capitals of the partners be adjusted on the basis of C s contribution of capital. (vi) Excess of shortfall, if any to be transferred to Current Accounts. Prepare Revaluation A/c, Partners Capital A/cs and the balance sheet of new firm. 14

15 AHLCON PUBLIC SCHOOL ACCOUNTANCY CLASS XII ASSIGNMENT RETIREMENT AND DEATH OF A PARTNER One Mark Questions 1. How a partner can be retired from the firm? [1] 2. What is the affect of the retirement of a partner? [1 3. X, Y and Z are partners. X retires and goodwill of the firm is valued at Rs.90,000. Pass Journal entry for the treatment of goodwill on X s Treatment. 4. MK, NK and KK who are partners in a firm sharing profits in the ratio of 3:2:1. Goodwill has been valued at Rs.1,50,000. On NK s retirement MK and KK agree to share profits equally. Pass necessary journal entry for treatment of NK s sharing of goodwill. 5. Distinguish between Sacrificing ratio and Gaining ratio. Three/ Four Marks Questions 1. VK, NK and KK are partners sharing profits in the ratio of 5:3:2. KK retires and the new profit sharing ratio between VK and NK is 5:3. Calculate gain ratio. 2. White, Black and Red were partners sharing profits in the ratio of 5:3:2. Black retires on with White and Red agreeing to share the profits in future in the ratio of 6:4. Find the gain ratio. 3. X, Y and Z were partners in a firm sharing profits in the ratio of 4:3:2. Y retired. His share was taken over equally by X and Z. In which ratio will the profit or loss on revaluation of assets and liabilities on the retirement of Y be transferred to the capital accounts of the partners? 4. Anil, Bobby and Chetan are partners sharing profits in the ratio of 3:2:1. Bobby retires and the new profit sharing ratio between Anil and Chetan is 3:1. Find out gain ratio of Anil and Chetan. 5. MK, NK and KK who are partners in a firm sharing profits in the ratio of 3:2:1. Goodwill has been valued at Rs.1,50,000. On NK s retirement MK and KK agree to share profits equally. Pass necessary journal entry for treatment of NK s sharing of goodwill. 6. A, B and C are partners sharing profits in the ratio of 2:2:1. On July 1, 2013, Goodwill of the firm was valued at Rs.45,000. Goodwill does not appear in books. On this date A retires. Pass Journal entry regarding goodwill. 7. X, Y and Z were partners in the ratio of 3:2:1. Y retired and the new profit sharing ratio between X and Z was 2:1. On Y s retirement, the goodwill of the firm was valued 15

16 at Rs.1,80,000. Pass necessary journal entry for the treatment of goodwill on Y s retirement. 8. Ravi, Mukesh, Naresh and Yogesh are partners in a firm sharing profits in the ratio of 2:2:1:1. On Mukesh s retirement, the goodwill of the firm is valued at Rs.45,000. Ravi, Naresh and Yogesh decided to share future profits equally. Pass the necessary journal entry for the treatment of goodwill. 9. A, B and C are partners sharing profits in the ratio of 4:3:2. B retires and the goodwill of the firm is valued at Rs.18,000. Pass journal entry for the treatment of goodwill on B s retirement. Six/Eight Marks Questions 1. Vijay, Vinay and Vivek were partners in a firm sharing profits in 5 : 3: 2 ratio. On Vivek retired from the firm. On the date of Vivek s retirement the Balance Sheet was as under: Liabilities Amount Assets Amount Creditors Bills Payable Outstanding Rent Provision for Legal Claims Capitals : Vijay 2,54,000 Vinay 1,80,000 Vivek 1,42,000 54,000 26,000 45,000 1,15,000 5,76,000 On Vivek s retirement it was agreed that: Bank Debtors 40,000 Less: Provision 800 Stock Furniture Land and Building 1,60,000 39,000 42,000 1,75,000 4,00,000 8,16,000 8,16,000 (a) Land and Building will be appreciated by 5% and Furniture will be appreciated by 20%. (b) Provision for bad debts was to be made at 5% on debtors and provision for legal damages to be made for Rs.60, 000. (c) Goodwill of the firm was valued at Rs.60, 000. (d) Rs.70, 000 from Vivek s Capital Account will be transferred to his loan account and the balance will be paid by cheque. Prepare Revaluation A/c, Partners Capital A/c and Balance Sheet. 2. X, Y and Z were partners in a firm sharing profits and losses in the ratio of [6] 2:2:1. On their Balance Sheet was as follows: Liabilities Amount Assets Amount 16

