CBSE Class 12

Detailed, Step-by-Step NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 2 न त्वं शोचितुमर्हसि Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.

Bhaswati Class 12 Solutions Chapter 2 न त्वं शोचितुमर्हसि

अभ्यासः

प्रश्न 1.
एकपदेन उत्तरत
(क) अयं पाठः कस्मात् ग्रन्थात् संकलितः?
उत्तर
बुद्धचरितात्।

(ख) बुद्धचरितस्य रचयिता कः अस्ति?
उत्तर
अश्वघोषः।

(ग) नृणां वरः कः अस्ति?
उत्तर
सिद्धार्थः।

(घ) अश्वपृष्ठात् कः अवातरत् ?
उत्तर
सिद्धार्थः।

(ङ) स्नापयन्भिव चक्षुषा प्रीतः कम् अब्रवीत् ?
उत्तर
छन्दकम्।..

प्रश्न 2.
पूर्णवाक्येन उत्तरत
(क) स्वजनस्य विपर्यये का स्थितिः?
उत्तर
विपर्यये स्वजनोऽपि भूयिष्ठं जनींभवति।

(ख) महाबाहुः संतप्तमनसे किं ददौ?
उत्तर
महाबाहुः संतप्तमनसे भूषणानि ददौ ।

(ग) बुद्धः किमर्थं तपोवनं प्रविष्टः?
उत्तर
बुद्धः जरामरणनाशार्थं तपोवनं प्रविष्टः।

(घ) त्वं कीदृशं मां न शोचितुमर्हसि?
उत्तर
त्वं एवमभिनिष्क्रान्तं मां न शोचितुमर्हसि।

(ङ) कस्मिन् सति कस्य धर्मस्य अकालः नास्ति?
उत्तर
जीविते चञ्चले सति धर्मस्य अकालः नास्ति !

प्रश्न 3.
अधोलिखितेषु सन्धिं कुरुतं
उत्तर
(क) त्यागात् + न =. त्यागान्न।
(ख) च + एव = चैव।
(ग) विश्लेषः + तस्मात् = विश्लेषस्तस्मात्
(घ) न + अस्नेहेन = नास्नेहेन।
(ड) बहुशः + नृपः = बहुशो नृपः।

प्रश्न 4.
अघोलिखितेषु प्रकृतिप्रत्ययविभागं कुरुत उत्तर
(क) सुप्तः = स्वप् धातु, क्त प्रत्यय, पु., प्रथमा वि., एकवचन। ..
(ख) विश्रान्तः = वि उपसर्ग, श्रम् धातु, क्त प्रत्यय, पु., प्रथमा वि., एकवचन।
(ग) दृष्ट्वा = दृश् धातु + क्त्वा प्रत्यय।
(घ) अवतीर्य = अव उपसर्ग, तु धातु + ल्यप् प्रत्यय।
(ङ) भूयिष्ठम् = बहु शब्द + इष्ठन् प्रत्यय ।
(च) आदाय = आ उपसर्ग, दा धातु + ल्यप् प्रत्यय।
(छ) विज्ञाप्य = वि उपसर्ग, ज्ञा धातु, णिजन्त + ल्यप् प्रत्यय ।
(ज) वाच्यम् = वच् धातु + ण्यत् प्रत्यय।।

प्रश्न 5.
अधोलिखित श्लोकयोः हिन्दी-आङ्लभाषया अनुवादः कार्यः
(क) मुकुटाद्दीपकर्माणं मणिमादाय भास्वरम् ।
ब्रुवन्वाक्यमिदं तस्थौ सादित्य इव मन्दरः।।
उत्तर
हिन्दी अनुवाद-मुकुट में से दीपक का कार्य करने वाली एक तेजस्वी मणि लेकर यह वचन कहते हुए वह सूर्यसहित मन्दराचल के समान सुशोभित हुए।
English Translation—Then he took out the shining jewel from the crown which looked like the lamp and saying these words he appeared like the mountain Mandar alongwith the sun.

(ख) जरामरणनाशार्थं प्रविष्टोऽस्मि तपोवनम् ।
न खलु स्वर्गतर्षेण नास्नेहेन न मन्युना।।
उत्तर
हिन्दी अनुवाद-यथार्थ में न स्वर्ग की इच्छा से, न वैराग्य से और न क्रोध से अपितु केवल वृद्धावस्था तथा मृत्यु को नष्ट करने के लिए ही मैं तपोवन में आया हूँ।
English Translation – Really not with the desire of obtaining heaven, not by anger and not by detachment even but to remove the old age and death only I have come to the penance-grove.

प्रश्न 6.
‘न त्वं शोचितुमर्हसि’ इति पाठस्य सारांशः मातृभाषया लेखनीयः। . .
उत्तर
राजकुमार सिद्धार्थ अपना घर त्याग कर महर्षि भार्गव के आश्रम में पहुँचे। वे अपने सारथि छन्दक की स्वामिभक्ति की प्रशंसा करते हैं। तपोवन में आने का प्रयोजन वे जरा-मरण का नाश बताते हैं। जीवन चंचल तथा क्षण-भुंगर है तथा धर्म स्थायी है। मनुष्य को अपने संबंधियों के लिए शोक नहीं करना चाहिए। छंदक को वापिस राजमहल भेजते समय राजा को उनके लिए शोक तथा स्मरण न करने का संदेश भेजते हैं। वे राजा को अपने प्रति स्नेह न करने का भी संदेश भेजते हैं। उनके अनुसार तपस्या करना तथा जरा-मरण का नाश करना ही मानव-जीवन का वास्तविक ध्येय होना चाहिए। .

प्रश्न 7.
रिक्तस्थानानि पूरयत
उत्तर
(क) न त्वं शोचितुम् अर्हसि।
(ख) स ददर्श भार्गवस्य आश्रमपदम्।
(ग) स विस्मयनिवृत्यर्थं तपः पूजार्थमेव च।
(घ) जनीभवति भूयिष्ठम् स्वजनोऽपि विपर्यये।
(ड) अकालः नास्ति धर्मस्य।

प्रश्न 8.
विशेष्यविशेषणयोः योजनं कुरुत उत्तर
(क) भास्करे – (ग) जगच्चक्षुषि
(ख) जनः – (क) अभिमुखः
(ग) मणिम् – (ख) भास्वरम्
(घ) जीविते – (ड) चञ्चले
(ड) माम् – (घ) अभिनिष्क्रान्तम्।

प्रश्न 9.
उदाहरणानुसारं विग्रहपदानि आघृत्य समस्तपदानि रचयत
विग्रहपदानि – समस्तपदानि
न स्निग्धः – अस्निग्धः
उत्तर
(क) आदित्येन सह सादित्यः।
(ख) स्वर्गाय तर्षः = स्वर्गतर्षः।
(ग) न कालः = अकालः।
(घ) महान्तौ बाहूयस्य सः = महाबाहुः
(ड). वसुधायाः अधिपः = वसुधाधिपः।

प्रश्न 10.
अघोलिखितपदानां विपरीतार्थपदैः मेलनं कुरूत
उत्तर
पदानि – विपरीतार्थक पदानि
(क) सुप्तः – (ग) जागृतः
(ख) अवतीर्य – (घ) आरुह्य
(ग) स्वज़नः – (ड) परजनः
(घ) नृपः – (ख) रंकः
(ड) ध्रुवः – (क) चञ्चलः।

Bhaswati Class 12 Solutions Chapter 2 न त्वं शोचितुमर्हसि Summary Translation in Hindi and English

1. ततो मूहुर्तीभ्युदिते जगच्चक्षुषि भास्करे।
भार्गवस्याश्रमपदं स ददर्श नृणां वरः।।

हिन्दी सरलार्थ-तब नरों में श्रेष्ठ उस राजकुमार ने मुहूर्त में सारे संसार के चक्षु. भास्कर (सूर्य देवता) के उदित होने पर भार्गव का आश्रम देखा
Meaning in English-Then that Prince, best among the men, saw the hermitage of Bhargav muni, at early morning time when the God sun who is the eye of the world was rising up.

2. सुप्तविश्वस्तहरिणं स्वस्थस्थितविहङ्गमम् ।
विश्रान्त इव यदृष्टवा कृतार्थ इव चाऽभवत्।।

हिन्दी सरलार्थ-जहाँ हिरण मानों परिचित होकर सो रहे थे तथा पक्षी शान्त बैठे हुए थे ऐसे उस आश्रम को देखकर वह कुमार कृतार्थ होकर श्रमरहित सा हो गया।
Meaning in English-That prince had his desire accomplished and lost his fatigue on seeing that hermitage where the deer were sleeping without any fear and where the birds were sitting fearlessly.

3. स विस्मयनिवृत्त्यर्थं तपः पूजार्थमेव च।
स्वां चानुवर्तितां रक्षन्नश्वपृष्ठादवातरत् ।।

हिन्दी सरलार्थ-अपना अभिमान त्यागने के लिए तथा तपस्या का आदर करने के लिए अपने आचरण की रक्षा करते हुए वह घोड़े की पीठ से उतर गया।
Meaning in English-Caring for his behaviour, to give up the feeling of haughtiness and to regard the austerity he got down from the – horse’s back.

4. अवतीर्य च पस्पर्श निस्तीर्णमिति वाजिनम् ।
छन्दकं चाब्रवीत्प्रीतः स्नापयन्निव चक्षुषा।

हिन्दी सरलार्थ-घोड़े से उतरकर उसने उसका (प्यार से) स्पर्श किया तथा कहा-‘तुमने हमारा मार्ग पार करा दिया है’ तथा स्नेहपूर्ण दृष्टि से (मानों प्रसन्न होकर) छन्दक ने (सारथि) से कहा
Meaning in English-After getting down from the horse, he touched.. the horse with love and said ‘We have reached the hermitage with your help only?’ Then, being happy, he said to his charioteer Chandaka.

5. इमं ताक्ष्योपमजवं तुरङ्गमनुगच्छता।
दर्शिता सौम्य मद्भक्तिर्विक्रमश्चायमात्मनः।।
.
हिन्दी सरलार्थ-हे सौम्य! गरुड़ जैसी तीव्र गति से चलने वाले इस घोड़े के पीछे चलकर तुमने मेरे प्रति भक्ति तथा अपना पराक्रम दिखाया है।
Meaning in English-Oh dear! Following this horse who is walking with very fast speed like that of Garuda, you have shown devotion towards me and your strength also.

6. को जनस्य फलस्थस्य न स्यादभिमुखो जनः।
जनीभवति भूयिष्ठं स्वजनोऽपि विपर्यये।।

हिन्दी सरलार्थ-फल देने में समर्थ व्यक्ति की आज्ञा का पालन करने वाला कौन नहीं होगा? (अर्थात् सब होते हैं) इसके विपरीत सगे सम्बन्धी भी सामान्य जन के समान हो जाते हैं।
Meaning in English-Who will not follow the person who is capable of showing good result? But contrary to it, even near relatives become very common people.

7. इत्युक्त्वा स महाबाहुरनुशंसचिकीर्षया।
भूषणान्यवमुच्चास्मै संतप्तमनसे ददौ।
.
हिन्दी सरलार्थ-इतना कहकर उस महाबाहु ने प्रत्युपकार करने की इच्छा से अपने सारे आभूषण उतारकर उस दुःखी मन वाले को दे दिए।
Meaning in English-Having said so, that great man, with the desire of doing good to others, took off the ornaments and gave them to the distressed one.

8. मुकुटाद्दीपकर्माणं मणिमादाय भास्वरम्।
ब्रुवन्वाक्यमिदं तस्थौ सादित्य इव मन्दरः।।

हिन्दी सरलार्थ-दीपक.का काम करने वाली एक तेजस्वी मणि मुकुट से लेकर यह वाक्य कहते हुए वह सूर्य सहित मन्दराचल के समान सुशोभित हुए।
Meaning in English-Then he took out the shining jewel from the crown which looked like the lamp and saying these words he appeared like the mountain Mandar along with the sun.

9. अनेन मणिना छन्द प्रणम्य हुशो नृपः। .
विज्ञाप्योऽमुक्तविश्रम्भं संतापविनिवृत्तये।।

हिन्दी सरलार्थ-हे छन्दक। इस मणि से राजा को बारबार प्रणाम करते हुए उनके शोक को दूर करने के लिए आशा न पूरी हो, ऐसा संदेश कहना।
Meaning in English-Oh Chandaka! Salute the king again and again with this jewel ‘to remove the grief their desire may not be accomplished’ this message should be sent.

10. जरामरणनाशार्थं प्रविष्टोऽस्मि तपोवनम्। .
न खल स्वर्गतर्षेण नास्नेहेन न मन्यना।।

हिन्दी सरलार्थ-यथार्थ में न स्वर्ग की इच्छा से, न वैराग्य से और न क्रोध से अपितु केवल वृद्धावस्था तथा मृत्यु को नष्ट करने के लिए ही मैं तपोवन में आया हूँ।
Meaning in English-Really not with the desire of obtaining heaven, not by anger and not by detachment even but to remove the old age and death only I have come to the penance-grove.

11. तदेवमभिनिष्क्रान्तं, न मां शेचितुमर्हसि।
भूत्वापि हि चिरं श्लेषः कालेन न भविष्यति।।

हिन्दी सरलार्थ-अतः इस प्रकार निकलने वाले मेरे लिए शोक नहीं करना चाहिए क्योंकि दीर्घकाल तक संयोग होने पर भी काल आने पर नहीं रहेगा। .
Meaning in English-Therefore, you should not grieve for me who has come out in this way because though the association remained for a long, it will not be so when the time of death comes.

12. ध्रुवो यस्माच्च विश्लेषस्तस्मान्मोक्षाय मे मतिः।
विप्रयोगः कथं न स्याद्भूयोऽपि स्वजनादिति।।

हिन्दी सरलार्थ-क्योंकि वियोग ध्रुव है अतः मोक्ष पाने का मेरा विचार है जिसमें फिर दुबारा स्वजनों से वियोग न हो।
Meaning in English-As separation is definite, so I have made up. my mind to achieve Moksha (Salvation), so that I may not feel separation from my relatives again.

13 यदपि स्यादसमये यातो वनमसाविति।
अकालो नास्ति धर्मस्य जीविते चञ्चले सति।।

हिन्दी सरलार्थ-यद्यपि यह असमय में बन गया है तो भी जीवन चञ्चल होने से धर्म का कोई अनुचित समय नहीं है।
Meaning in English-Though he has gone to forest at improper.. time still as life is uncertain so there is no improper time for righteousness.

14. एवमादि त्वया सौम्य विज्ञाप्यो वसुधाधिपः।
प्रयतथास्तथा चैव यथा मां न स्मरेदपि।।

हिन्दी सरलार्थ-हे सौम्य! तुम राजा से इस प्रकार की तथा अन्य बातें कहना तथा । ऐसा प्रयत्न करना कि जिससे वह मेरा स्मरण भी न करें।
Meaning in English-Oh Saumya! These and such other things should be informed to the king and you should make effort in such a way that he does not remember me even.

15. अपि नैर्गुण्यमस्माकं वाच्यं नरपतौ त्वया।
नैर्गुण्यात्त्यज्यते स्नेहः स्नेहत्यागान्न शोच्यते।।।

हिन्दी सरलार्थ-और तुम राजा से हमारी निर्गुणता भी बताना। दोष के कारण स्नेह छूट जाता है तथा स्नेह का त्याग करने से शोक नहीं होता है।
Meaning in English-You should also inform the king that we do not possess any, quality and by not possessing any quality the affection is removed and one is not grieved by giving up affection.

Detailed, Step-by-Step NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 1 अनुशासनम् Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.

Bhaswati Sanskrit Class 12 Solutions Chapter 1 अनुशासनम्

अभ्यासः

एकपदेन उत्तरत

प्रश्न 1.
(क) अयं पाठः कस्माद् ग्रन्थात् संकलितः?
उत्तर
तैत्तिरीय- उपनिषदः

(ख) सत्यात् किं न कर्तव्यम् ?
उत्तर
प्रमादः।

(ग) आचार्यः कम् अनुशास्ति?
उत्तर
अन्तेवासिनम्।

(घ) स्वाध्याय-प्रवचनाभ्यां किं न कर्तव्यम् ?
उत्तर
प्रमादः।

(ङ) अस्माकं कानि उपास्यानि?
उत्तर
सुचरितानि।

प्रश्न 2.
पूर्णवाक्येन उत्तरत.

(क) आचार्यस्य कीदृशानि कर्माणि सेवितव्यानि?
उत्तर
आचार्यस्य अनवद्यानि कर्माणि सेवितव्यानि।

(ख) शिष्यः किं कृत्वा प्रजातन्तुं न व्यवच्छेत्सीः?
उत्तर
शिष्यः प्रियं धनमाहृत्य प्रजातन्तुं न व्यवच्छेत्सीः।

(ग) शिष्याः कर्मविचिकित्सा विषये कथं वर्तेरन् ?
उत्तर-
शिप्याः कर्मविचिकित्सा विषये यथा ब्राह्मणाः सम्मर्शिनः युक्ताः, आयुक्ताः, अलूक्षा धर्मकामाः तथा वर्तेरन्।

(घ) काभ्यां न प्रमदितव्यम् ?
उत्तर
स्वाध्यायप्रवचनाभ्यां न प्रभदितव्यम्।

(ङ) ब्राह्मणाः कीदृशाः स्युः?
उत्तर
ब्राह्मणाः सम्मर्शिनः स्युः ।

प्रश्न 3.
रिक्त स्थानपूर्तिं कुरुत
उत्तर
(क) वेदमनूच्याचार्यों ऽन्तेवासिनम् अनुशास्ति।
(ख) सत्यं वद धर्मं चर।
(ग) यान्यनवद्यानि कर्माणि तानि सेवितव्यानि।.
(घ) यथा ते तत्र वर्तेरन् तथा तत्र वर्तेथाः।
(ड) एषा वेदोपनिषत्।।