17 Bills Payable Creditors Profit and Loss Capitals : X 40,000 Y 40,000 Z 32,500 49,000 51,000 37,500 1,12,500 Cash Bills Receivables Debtors Stock Furniture Plant and Machinery Building 15,000 4,500 10,500 20,000 40,000 60,000 1,00,000 2,50,000 2,50,000 On X retired from the business. On X s retirement, the assets and liabilities were revalued as follows: (i) Stock was depreciated by 10%. Furniture was depreciated by 20% and Plant and Machinery by 5%. Building was appreciated by 20%. (ii) The goodwill of the firm was valued at Rs.30, 000. X was to be paid Rs.9, 800 in cash on retirement, and the balance in three equal installments. Prepare Revaluation Account, Partners Capital Accounts, X s Loan Account and Balance Sheet as on PP, QQ and RR were partners in a firm sharing profits in the ratio of 2:3:5. On their Balance Sheet was as follows: Liabilities Amount Assets Amount Creditors Capitals : PP 40,000 QQ 35,000 RR 30,000 35,000 1,05,000 Bank Debtors 20,000 Less: Provision 2,500 Stock Building Profit and Loss A/c 22,500 17,500 25,000 70,000 5,000 1,40,000 1,40,000 On the above date RR retired from the firm due to his illness on the following terms: (i) Building was to be depreciated by Rs.20,000 (ii) Provision for doubtful debts was to be maintained at 20% on debtors (iii) Salary outstanding Rs.2, 500 was to be recorded and creditors Rs.2, 000 will not be claimed. (iv) Goodwill of the firm was valued at Rs.36, 000. (v) RR was to be paid Rs.7, 500 in cash, through bank and the balance was to be transferred to his loan account. Prepare Revaluation Account, Partners capital account and Balance Sheet. (6) 17

18 4. Vinod, Mohan and Raj were partners in a firm sharing profits in the ratio of 1/2; 1/3; 1/6 respectively. The Balance Sheet of the firm on 31 st December 2013 stood as follows: Liabilities Amount Assets Amount Creditors Bills Payable Reserve Fund Capitals : Vinod 40,000 Mohan 30,000 Raj 25,000 19,000 5,000 12,000 95,000 Cash at Bank Debtors 16,000 Less: Provision 500 Stock Motor Vans Machinery Building 2,500 15,500 25,000 8,000 35,000 45,000 1,31,000 1,31,000 Mohan retired from the firm on the above date subject to the following conditions: (i) Goodwill of the firm be valued at Rs.18,000 and is not to be shown in the books of the firm. (ii) Machinery would be depreciated by 10% and Motor Vans by 15%. (iii) Stock would be appreciated by 20% and Building by 10%. (iv) The provision for doubtful debts would be increased by 1,950. (v) Liability for workmen s compensation to the extent of 1,650 would be created. It was agreed that Vinod and Raj would share profits in future in the ratio of 3:2. Prepare Revaluation Account, Partners capital account and Balance Sheet. 5. AK, KK and VK were partners in a firm sharing profits and losses in the ratio of their capitals. On their Balance Sheet was as follows: Liabilities Amount Assets Amount Creditors Workmen Compensation fund General Reserve Capitals : AK 50,000 KK 75,000 VK 50,000 12,500 3,750 8,750 1,75,000 Land and Building Machinery Closing Stock Sundry Debtors 27,500 Less : Provision 2,500 Cash at Bank 50,000 75,000 25,000 25,000 2,00,000 2,00,000 On AK retired from the business. On AK s retirement, the assets and liabilities were revalued as follows: 18

19 (i) Land and Building to be appreciated by 30% (ii) Machinery be appreciated by 20% (iii) (iv) (v) (vi) There were bad debts of Rs.4,250 The claim on account of workmen compensation was estimated at Rs.2,000 Goodwill of the firm was valued at Rs.35,000 and AK s share of Goodwill be adjusted against the Capital Accounts of the continuing partners KK and VK who have decided to share future profits in the ratio of 4:3 respectively. Capital of the new firm in total will be the same as before the retirement of AK and will be in the new profit sharing ratio of the continuing partners. (vii) Amount due to AK be settled by paying Rs.12,500 in cash and the balance by transferring to her loan account which will be paid latter on. Prepare Revaluation Account, Partners capital account and Balance Sheet. 6. LK, MK and NK were parnters in a firm sharing profits in the ratio of 50% :30% and 20% respectively. On thier Balance Sheet was as follows: Liabilities Amount Assets Amount Creditors Profit and Loss A/c Investment Fluctuation Fund General Reserve Capitals : LK 1,00,000 MK 80,000 NK 40,000 42,000 30,00020,00050,000 2,20,000 Premises Motor Vans Investment Plant Stock Debtors 80,000 (-) Provision 6,000 Cash 1,24,000 40,000 38,000 24,000 30,000 74,000 32,000 3,62,000 3,62,000 On the above date MK retired from the firm due to his illness on the following terms: (i) Firm s goodwill was valued at Rs.1, 02,000 and it was decided to adjust MK s Goodwill into capital accounts of continuing partners. 19

20 (ii) There is a claim for workmen s compensation to the extent of Rs.8, 000. Investments are brought down to Rs.30, 000. (iii) Provision for bad debts is to be reduced by Rs.2, 000. (iv) MK will be paid Rs.16,400 in cash and balance will be transferred to his Loan account which will be paid in 3 equal installments together with p.a. (v) LK s and NK s Capital will be adjusted in their new profit sharing ratio i.e. 3:2 through cash account. Prepare Revaluation Account, Partners capital account and Balance Sheet. 7. FK, GK and HK were partners in a firm sharing profits in the ratio of 5; 3; 2 [6] respectively. The Balance Sheet of the firm on 31 st March 2013 stood as follows: Liabilities Amount Assets Amount Creditors Bills Payable Profit and Loss A/c Capitals : FK 1,30,000 GK 1,00,000 HK 80,000 44,000 16,000 30,000 3,10,000 Fixed Assets Stock Debtors Cash 2,00,000 90,000 90,000 20,000 4,00,000 4,00,000 FK retired from the firm on the above date subject to the following conditions: 1. Goodwill of the firm be valued at Rs.50, Fixed Assets were valued at Rs.2,50, Stock was considered worth Rs.80, FK is to be paid in cash brought in by GK and HK in such a way so as to make their capitals proportionate to their new profit sharing ratio, which is 3:2 respectively. Minimum cash balance is to be maintained at Rs.14,000. Prepare Revaluation Account, Partners capital account and Balance Sheet. Pass necessary journal entries. 20