प्रश्न 4.
मातृभाषया व्याख्यायेताम्

(क) देवपितृकार्याभ्यां न प्रभदितव्यम् ।
उत्तर
अर्थ-देवताओं तथा पितरों के कार्यों को करने में प्रमाद या आलस्य नहीं करना चाहिए।
व्याख्या-प्रस्तुत पंक्ति में आचार्य अपने शिष्य को उपदेश देते हुए कहते हैं कि देवताओं के अर्थात् पूजा, अर्चना आदि कार्यो में बिल्कुल भी आलस्य नहीं करना चाहिए। इसी प्रकार पितरों के कार्य अर्थात् श्राद्ध, तर्पण आदि कार्यों में भी बिलकूल असावधानी नहीं होनी चाहिए। इस प्रकार आचार्य शिष्य को देवताओं तथा पितरों के कार्यों को सम्पन्न करने का उपदेश दे रहे हैं यहाँ।

(ख) यान्यनवद्यानि कर्माणि तानि सेवितव्यानि।
उत्तर
अर्थ-जो कार्य दोषरहित हैं उनका आचरण करना चाहिए।
व्याख्या-प्रस्तुत पंक्ति में आचार्य अपने शिष्य को उन कार्यों को करने का उपदेश दे रहे हैं जो दोषरहित हैं, पवित्र हैं। मनुष्य में कुछ न कुछ दोष स्वभाव से ही होते हैं, अतः उन दोषपूर्ण कार्यों का परित्याग तथा शुभ एवं पवित्र कार्यों का आचरण किया जाना चाहिए-यही आचार्य का अपने शिष्य के लिए उपदेश है।

प्रश्न 5.
अधोनिर्दिष्टपदानां समानार्थकपदानि कोष्ठकात चित्वा लिखत
उत्तर
(क) अनूच्य = सन्बोध्य।
(ख) संविदा = सद्भावनया।
(ग) झिया = लज्जया।
(ड) उपास्यम् = अनुपालनीयम्।
(सदभावनया, सम्बोध्य, लज्जया. अनपालनीयम. अरूक्षा)

प्रश्न 6.
विरीतार्थकपदैः योजयत-
उत्तर
(क) सत्यम् = असत्यम्।
(ख) धर्मम् = अधर्मम्।
(ग) श्रद्धया = अश्रद्धया।
(घ) अवद्यानि = अनवद्यानि
(ड) लूक्षा = अलूक्षा।

प्रश्न 7.
अघोनिर्दिष्टेषु पदेषु प्रकृति-प्रत्यय-विभागं कुरुत
उत्तर
(क) प्रमदितव्यम् = प्र उपसर्ग, मद धातु + तव्यत् प्रत्यय ।
(ख) अनवयम् = न + अवद्यम्, नञ् तत्पुरूष समास, प्रथमा वि. एकवचन।
(ग) उपास्यम् = उप उपसर्ग, आस् धातु + यत् प्रत्यय।
(घ) अनुशासनम् = अनु उपसर्ग, शास् धातु, ल्युट् प्रत्यय ।

Bhaswati Class 12 Solutions Chapter 1 अनुशासनम् Summary Translation in Hindi and English

संकेत-वेदमनूच्याचार्यः ……………………. चैतदुपास्यम्।

हिन्दी-अनुवाद:
वेद पढ़ाकर आचार्य शिष्य को शिक्षा देते हैं-सत्य बोलो। धर्म का आचरण करो। स्वाध्याय के बारे में लापरवाही मत करो। आचार्य के लिए प्रिय धन लाकर वंश परम्परा को मत तोड़ो। सत्यपालन से प्रमाद नहीं करना चाहिए। धर्म में लापरवाही नहीं करनी चाहिए। मंगलकारी बातों की अवहेलना नहीं करनी चाहिए । ऐश्वर्य की प्राप्ति में आलस्य नहीं करना चाहिए। स्वाध्याय तथा अध्यापन में लापरवाही नहीं करनी चाहिए। देवताओं तथा पितरों के कार्यों को करने में आलस्य नहीं करना चाहिए। माता को देवता मानने वाले बनो। पिता को देवता मानने वाले बनो। आचार्य को देवता मानने वलो बनो।

अतिथि को देवता मानने वाले बनो। जो दोषरहित कर्तव्य हैं उनका सेवन करना चाहिए, अन्य (दोषपूर्ण) का नहीं। जो हमारे अच्छे कार्य हैं तुम्हें उनका सेवन करना चाहिए, अन्य नहीं। यदि तुम्हें कर्म के सम्बन्ध में या आचरण के विषय में संदेह हो तो वहाँ जो ब्राह्मण विवेकशील, कर्म में तत्पर, स्वेच्छापूर्वक कर्मपरायण, सरल हृदय तथा धर्मपरायण हों और जैसा वे वहाँ व्यवहार करें वैसा तुम वहाँ व्यवहार करना। यह आदेश है, यह उपदेश है। यह वेदों का रहस्य ज्ञान है। यह शिक्षा है। इस प्रकार उपासना करनी चाहिए। यह ही उपासना करने योग्य है।

English-Translation:
Having taught Veda, the teacher instructs the disciple-speak the truth, practise the righteousness. Don’t be careless in the matter of self-study. Having brought the wealth to the preceptor which is dear to him, do not snap the link of the progeny (or the laws of creation) Do not be careless regarding truth. Do not ignore Dharma (righteousness). Do not be careless in the matter of well-being.

Do not be careless in the matter of riches. Do not be careless in the matter of self-study and teaching. Do not be careless in performing the duties towards the gods and manes. Worship your mother as a goddess. Worship your father as a god. Worship your preceptor as a god. Worship your guest as a god. You should perform only those deeds which are faultless and should not perform others.

You should practise our good deeds only and not others. And if, after this, there arises a doubt about action or about behaviour, then you should act in those matters as the brahmans do who are conscientious, engaged in performing their duties, who fulfill their duties willingly, who are kind hearted and dutiful.

This is order. This is the instruction. This is the mystical knowledge of the vedas. This is the teaching. You should follow this and this should be followed in this manner only.

Detailed, Step-by-Step NCERT Solutions for 12 Accountancy Chapter 5 Dissolution of Partnership Firm Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.

Dissolution of Partnership Firm NCERT Solutions for Class 12 Accountancy Chapter 5

Dissolution of Partnership Firm Questions and Answers Class 12 Accountancy Chapter 5

Test Your Understanding-I
[Page No. 228]

State giving reasons, which of the following statements are true or false:

1. Dissolution of a partnership is different from dissolution of a firm.
2. A partnership is dissolved when there is a death of a partner.
3. A firm is dissolved when all partners give consent to it.
4. A firm is compulsorily dissolved when a partner decide to retire.
5. Dissolution of a firm necessarily involves dissolution of partnership.
6. A firm is compulsorily dissolved when all partners or when all except one partner become involvent.
7. Court can order a firm to be dissolved when a partner becomes insane.
8. Dissolution of partnership cannot take place without intervention of the court.
Answer:
1. True
Dissolution of partnership is merely the reconstitution of partnership. In such a case existing partnership is dissolved but the firm may continue under the same name. Whereas in dissolution of firm, business of the firm terminated and the affairs of firm are to be wound up.

2. True
In case of death of a partner, the firm requires reconstitution of the partnership, hence partnership is dissolved.

3. True
This is called dissolution by agreement, when all the partners give consent to it.

4. False
A partnership is compulsorily dissolved when a partner decide to retire, not the hrm;

5. True
When the dissolution of firm takes place the business of the firm comes to an end therefore there is no partnership remains.

6. True
According to Section 39 of Indian Partnership Act, 1932 it is the case of compulsory dissolution.

7. True
According to Section 39 of Partnership Act, a firm can be dissolved by the order of court, when a partner becomes insane.