21 AHLCON PUBLIC SCHOOL ACCOUNTANCY CLASS XII ASSIGNMENT DEATH OF A PARTNER One Mark Questions 1. What is meant by death of a partner? 2. How will you calculate profits of deceased partner? 3. Distinguish between Death of a Partner and Retirement of a partner. 4. Give journal entry of transferring amount to executor s account. Three/ Four Marks Questions 1. H, O and N were partners in a firm sharing profits in the ratio of 7:2:1. On 25 December 2013, H died and the new profit sharing ratio between O and N was equal. On H s death, the goodwill of the firm was valued at Rs.48, 000. Calculate the gaining ratio and pass the necessary journal entry on H s death for the treatment of goodwill. 2. X, Y and Z were partners in a firm sharing profits in the ratio of 3:2:1. The firm closes its books on 31st March every year. Y died on 12 June On Y s death the goodwill of the firm was valued at Rs.1,20,000. On his death his share in the profits of the firm till the time of his death was to be calculated on the basis of previous year s profit which was Rs.3,00,000. Calculate Y s share in the profit of the firm. Pass necessary journal entries for the treatment of goodwill and Y s share of profit at the time of his death. 3. David and John were partners in a firm sharing profits in 4:1 ratio. David died three months after the date of the last balance sheet. According to the partnership deed, legal representative of deceased partner were entitled to the following payment: (i) His capital Rs.3, 00,000 as per the last balance sheet. (ii) Interest on per annum up to the date of death. (iii) His share of profits to the date of death calculated on the basis of the average profits of last three years. The net profits of the last three years were Rs.2,00,000; Rs.3,00,000 and Rs.4,00,000. Prepare David s Capital Account to be rendered to his representative and the executor s account. 4. P, Q and R were partners in a firm sharing profits in 2 : 2: 1 ratio. The firm closes its books on 31st March every year. P died three months after the last accounts were prepared. On that date the goodwill of the firm was valued at Rs.90, 000. On the death of a partner his share of profit in the year of death was to be calculated on the basis of the average profits of the last four years. The profits of last four years were : Rs.2, 00,000; Rs.1,80,000; Rs.2,10,000; (Loss Rs.1,70,000) Pass necessary journal entries for the treatment of goodwill and P s share of profit on the death. Show clearly the calculations of P s share of profit. 21

22 Six Marks Questions 1. X, Y and Z were partners in a firm sharing profits in the ratio of 3:2:1. The firm closes its accounts on 31st March every year. X died on On that date credit balance in his capital account was Rs.60, 000. The firm had General Reserve of Rs.32,000 on that date. The partnership deed provided that on the death of a partner: (i) Interest on capital at the rate of 10% per annum shall be allowed. (ii) Goodwill will be calculated on the basis of 3 years purchase of the four years average profits which were follows: 31st March 2003, 2002, 2001 and 2000 were Rs.28,000, Rs.32,000; Rs.40,000 and Rs.20,000 respectively. (iii) The deceased partner s share of profit upto the date of death will be calculated on the basis of last year s profit. Prepare X s Capital A/c to be shown to his executors. 2. Priya, Riya and Siya are partners sharing profits in the ratio of 4:3:1 respectively. It is provided in the partnership deed that on the death of any partner, her share of goodwill was to be valued at half of the profits credited to her account during the four previous completed years. Riya died on 1st January The firm s profits for the last four years were: 2008 Rs.1,20,000, 2009 Rs.80,000, 2010 Rs.40,000 and 2011 Rs.80,000. Determine the amount that should be credited to Riya in respect of her share of goodwill. On the date of Riya s death, one of the old debtor whose account was closed last year by transferring his debt amounting to Rs.8,000 to bad debts account, has now promised to pay the amount fully. Pass the necessary Journal entries for the above mentioned transactions at the time of Riya s death. 3. MP, NP and OP were partners in a firm sharing profits and losses equally. On their Balance Sheet was as follows: Liabilities Amount Assets Amount Creditors General Reserve Capitals : MP 2,80,000 NP 2,80,000 OP 2,80,000 80,000 1,20,000 8,40,000 Plant and Machinery Stock Sundry Debtors Cash at Bank Cash in hand 2,40,000 1,20,000 3,80,000 1,60,000 1,40,000 10,40,000 10,40,000 NP died on 14 th March According to the Partnership Deed, executors of the deceased partner are entitled to: Balance of partner s capital account. 22