8. False
Dissolution of partnership can take place with the constent of partners not by the intervention of the court.

Test Your Understanding-II [Page No. 235]
Tick (✓) the Correct Answer:

Question 1.
On dissolution of a firm, bank overdraft is transferred to :
(A) Cash Account
(B) Bank Account
(C) Realisation Account
(D) Partner’s capital Account
Answer :
(C) Realisation Account

Question 2.
On dissolution of a firm, partner’s loan account is transferred to:
(A) Realisation Account .
(B) Partner’s Capital Account
(C) Partner’s Current Account
(D) None of the above
Answer :
(D) None of the above

Question 3.
After transferring liabilities like creditors and bills payables in the Realisation Account, in the absence of any information regarding then payment, such liabilities are treated as :
(A) Never paid
(B) Fully paid
(C) Partly paid
(D) None of the above
Answer :
(B) Fully paid

Question 4.
When realisation expenses are paid by the firm on behalf of a partner, such expenses are debited to :
(A) Realisation Account
(B) Partner’s Capital Account
(C) Partner’s Loan Account
(D) None of the above
Answer :
(B) Partner’s Capital Account

Question 5.
Unrecorded assets when taken over by a partner are shown in:
(A) Debit of Realisation Account
(B) Debit of Bank Account
(C) Credit of Realisation Account
(D) Credit of Bank Account
Answer :
(C) Credit of Realisation Account

Question 6.
Unrecorded liabilities when paid are shown in :
(A) Debit of Realisation Account
(B) Debit of Bank Account
(C) Credit of Realisation Account
(D) Credit of Bank Account
Answer :
(A) Debit of Realisation Account

Question 7.
The accumulated profits and reserves are transferred to :
(A) Realisation Account
(B) Partner’s Capital Accounts
(C) Bank Account
(D) None of the above
Answer :
(B) Partner’s Capital Account

Question 8.
On dissolution of the firm, partner’s capital accounts are closed through:
(A) Realisation Account
(B) Drawings Account
(C) Bank Account
(D) Loan Account
Answer :
(C) Bank Account

Test Your Understanding-Ill
[Page No. 240]

Fill in the Correct Word(s):

1. All assets (except cash/bank and fictitious assets) are transferred to the …………… (Debit/Credit) side of Account ………….. (Realisation/ Capital).
Answer:
Debit, Realisation

2. All ……….. (internal/external) liabilities are transferred to the …………… (Debit/Credit) side of Account ……….. (Bank/ Realisation).
Answer:
external, Credit, Realisation

3. Accumulated losses are transferred to …….. (Current/ Capital Accounts) in ……………. (equal ratio/profit sharing ratio).
Answer:
Capital Accounts, profit sharing ratio

4. If liability is assumed by a partner, such Partner’s Capital Account is ……….. (debited/credited).
Answer:
credited

5. If a partner takes over an asset, such (Partner’s Capital Account) is ………….. (debited/credited).
Answer:
debited

6. No entry is required when a ………. (partner/creditor) accepts a fixed asset in payment of his dues.
Answer:
creditor

7. When creditor accepts an asset whose value is more than the amount due to him, he will ……….. (pay/not pay) the excess amount which will be credited Account.
Answer:
pay, Realisation

8. When the firm has agreed to pay the partner a fixed amount for realisation work irrespective of the actual amount spent, such fixed amount is debited to …………. (Realisation/Capital) . Account and credited to ………. (Capital/Bank) Account.
Answer:
Realisation, Capital

9. Partner’s loan is ……….. (recorded/not recorded) in the ……. (Realisation Account).
Answer:
not recorded

10. Partner’s Current Accounts .are transferred to respective ……………. Partner’s (Loan/Capital) Accounts.
Answer:
Capital

Do it Yourself [Page No. 242]

Give the journal entry(ies) to be recorded for the following, in case of the dissolution of a partnership firm.

1. For closure of assets accounts.
2. For closure of liabilities accounts.
3. For sale of assets.
4. For settlement of a creditor by transfer of fixed assets to him.
5 For expenses of realisation when actual expenses are paid by the partner on behalf of the firm.
6. When a partner discharges the liability of the firm.
7. For payment of partner’s loan.
8. For settlement of capital accounts.
Answer:
1. For closure of assets accounts

All assets transferred to realisation account at their book value and its corresponding provisions or reserve appearing on the balance sheet is also transferred to credit side of realisation account. Balance of cash account, bank account and fictitious assets are not transferred to realisation account.

Short Answer Type Questions

Question 1.
State the difference between dissolution of partnership and dissolution of partnership firm.
Answer:
Difference between dissolution of partnership and dissolution of partnership firm.

Question 2.
State the accounting treatment for:
1. Unrecorded assets
2. Unrecorded liabilities.
Answer:
Unrecorded Assets
Sometimes at the time of dissolution of the firm there are some assets in the business, which do not appear in the books. These may have been written off completely in the past but physically they still exist. These assets are known as unrecorded assets. On dissolution these assets might be either sold or taken over by any partner or a creditor at agreed prices. The following accounting treatment is given to the unrecorded assets :

(c) When unrecorded assets taken over by a creditor in full settlement of his claim
[No entry required]

Important:
It must be kept in mind that unrecorded assets would never be transferred to Realisation Account because the amount realised from its sale is in the nature of a gain and the Realisation Account is only credited accordingly.
For example, at time of dissolution, firm had a Motor Car which was not shown in the books. Journal entries in following cases are given below :
(a) It is sold for Rs. 35,000.
(b) It is taken over by the partner at an agreed price of Rs. 32,300.
(c) It is taken over by creditors in full settlement of his claim.

Unrecorded Liabilities
It may sometimes happen at the time of dissolution of firm that there are certain liabilities which do not appear in the books. These liabilities are called unrecorded liabilities. The accouting treatment of unrecorded liability is :


Important:
It must be kept in mind that the unrecorded liability is never transferred to Realisation Account. Because its payment is in the nature of loss and Realisation Account is only debited with the actual payment. And, they do not have account in the books also.
For example, at the time of dissolution of firm, compensation paid to employees by the firm amounted to Rs. 5,000. This liability was not provided in the books. Journal entries in following cases are given below :
(a) If cash payment is made for unrecorded liability,
(b) If unrecorded liability taken over by a partners.

Question 3.
On dissolution, how will you deal with partner’s loan if it appears on the
(a) assets side of the balance sheet
(b) liabilities side of the balance sheet.
Answer:
(a) Partner’s loan appearing on the assets sideline balance sheet: If partner’s loan appears on the assets side of the balance sheet at the time of dissolution, it shows that partner has been taken loan from the firm and he has not paid back yet.

Accounting Treatment: The loan amount should transfer to his capital account. Following entry will required :
Partner’s Capital A/c – Dr.
To Partner’s Loan A/c

(b) Partner’s loan appearing on the liabilities side of the balance sheet: If a partner has given any loan to the firm, his loan will be paid off after all the outside liabilities are paid in full. Therefore, partner’s loan account is not transferred to the realisation account and his loan account is prepared separately and paid off by passing the following entry :

For payment of Partner’s loan :
Partner’s loan A/c – Dr.
To Cash/ Bank A/c (For the partner’s loan paid-off)

Question 4.
Distinguish between firm’s debts and partner’s private debts.
Answer:
Where both the debts of the firm and private debts of a partner co-exists, the following rules, as stated is section 49 of the Indian Partnership) Act, 1932, shall apply.

(a) The property of the firm shall be applied first in the payment of debts of the firm and then the surplus, if any shall be divided among the partners as per their claims, which can be utilised for payment of their private liabilities.

(b) The private property of any partner shall be applied first in payment of his private debts and the surplus, if any may be utilised for payment of the firm’s debts, in case the firm’s liabilities exceeds the firm’s assets.
In nutshell, private property shall be first used to settle private debts and business property shall be first used to settle business debts and the surplus if any can be transferred.

Question 5.
State the order of settlement of accounts on dissolution.
Answer:
In case of dissolution of a firm, the firm ceases to conduct business and has to settle its accounts. For this purpose, it disposes of all its assets for satisfying all the claims against it. Section 48 of the Indian Partnership Act, 1932, provides the following rules for the settlement of accounts between the partners :

(a) Treatment of Losses: Losses, including deficiencies of capital, shall be paid :

• First out of profits,
• Next out of capital of partners, and
• Lastly, if necessary, by the partners individually in their profit sharing ratio.

(b) Application of Assets : The assets of the firm, including any sum contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order

• In paying the debts of the firm to the third parties;
• In paying each partner proportionately what is due to him/ her from the firm for advances as distinguished from capital (i.e. partner’s loan);
• In paying to each partner proportionately what is due to him on account of capital; and

(iv) The residue, if any, shall be divided among the partners in their profit sharing ratio. Thus, assets realised along with contribution from partners if required, are applied as follows :

• To pay outside liabilities. Debts with fixed charges are paid first, followed by debts with floating charge and then unsecured debts. Such as creditors, loan, bank overdraft, bills payable etc.
• To pay loans and advances made by the partners to the firm (in case the balance amount is not adequate enough to pay off such loans and advances, they are to be paid proportionately).
• To settle capital accounts of the partners.

Question 6.
On what account Realisation Account differes from Revaluation Account?
Answer:
Distinction between Realisation Account and Revaluation Account:

Long Answer Type Questions

Question 1.
What is meant by Dissolution of Partnership firm?
Answer:
The word Dissolution implies “the undoing or breaking of a bond tie.” In other words, dissolution implies that the existing state of arrangement is done away with. In terms of partnership, dissolution means discontinuance of relationship amongst the partners.

Dissolution of a Partnership—If dissolution involves only the reconstitution of firm and the business in partnership is continued in the same name after the dissolution of the partnership agreement, it is known as the ‘Dissolution of the partnership’. It involves change in relation between partner, without affecting the continuity of business. Here, the firm is reconstituted without dissolution of the firm. A partnership is dissolved by change of mutual contract in the following cases—Change in profit sharing ratio, admission, retirement, death etc.

Dissolution of a Partnership Firm—According to Section 39 of the Indian Partnership Act, 1932, dissolution of partnership between all the partners of a firm is called the ‘dissolution of the firm.’

It refers to the winding up of the business in partnership. It involves complete break-down of relation among all the partners and is dissolution of partnership between all the partners of a firm. Here, in this situation, business is to be discontinued, it requires realisation of assets and settlement of liabilities.

Dissolution of a firm takes place in the following cases:
Dissolution by Agreement—

• All the partners give consent to it, or
• As per the terms of partnerships agreement.

Compulsory Dissolution—

• Where all the partners or all except one partner, become insolvent or insane, rendering them incompetent to sign a contract, or
• When the business of the firm becomes illegal, or
• When some event has taken place which makes it unlawful the partner to carry on the business of the firm in partnership.

On the Happening of Certain Contingencies—Subject to contract between the partners, a firm is dissolved :

• If constituted for a fixed term, by the expiry of that term; or
• If constituted to carry out one or more ventures, by the completion thereof; or
• where all the patners except one decide to retire from the firm; or
• where all the partners or all except one partner dies; or
• by the adjudication of a partner as an insolvent.

Dissolution by Notice—In case of partnership at will, the firm may be dissolved if any of the partners give a notice in writing to the other partners signifying his intention of seeking dissolution of the firm.

Dissolution by Court (Under Section 44)—At the suit of a partner, the court may order for dissolution of partnership firm on any of the following grounds :

• If a partner becomes insane; or
• When a partner becomes permanently incapable of performing his duties as a partner; or ‘
• When a partner is guilty of misconduct which is likely to adversely affect the business of the firm; or
• When a partner deliberately and consisterttly commits breach of agreements relating to the management of the firm; or
• When the partner transfer whole of his interest in the firm to the third party; or
• When the business of the firm cannot be carried on, except at a loss; or
• When the court, on any ground, regards dissolution to be just and equitable.

Question 2.
What is a Realisation Account?
Answer:
Realisation Account means an account which is prepared to record the realisation of assets and payment of liabilities. It is opened on the dissolution of a firm. It is a nominal account. It shows the net result of realisation of assets and settlement of liabilitiec.

For this purpose, the balances of assets and liabilities appearing in the ledger books are transferred to realisation account. It also records realised value of recorded as well as unrecorded assets. Similarly, payment for liabilities and unrecorded liabilities are also recorded in the realisation account. It also records the realisation expenses.

The balance in this account is termed as profit or loss on realisation which is transferred to partner’s capital accounts in their profit sharing ratio. As dissolution of firm involves winding up of partnership business and requires final closure of books of accounts, following entries are passed through realisation account for the dissolution of the partnership firm .

All assets transferred to realisation account at their book value and its corresponding provisions or reserves appearing on the balance sheet is also transferred to credit side of realisation account. Balance of cash account, bank account and fictitious assets are not transferred to realisation account.

2. For Transfer of Liabilities—Book value of all outside liabilities recorded in the books are transferred to realisation account alongwith provisions against various assets.

Note : Partner’s capital account, accumulated profits, general reserves, reserve fund, partner’s loan are not transferred to realisation account.

7. For Transfer of Assets to settle Liabilities—If assets are transferred to settle the liability account (full and final settlement), then no separate journal entry is passed to record settlement of liability by transfer of assets. But if there is difference, then we should pass entry for the difference amount only.

8. For the Payment of Realisation Expenses—

(a) Expenses paid by the firm :
Realisation A/c – Dr.
To Bank/Cash A/c

(b) Expenses paid by a partner on behalf of the firm:
Realisation A/c – Dr.
To Partner’s Capital A/c

(c) For agreed remuneration or commission to partner, who agreed to undertake the dissolution work and bear the realisation expenses:
Realisation A/c – Dr.
To Partner’s Capital A/c

9. For Realisation of any Unrecorded Assets including Goodwill
Bank/Cash A/c – Dr.
To Realisation A/c

10. For settlement of any Unrecorded Liability
Realisation A/c – Dr.
To Bank/Cash A/c

11. For transfer of Profit and Loss on Realisation :
(a) In case of profit
Realisation A/c – Dr.
To Partner’s Capital A/c (Individually)

(b) In case of loss
Partner’s Capital A/c (Individually)
To Realisation A/c

Objective of Preparing Realistion Account—Following are the objectives of preparing realisation account:

• To close down the accounts of assets and liabilities.
• To realise assets and to pay off liabilities.
• To ascertain the profit or loss on the lealisation of assets and liabilities.

Question 3.
Reproduce the format of Realisation Account.
Answer:
Format of Realisation Account
Realisation Account

Question 4.
Hen deficiency of creditors is paid off?
Answer:
When the creditors of the firm cannot be paid in full out of firm’s own a sets as well as the personal assets of the partners, all the partners are .aid to be insolvent and the deficiency of creditors remains unpaid to some exte nt hen the following procedure should be adopted.

(a) A separate a count is prepared for creditors and other outside liabilities.

(b) A cash account is prepared to find out the cash availability with the firm from the amount of assets realised and amount from the private assets of the partners so that the payment has to be made to creditors and outside liabilities.

(c) After making the partial payment to the creditors and other liabilities, the deficiency in such account is transferred to the newly opened deficiency account.

Alternatively, when liabilities of the firm cannot be paid in full out of firm’s assets as well as personal assets of the partners, then it is the case of insolvency of all partners. In this case it is better not to transfer the amount of creditors to realisation account.

Creditor may be paid the amount available including the amount contributed by the partners. The unpaid portion of creditors account is closed by transferring it to capital accounts of the partners in the profit sharing ratio. Then capital accounts are closed by transferring the deficiency to other partners in accordance with the rule in Garner Vs. Murray. For this purpose the capital account having the worst position is taken first. The last Capital Account gets automatically closed.

Numerical Questions

Question 1.
Journalise the following transactions regarding realisation expenses:
(a) Realisation expenses amounted to Rs. 2,500.
(b) Realisation expenses amounting to Rs. 3,000 were paid by Ashok, one of the partners.
(c) Realisation expenses Rs. 2,300 borne by Tarun, personally.
(d) Amit, a partner was appointed to realise the assets, at a cost of Rs. 4,000. The actual amount of realisation amounted to Rs. 3,000.
Answer:

Question 2.
Record necessary journal entries in the following cases :
(a) Creditors worth Rs. 85,000 accepted Rs. 40,000 as cash and Investment worth Rs. 43,000, in full settlement of their claim.
(b) Creditors were Rs. 16,000. They accepted Machinery valued at Rs. 18,000 in settlement of their claim.
(c) Creditors were Rs. 90,000. They accepted Buildings valued Rs. 1,20,000 and paid cash to the firm Rs. 30,000.
Answer:

Question 3.
There was an old computer which was written-off in the books of accounts in the previous year. The same has been taken over by a partner Nitin for Rs. 3,000. Journalise the transaction, supposing that the firm has been dissolved.
Answer:

Question 4.
What journal entries will be recorded for the following transactions on the dissolution of a firm :
(a) Payment of unrecorded liabilities of Rs. 3,200.
(b) Stock worth Rs. 7,500 is taken by a partner Rohit.
(c) Profit on Realisation amounting to Rs. 18,000 is to be distributed between the partners Ashish and Tarun in the ratio of 5 : 7.
(d) An unrecorded asset realised Rs. 5,500.
Answer:

Question 5.
Give journal entries for the following transactions :
1. To record the realisation of various assets and liabilities.
2. A Firm has a Stock of Rs. 1,60,000. Aziz, a partner took over 50% of the Stock at a discount of 20%.
3. Remaining Stock was sold at a profit of 30% on cost.
4. Land and Building (book value Rs. 1,60,000) sold for Rs. 3,00,000 through a broker who charged 2% commission on the deal.
5. Plant and Machinery (book value Rs. 60,000) was handed over to a Creditor at an agreed valuation of 10% less than the book value.
6. Investment whose face value was Rs. 4,000 was realised at 50%.
Answer:

Question 6.
How will you deal with the realisation expenses of the firm of Rashim and Bindiya in the following cases :
1. Realisation expenses amounts to Rs. 1,00,000.
2. Realisation expenses amounting to Rs. 30,000 are paid by Rashim, a partner.
3. Realisation expenses are to be borne by Rashim for which
he will be paid Rs. 70,000 as remuneration for completing the dissolution process. The actual expenses incurred by Rashim were Rs. 1,20,000.
Answer:

Question 7.
The book value of assets (other than cash and bank) transferred to Realisation Account is Rs. 1,00,000. 50% of the assets are taken over by a partner Atul, at a discount of 20%; 40% of the remaining assets are sold at a profit of 30% on cost; 5% of the balance being obsolete, realised nothing and remaining assets are handed over to a Creditor, in full settlement of his claim. You are required to record the journal entries for realisation of assets.
Answer:

Note: No entry is required for transfer of assets to settle the claim (full and final) of creditors.