23 Interest on p.a. Share of goodwill calculated on the basis of twice the average of past three year s profits and Share of profits from the closure of the last accounting year till the date of death on the basis of twice the average of three completed year s profits before death. Profits for 2007, 2008 and 2009 were Rs.3, 20,000; Rs.3, 60,000 and Rs.4, 00,000 respectively. Show the working for deceased partner s share of goodwill and profits till the date of his death. Prepare NP s Capital Account to be rendered to his executor. 4. PS, QS and RS were partners in a firm sharing profits in the ratio of their capitals. On their Balance Sheet was as follows: Liabilities Amount Assets Amount Creditors General Reserve Capitals : PS 96,000 QS 48,000 RS 48,000 18,400 21,600 1,92,000 Land & Building Plant & Machinery Stock Sundry Debtors Cash at Bank Cash in hand 93,600 52,000 18,800 26,000 22,400 19,200 2,32,000 2,32,000 QS died on 30 June Under the terms of partnership, the executors of deceased partners were entitled to: 1. Amount standing to the credit of the partner s Capital Account. 2. Interest on 12% p.a. 3. Share of goodwill on the basis of three years purchase of last three years average profits. 4. Share of profit from the closing of last financial year to the date of death on the basis of the last year s profit. Profit for the years ending on 31 st March 2004, 2005 and 2006 were Rs.44,000; Rs.52,000 and Rs.24,000 respectively. Showing the full working of your calculations, pass necessary journal entries in the books of the firm for the above transactions on the death of QS. 5. AB, BB and SB are partners in a firm sharing profits in the proportion of 3:2:1. Their balance sheet as on stood as follows: Liabilities Amount Assets Amount 23

24 Bills Payable Creditors General Reserve Capitals: AB 40,000 BB 24,000 SB 16,000 24,000 28,000 24,000 80,000 Building Cash in hand Cash at bank Debtors Bills receivable Stock Investment 42,000 24,000 27,400 24,000 8,600 3,500 26,500 1,56,000 1,56,000 BB died on and according to the deed of the said partnership his executors are entitled to be paid as under: (a) The capital to his credit at the time of his death and interest on p.a. (b) His Proportionate share of general reserve. (c) His share of profit for the intervening period will be based on the sales during that period. Sales were calculated at Rs.2, 40,000 (for 3 months) for The rate of profit during past three years had been 10% on sales. (d) Goodwill according to his share of profit to be calculated by taking twice the amount of profits of the last three years less 20%. The profits of the previous three years were: Rs.16, 400; Rs.18, 000; Rs.19, 600. (e) The investment was sold at par and his executors were paid out. Prepare BK s Capital A/c and his executor s account. 6. A, B and C were partners in a firm sharing profits in the ratio of 5:3:2. On their balance sheet was: Liabilities Amount Assets Amount Creditors General Reserve Capitals: A 60,000 B 50,000 C 30,000 22,000 12,000 1,40,000 Building Machinery Stock Patents Debtors Cash 40,000 60,000 20,000 22,000 16,000 16,000 1,74,000 1,74,000 A died on It was agreed between his executors and the remaining partners that: 1. Goodwill be valued at 2 years purchase of the average profits of the previous 4 years, which were Rs.26,000; Rs.24,000; Rs.40,000; Rs.30, Patents be valued at Rs.16, 000; Machinery at Rs.56, 000; Building at Rs.50, 000. Profits for the year are taken as having accrued at the same rate as the previous year. 24

25 25 3. Interest on capital is provided at 10% p.a. Half of the amount due to A to be paid immediately to the executor and the balance transferred to the Executor s Loan 4. Prepare A s Capital Account and his Executor s Account at the time of his death.