Question 8.
Record necessary journal entries to record the following unrecorded assets and liabilities in the books of Paras and Priya :
1. There was an old furniture in the firm which had been written-off completely in the books. This was sold for Rs. 3,000.
2. Ashish, an old customer whose account for Rs. 1,000 was written-off as bad in the previous year, paid 60%, of the x amount.
3. Paras agreed to take over the firm’s goodwill (not recorded in the books of the firm), at a valuation of Rs. 30,000.
4. There was an old typewriter which had been written-pff ‘ completely from the books. It was estimated to realize Rs. 400. It was taken away by Priya at an estimated price less 25%.
5. There were 100 share of Rs. 10 each in Star Limited acquired at a cost of Rs. 2,000 which had been written-off completely from the books. These shares are valued @ Rs. 6 each and divided among the partners in their profit sharing ratio.
Answer:

Question 9.
All partners wishes to dissolve the firm. Yastin, a partner wants that her loan of Rs. 2,00,000 must be paid off before the payment of capitals to the partners. But, Amart, another partner wants that , the capitals must be paid before the payment of Yastin’s loan. You 1 are required to settle the conflict giving reasons.
Answer:
Yastin, is correct, because according to Section 48 of the Indian Partnership Act, 1932, at the time of dissolution, partner’s loan is repaid before the payment of capitals to partners.

Question 10.
What journal entries would be recorded for the following transactions on the dissolution of a firm after various assets (other than cash) on the third party liabilities have been transferred to Realisation Account:
1. Arti took over the Stock worth Rs. 80,000 at Rs. 68,000.
2. There was unrecorded Bike of Rs. 40,000 which was taken over by Mr. Karim.
3. The firm paid Rs. 40,000 as compensation to employees.
4. Sundry creditors amounting to Rs. 36,000 were settled at a discount of 15%.
5. Loss on realisation Rs. 42,000 was to be distributed between Arti and Karim in the ratio of 3 : 4.
Answer:

Question 11.
Rose and Lily shared profits in the ratio of 2 : 3. Their Balance

Rose and Lily decided to dissolve the firm on the above date. Assets (except bills receivables) realised Rs. 4,84,000. Bills Receivable were taken over by Rose at Rs. 30,000. Creditors agreed to take Rs. 38,000. Cost of realisation was Rs. 2,400. There was a Motor Cycle in the firm which was bought out of the firm’s money, was not shown in the books of the firm. It was now sold for Rs. 10,000. There was a contingent liability in respect of outstanding electric bill of Rs. 5,000 Bill Receivable taken over by Rose at Rs. 33,000.
Show Realisation Account, Partners Capital Account, Loan Account and Cash Account.
Answer:

Question 12.
Shilpa, Meena and Nanda decided to dissolve their partnership on March 31,2006. Their profit sharing ratio was 3:2:1 and their Balance Sheet was as under :

The stock of value of Rs. 41,660 are taken overby Shilpa for Rs. 35,000 and she agreed to discharge bank loan. The remaining stock was sold at Rs. 14,000 and debtors amounting to Rs. 10,000 realised Rs. 8,000. Land is sold for Rs. 1,10,000. The remaining debtors realised 50% at their book value. Cost of realisation amounted to Rs. 1,200. There was a typewriter not recorded in the books worth Rs. 6,000 which were taken over by one of the Creditors at this value. Prepare Realisation Account.
Answer:

Question 13.
Surjit and Rahi were sharing profits (losses) in the ratio of 3 : 2, their Balance Sheet as on March 31, 2004 is as follows :

The firm was dissolved on March 31, 2006 on the following terms:
1. Surjit agreed to take the investments at Rs. 8,000 and to pay Mrs. Surjit’s loan.

2. Other assets were realised as follows :
Stock – Rs. 5,000
Debtors – Rs. 18,500
Furniture – Rs. 4,500
Plant – Rs. 25,000

3. Expenses on realisation amounted to Rs. 1,600.

4. Creditors agreed to accept Rs. 37,000 as a final settlement.
You are required to prepare Realisation Account, Partner’s Capital Account and Bank Account.
Answer:

Question 14.
Rita, Geeta and Ashish were partners in a firm sharing profits/losses in the ratio of 3 :2 :1. On March 31,2006 their balance sheet was as follows :

On the above-mentioned date the firm was dissolved :
1. Rita was appointed to realise the assets. Rita was to receive 5% commission on the rate of assets (except cash) and was to bear all expenses of realisation.

2. Assets were realised as follows :
Debtors – Rs. 30,000
Stock – Rs. 26,000
Plant – Rs. 42,750

3. Investments were realised at 85% of the book value.
4. Expenses of realisation amounted to Rs. 4,100.
5. Firm had to pay Rs. 7,200 for outstanding salary not provided for earlier.
6. Contingent liability in respect of bills discounted with the bank was also materialised and paid off Rs. 9,800.
Prepare Realisation Account, Capital Accounts of Partner’s and Cash Account.
Answer:

Question 15.
Anup and Sumit are equal partners in a firm. They decided to dissolve the partnership on December 31,2006. When the balance sheet is an under:

The Assets were realised as follows :

The Creditors were paid Rs. 25,500 in full settlement. Expenses of realisation amount to Rs. 2,500.
Prepare Realisation Account, Bank Account, Partners Capital Accounts to close the books of the firm.
Answer:

Question 16.
Ashu and Harish are partners sharing proflt and losses as 3 : 2. They decided to dissolve the firm on December 31, 2006. Their balance sheet on the above date was :

Ashu is to take over the building at Rs. 95,000 and Machinery and Furniture is take over by Harish at value of Rs. 80,000. Ashu agreed to pay Creditor and Harish agreed to meet Bank overdraft. Stock and Investment are taken by both partners in profit sharing ratio. Debtors realised for Rs. 46,000, expenses of realisation amounted to Rs. 3,000. Prepare necessary ledger account.
Answer:

Question 17.
Sanjay, Tarun and Vineet shared profit in the ratio of 3 : 2 :1. On December 31, 2006 their balance sheet was as follows :

On this date the firm was dissolved. Sanjay was appointed to realise the assets. Sanjay was to receive 6% commission on the sale of assets (except cash) and was to bear all expenses of realisation.

Sanjay realised the assets as follows : Plant Rs. 72,000; Debtors Rs. 54,000; Furniture Rs. 18,000; Stock 90% of the book value; Investments Rs. 76,000 and Bills receivable Rs. 31,000. Expenses of realisation amounted to Rs. 4,500. Prepare Realisation Account, Capital Accounts and Cash Account.
Answer:

Question 18.
The following is the Balance Sheet of Gupta and Sharma as on December 31, 2006 :

The firm was dissolved on December 31,2006 and asset realised and settlements of liabilities as follows :
(a) The realisation of the assets were as follows :

Sundry Debtors – 52,000
Stock – 42,000
Bills Receivable – 16,000
Machinery – 49,000

(b) Investment was taken over by Gupta at agreed value of Rs. 36,000 and agreed to pay of Mrs. Gupta’s loan.
(c) The Sundry Creditors were paid off less 3% discount.
(d) The realisation expenses incurred amounted to Rs. 1,200. Journalise the entiries to be made on the dissolution and prepare
Answer:

Question 19.
Ashok, Babu and Chetan are in partnership sharing profit in the proportion of 1/2, 1/3, 1/6 respectively. They dissolve the partnership of the December 31,2006, when the balance sheet of the firm as under:

The Machinery was taken over by Babu for Rs. 45,000, Ashok took over the Investment for Rs. 40,000 and Freehold property took over by Chetan at Rs. 55,000. The remaining Assets realised as follows: Sundry Debtors Rs. 56,500 and Stock Rs. 36,500. Sundry Creditors was settled at discount of 7%. A office computer, not shown in the books of accounts realised Rs. 9,000. Realisation expenses amounted to Rs. 3,000.

Prepare Realisation Account, Partners Capital Accounts, Bank Account.
Answer:

Question 20.
The following is the balance sheet of Tanu and Manu, who shares profit and losses in the ratio of 5 : 3, on December 31, 2006:

On the above date the firm is dissolved and the following agreement was made : Tanu agree to pay the bank loan and took away the sundry debtors. Sundry creditors accepts stock and paid Rs. 10,000 to the firm. Machinery is taken over by Manu for Rs. 40,000 and agreed to pay of bills payable at a discount of 5%. Motor car was taken over by Tanu for Rs. 60,000. Investment realised Rs. 76,000 and fixtures Rs. 4,000. The expenses of dissolution amounted to Rs. 2,200.

Prepare Realisation Account, Bank Account and Partners Capital Accounts.

Detailed, Step-by-Step NCERT Solutions for 12 Accountancy Chapter 4 Reconstitution of Partnership Firm: Retirement / Death of a Partner Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.

Reconstitution of Partnership Firm: Retirement / Death of a Partner NCERT Solutions for Class 12 Accountancy Chapter 4

Reconstitution of Partnership Firm: Retirement / Death of a Partner Questions and Answers Class 12 Accountancy Chapter 4

Test Your Understanding-I
[Page No. 187-188]

Choose the correct option in the following questions :

Question 1.
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
Answer:
(b) 5 : 3

Question 2.
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
Answer:
(c) 1: 1

Question 3.
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
Answer:
(a) 8: 7

Question 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 will acquire his/her share:—
(a) Old Profit Sharing Ratio
(b) New Profit Sharing Ratio
(c) Equal Ratio
(d) None of these
Answer:
(a) Old Profit Sharing Ratio.

Test Your Understanding-II
[Page No. 191]

Choose the correct option in the following questipns :

Question 1.
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 these.
Answer:
(a) his/her share of goodwill.

Question 2.
Gobind, Hari and Pratap are partners. On retirement of Gobind, the goodwill already appears in the Balance Sheet at Rs. 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 these.
Answer:
(a) by debiting all partner’s capital account in their old profit sharing ratio.

Question 3.
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 Rs. 8,571 respectively.
(c) by debiting only Suman’s Capital Account with Rs. 30,000.
(d) by debiting Raman’s Capital Account with Rs. 304)00.
Answer:
(c) by debiting only Suman’s Capital Account with Rs. 30,000.

Question 4.
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.
Answer:
(b) remaining partners (who have sacrificed) as well as retiring partner.

Do it Yourself 
[Page No. 182]

Question 1.
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.
Answer:
Gaining Ratio = New Ratio – Old Ratio
Anita’s Gain = \( \frac{4}{7}-\frac{1}{3}\)

Question 2.
Azad, Vijay and Amit are partners sharing profits and losses in the proportion of \(\frac{1}{4}, \frac{1}{8} \text { and } \frac{10}{16}\). Calculate the new profit sharing ratio between continuing partners if (a) Azad retires; (b) Vijay retires; (c) Amit retires.
Answer:

New profit sharing ratio if
(a) Azad retires = 1:5
(b) Vijay retires = 2:5
(c) Amit retires = 2:1

Question 3.
Calculate the gaining ratio in each of the above situations.
Answer:
Gaining Ratio = New Ratio – Old Ratio
(a) If Azad retires :

Question 4.
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.
Answer:
Old ratio of Anu, Prabha and Milli = 1:1:1
New profit sharing ratio :

Question 5.
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.
Answer:
Old ratio of Rahul, Robin and Rajesh = 3:2:1
New profit sharing ratio if
(i) Rahul retires = 2:1
(ii) Robin retires =3:1
(iii) Rajesh retires = 3:2

Question 6.
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.
Answer:
Old ratio of Puja, Priya and Pratistha = 5:3:2

Question 7.
Ashok, Anil and Ajay are partners sharing profits and 13 losses in the ratio of \(\frac{1}{2}, \frac{3}{10} \text { and } \frac{1}{5}\). 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.
Answer:

Do it Yourself
[Page No. 198-199]

Question 8.
Vijay, Ajay and Mohan are friends. They passed B. Com. (Hons.) from Delhi University in June, 2003. They decided to start the business of computer hardware. On 1st of August, 2003, 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, 2006, due to certain unavoidable circumstances and family circumstances, Ajay decided to settle in Pune and decided to retire from the partnership on 31st March, 2007; with the consent of partners, Ajay retires as on 31st March, 2007, 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. 97,000 in cash and the balance of his Capital Account to be transferred to his Loan Account. Work out the amount due to Ajay and state how will you settle his account.
Answer:

Do it Yourself
[Page No. 209-210]

Question 1.
The Balance Sheet of A, B and C who were sharing the profits in proportion to their capitals stood as on March 31,2007.
Answer:

B 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 amounts to be brought in and/or withdrawn by A and C to make their capitals proportionate to then new profit sharing ratio.
Answer:

(ii) Goodwill:
Goodwill of the firm = Rs. 10,000
B’s Share = Rs, 10,000 x \(\frac{3}{10}\)
Rs. 3,000 (Adjusted in the capital accounts of A and C in their gaining ratio i.e. 2:1)

Question 2.
R, S and M were carrying on business in partnership sharing profits in the ratio of 3 : 2 : 1, respectively. On March 31, 1999, 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 Rs. 8,800
(b) Provision for doubtful debts to be made @ 5% on debtors.
(c) Goodwill of the firm to be valued at Rs. 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.

Do it Yourself
[Page No. 216]

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% and
(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:

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
Answer:

Working Notes:
Share of profits of Rakesh on the basis of average profits of three years to the date of death will be calculated as follows :
Average profits of the firm for three years :

Short Answer Type Questions 

Question 1.
What are the different ways in which a partner can retire from the firm?
Answer:
According to Section 32 (1) of the Indian Partnership Act, 1932:
(i) A partner may retire from the firm with the consent of all the other partners of the firm.
(ii) A partner may retire in accordance with an express agreement by the partners.
(iii) In case of partnership at will, by giving notice in writing to all the other partners of his intention to retire.
(iv) A partner may retire by voluntarily surrender his share in the favour of existing partners and relinquish himself from the affairs of the firm in future.

Question 2.
Write the various matters that need adjustments at the time of retirement of a partners.
Answer:
Various matters that need adjustment in the books of a firm at the time of retirement of a partner are as follows:
1. New profit sharing ratio.
2. Gaining ratio.
3. Calculation of goodwill and its accounting treatment.
4. Distribution of accumulated profits or losses and reserves.
5. Revaluation of assets and liabilities.
6. Adjustment of Joint Life Policy (in any).
7. Settlement of amount due to the retiring partner.
8. Adjustment of Capital Accounts in New Profit Sharing Ratio.

Question 3.
Distinguish between Sacrificing Ratio and Gaining Ratio.
Answer:
Sacrificing Ratio—A sacrifice ratio may be defined as the ratio in which the existing partners have surrendered a part of their profit or loss sharing ratio in favour of the new partner. The sacrificing ratio may be calculated as:
Sacrificing Ratio = Old Ratio – New Ratio Gaining Ratio : The gaining ratio may be defined as the ratio in which the continuing partners acquire the share of retiring/deceased partner. Gaining Ratio may be calculated as:

Gaining Ratio = New Ratio – Old Ratio
There are the following points of difference between the two ratios:
   

Question 4.
Why do firm revaluate assets and reassess their liabilities on retirement or on the event of death of a partner?
Answer:
At the time of retirement/ death some of assets may not have been shown at their current values. Similarly, there may be certain liabilities which have been shown at a different from the obligation to be met by the firm. Besides this, there may be unrecorded assets and liabilities which have to be recorded.

It is necessary that the retiring/deceased partner is given a share of all profits that have arisen till his retirement or death and is made to bear his share of losses that have occurred till that period. This necessitates revaluation of assets and liabilities.

In other words, at the time of retirement or death of a partner, assets and liabilities of a firm are revalued on the reasons that they should be shown at current market value and the resultant profit and loss due to difference in the book value and market value be recofded in all partner’s capital accounts and the assets and liabilities comes at right value in the new balance sheet of the new firm.

Question 5.
Why a retiring/deceased partner is entitled to a share of goodwill of the firm?
Answer:
The outgoing partner i.e. retiring/deceased partner is entitled to his share of goodwill at the time of retirement or death because the goodwill has been earned by the firm with the efforts of all the partners. Therefore goodwill is valued as per agreement, at the time of retirement/death.

Due to retirement/death of any partner, the remaining partners make a gain because the future profit will be shared only between the continuing partners. Therefore, the remaining partners should compensate the retiring/deceased partner for his share of goodwill in the gaining ratio.

Long Answer Type Questions

Question 1.
Explain the modes of payment to a retiring partner.
Answer:
The retiring partner is entitled for the amount due to him. It is settled as per the terms of partnership deed i.e. in lump sum immediately or in various instalments with or without interest as agreed or partly in cash immediately and partly in instalments.

In absence of any agreement, Section 37 of the Indian Partnership Act, 1932 is applicable, which states that the retiring partner has an option to receive either interest as the rate of 6% p.a. till the payment of his/her amount due or such share of profits which has been earned with his/her money i.e. based on the Capital ratio. The necessary journal entries are as follows:
1. If payment (full) is made in cash :
Retiring Partner’s Capital A/c – Dr.
To Cash/Bank PJc
(For the amount paid to retiring partner)

2. If the amount due to retiring partner is treated as loan :
Retiring Partner’s Capital A/c – Dr.
To Retiring Partner’s Loan A/c
(For the amount due to retiring partner transferred to his loan account)

3. When amount due to retiring partner is partly paid in cash and the remaining amount is treated as loan :
Retiring Partner’s Capital A/c – Dr.
(Total Amount due)
To Cash/Bank A/c (Amount paid)
To Retiring Partner’s Loan A/c (Amount of loan)
(For the amount due to retiring partner, partly paid in cash and remaining transferred to his loan account)

4. When loan account is settled by paying in instalment includes principal and interest:
(a) For interest due on loan :
Interest on Loan A/c – Dr.
To Retiring Partner’s Loan PJc (For the interest due on Loan of retiring partner)

(b) For payment of instalment of loan with interest:
Retiring Partner’s Loan A/c – Dr.
To Cash/Bank A/c
(For the amount paid (Instalment Interest) to retiring partner)
These entries i.e. (a) and (b) repeated till the loan is paid off.