26 AHLCON PUBLIC SCHOOL ACCOUNTANCY CLASS XII ASSIGNMENT DISSOLUTION OF THE FIRM One Mark Questions 1. What is meant by Dissolution of a partnership? 2. What is meant by Dissolution of a partnership firm? 3. What is Realization Account? 4. In case of Dissolution of a firm, which liabilities are to be paid first? 5. In case of Dissolution of firm, which item on the liabilities side are to be paid last? [1] 6. When an asset is taken over by a partner, why is his capital account debited? [1] 7. X and Y are partners in a firm sharing profits in the ratio of 3:2. Mrs. X has given a loan of Rs.60,000 to the firm and the firm also obtained a loan of Rs.30,000 from Y. The firm was dissolved and its assets were realized for Rs.75,000. State the order of payment of Mrs. X s Loan with reason, if there were no creditors of the firm. Three/Four Mark Questions 1. Pass the necessary journal entries for the following transactions on the dissolution of the firm of Mohan and Sohan after the various assets (other than cash) and outside liabilities have been transferred to Realisation Account: Bank Loan Rs.60, 000 was paid. Stock worth Rs.80,000 was taken over by partner Sohan Partner Mohan paid a creditor Rs.20,000 An asset not appearing in the books of accounts realized Rs.6,000 Expenses of realization Rs.10,000 were paid by partner Sohan Profit on realization Rs.1, 80,000 was distributed between Mohan and Sohan in 5:4 ratio. 2. SK, MK and RK commenced business on 1st April, 2008 with fixed capitals of Rs.2,00,000, Rs.1,60,000 and Rs.1,20,000 respectively. They agreed to share profits and losses in the ratio of 4:3:3. During the year , they made a profit of Rs.1, 12,000 before allowing interest on p.a. The profit for the year was Rs.24, 000 after allowing interest on capital. Each of the partners had drawn Rs.40,000 during this period The partners with mutual consent agreed to wind up the business operations. Creditors on that date were Rs.2, 16,000. Assets realized Rs.8, 40,000 and the expenses of realization were Rs.10, 000. Prepare the Balance Sheet as on 31st March, 2010 and find out the profit or loss on realization. 3. The partnership between AK and BK was dissolved on March 31, Their capitals on that date were Rs.8,50,000 and Rs.1,50,000 respectively. Rs.5, 00,000 was owed by 26

27 the firm to AK, and BK owed to the firm Rs.1,00,000. Creditors on that date were Rs.10, 00,000. The assets realized Rs.22, 50,000 exclusive of what was owed by BK. find the profit or loss on realization. 4.. Vinod, Mohan and David were partners in a firm sharing profits in the ratio of 4:3:3. The firm was dissolved. After the transfer of assets and external liabilities to Realization Account, the following transactions took place: (i) Khan, a creditor to whom Rs.18, 000 were due to be paid, accepted office equipment at Rs.12, 000 and the balance was paid to him in cash. (ii) Singh, a creditor to whom Rs.48, 000 were due to be paid, tool over Machinery at Rs.60, 000. Balance was paid by him in cash. (iii) An unrecorded liability of the firm Rs.23, 400 was paid by Vinod (iv) The loss on dissolution was Rs.10, 000. Pass necessary Journal entries for the above transactions in the books of the firm. Six Marks Questions 1. Pass the necessary journal entries for the following transactions on the dissolution of the firm of Sudha and Shiva after the various assets (other than cash) and outside liabilities have been transferred to realization account: (i) Sudha agreed to pay off her husband s loan Rs.19,000 (ii) A debtor whose debt of Rs.9,300 was written off in the books paid Rs.7,500 in full settlement (iii) Shiva took over all investments at Rs.13,300 (iv) Sundry creditors Rs.10,000 were paid at 9% discount (v) Realisation expenses Rs.3,400 were paid by Sudha for which she was allowed Rs.3,000 (vi) Loss on realization Rs.9,400 was divided between Sudha and Shiva in 3:2 ratio. 2.Black, White and Green were partners in a firm. They decided to dissolve their firm. Pass necessary Journal entries for the following after various assets (other than cash and bank) and the third party liabilities have been transferred to Realisation Account: (a) There was a stock of Rs.45, 000. White took over 50% of the stock at 10% discount and remaining stock was sold at 40% profit on book value. (b) P/L Account was showing a debit balance of Rs.7, 500 which was distributed among the partners. (c) A Machinery which was not recorded in the books was sold for Rs.1, 000. (d) Black was paid only Rs.2, 500 for his loan to the firm which amounted to Rs.2,