Question 2.
How will you compute the amount payable to a deceased partner?
Answer:
Whenever partner dies, a partnership will come to end immediately, although the firm may continue with the remaining partners by purchasing the share of the deceased partner. When a partner dies, his representatives or the executors of his estate are entitled to all the rights like s.hare of goodwill, share in the gain of the revaluation of assets and liabilities, share in joint life policy, share of undistributed profits, reserves of the deceased partner.

The executors of deceased partner are entitled to the following :

• Credit balance if deceased partner’s capital account;
• His share of got dwill;
• His share of profit till the date of death;
• His share of profit on revaluation of assets and liabilities;
• His share of accumulated profits and reserves
• His interest on capital if partnership provides till the date of death;
• His share of Joint Life Policy (if any)
• His salary and commission (if any).

The following deductions have to made from the above :

• His drawings, interest of drawings till the date of death;
• His share of loss till the date of death
• His share of loss on revaluation of assets and liabilities;
• His share of the reduction in the value of goodwill (if any).

The share of the deceased partner can be computed by preparing his capital account. The specimen of the deceased partner’s capital accoiint is as follows :

Payment to the Executors :
(i) When payment is made in full
Executor’s A/c – Dr.
To Bank A/c
(For the payment made to executor of deceased partner)

(ii) When payment is made in instalment: The executors are entitled to interest, when the payment is made in instalment. If partnership deed is silent about this, then 6% p.a. should be given as per Section 37 of the Indian Partnership Act, 1932.
When Interest is due :
Interest A/c – Dr.
To Executor’s A/c
When Instalment paid along with interest Executor’s A/c – Dr.
To Cash/Bank A/c

Question 3.
Explain the treatment of goodwill at the time of retirement or on the event of death of a partner?
Answer:
The retiring/deceased partner is entitled to his share of goodwill at the time of retirement/death because the goodwill has been earned by the firm with the efforts of all the partners. Therefore, goodwill is valued as per agreement, at the time of retirement/death.

Due. to retirement/death of any partner, the remaining partners makes a gain because the future profit will be shared only between the continuing partners. Therefore, the continuing partners should compensate the retiring/deceased partner for his share of goodwill in the gaining ratio.

The accounting treatment for goodwill depends upon whether the goodwill already appears in the books of the firm or not.
When goodwill does not appears in the books :
When goodwill does not appears in the books of the firm, there are four following ways to compensate the retiring/deceased partner for his share of goodwill :

(a) Goodwill is raised at its full value and retained in the books:
Goodwill A/c – Dr.
To All Partner’s Capital A/c’s (Individually)
(For the goodwill raised at its full value and credited to Capital A/c’s of all partners in their old profit sharing ratio)
The full value of goodwill appear in the new balance sheet.

(b) Goodwill is raised at its full value and written off immediately:
If it is decided that the goodwill will not appear in the balance sheet of the reconstituted firm, then following journal entries will pass:
(i) Goodwill A/c – Dr.
To All Partner’s Capital A/c’s (individually)
(For raising of Goodwill and credited to All Partner’s Capital A/c in their old profit sharing ratio)

(ii) Remaining Partner’s Capital A/c’s – Dr.
To Goodwill A/c
(For written off Goodwill between remaining partners in their new profit sharing ratio)

(c) Goodwill is raised to the extent of retired/deceased partner’s share and written off immediately:
(i) Goodwill A/c – Dr.
To Retiring/Deceased Partner’s Capital A/c (For the goodwill raised by share of 1 retiring/deceased partner)

(ii) Retiring/Deceased Partner’s Capital A/c – Dr.
To Goodwill A/c
(For the goodwill written off between the remaining partner’s in their gaining ratio)

(d) No Goodwill account is raised at all in firm’s books :
If the retiring/deceased partner’s share of goodwill is adjusted in the capital accounts of the remaining partners without opening a goodwill account, the following entry will required :

Remaining Partner’s Capital A/c – Dr.
To Retiring/Deceased Partner’s Capital A/c
(For the share of retiring/deceased partner in the goodwill adjusted through capital accounts in the gaining ratio)

When Goodwill is already appearing in the books:
(a) If the value of goodwill appearing is equal to the current value of goodwill of the firm :
Normally, no adjustment is required if both the amounts are same. Because goodwill stands credited in the accounts of all the partners including the retiring/deceased one.

(b) If the book value of goodwill is lower than its present value: if the book value is less than the current value, the difference will be debited to goodwill account and credited to Old Partner’s Capital Accounts in their old profit sharing ratio
Goodwill A/c – Dr.
To a All Pamter’s Capital A/c (individually)
(For goodwill raised to its present value)

(c) If the book value of Goodwill is more than the agreed or present value:
If the book value of goodwill is more than the present value, the difference will be debited to the All Partner’s Capital Account in their old profit sharing ratio and credited to the goodwill account.

All Partner’s Capital A/c (individually) – Dr.
To Goodwill A/c
(For goodwill brought down to its present value)

Alternatively:
1. First write off the existing goodwill appearing in the books:
All Partner’s Capital A/c (individually) – Dr.
To Goodwill A/c
(For write off goodwill to all partners in their old profit sharing ratio)

2. Adjust retiring/deceased partner’s share of goodwill through Capital Accounts:
Remaining Partner’s Capital A/c – Dr.
To Retiring/Deceased Partner’s Capital A/c
(For goodwill share of retiring/deceased partner adjusted to remaining partner’s capital Accounts in their gaining ratio)

Hidden Goodwill:
If the firm has agreed to settle the retiring/deceased partner by paying him a lump sum, then the amount paid to him in excess of what is due to him based on the capital accounts balance after making all adjustments like accumulated profits and losses and revaluation profit or loss etc. shall be treated as his share of goodwill known as hidden goodwill.

Question 4.
Discuss he various methods of computing the share in profits in the event of death of a partners.
Answer:
The executors of the deceased partner will be entitled to his share of profit accrued upto the date of death. To avoid the preparation. of final accounts on the date of death, it is provided in the partnership deed that, in the event of the death of a partner, his share of the accurring profit upto to the date of death is to calculated on the basis of profits of the last year or on the basis of profits of last few years or on the basis of sales.

Therefore it is calculated by any one of the following methods :
(i) On the basis of time
(ii) On the basis of turnover

(i) On the basis of time : Here, we have to assumed that profit was uniform throughout the year. According to this method, profit may be calculated by any one of following method :

(a) On the basis of last year’s profit:
Profit of the firm till the date of death of partner
\(=\frac{\text { Previous YearProfit }}{12} \)
Balance Sheet to the date of death
Share of Deceased Partner = Profit of the firm till the date of death x Deceased Partner’s Share.

(b) On the basis of average profits :
\(\text { Average Profit }=\frac{\text { Total Profit of given years }}{\text { No. of years }}\)
Profit of the firm till the daite of death of pamter
\(=\frac{\text { Average Profit }}{12} \times\) Number of month ftom last.
Balance Sheet to the date of death Share of Deceased Partner = Profit of the firm till the date of
death of partner x Deceased Partner’s Share.

Example: Shubu, Shuchita and Puneeta were partners in a firm sharing profits and losses in the ratio 5:3:2. Shuchita dies on 30th June, 2006 i.e. six months after closing of the books. Profit for last three years:

Years —– Rs.
2003 —– 50,000
2004 —– 40,000
2005 —- 30,000

Compute the Shuchita’s share of profit on the date of death:
(i) On the basis of immediately preceding year’s profit.
(ii) On the basis of average profits of the preceding three years.
Solution :
(i) Profit of the firm till the date of death of partner
\(=\frac{\text { Previous Year Profit }}{12}\) No. of months from last
Balance Sheet to the date of death

(ii) On the basis of turnover (or sales):
Profit of the firm till the date of death of partner

Average Profit of a given No. of years OR Previous Year’s Profit
\(=\frac{\times \text { Sale from the date of last Balance Sheet till the date of death }}{\text { Sale of Last Year }}\)

Share of Deceased Partner = Profit of the firm till the date of death x Deceased Partner’s Share

Example : A, B and C are partners sharing profit in the ratio of 3 :2 :1. B dies on 1 st July 2006, whereas books of accounts are closed on 31st March, every year. Sale of last year amount to Rs. 4,00,000 and that from 1st April to 30th June, 2006 to Rs. 1,50,000. The previous year profit amounted Rs. 40,000. Compute B’s share of profit in the firm from 31st March to 30th June, 2006 on the basis of sales.
Profit of the firm till the date of death of partner

Numerical Questions

Question 1.
Apama, 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. Apama and Sonia decided to share future in the ratio of 3 : 2. Pass necessary journal entries.
Answer:

Working Notes:
(i) Old ratio of Apama, Manisha and Sonia = 3:2:1
New ratio of Apama and Sonia =3:2
Gaining ratio = New ratio – Old ratio

Question 2.
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.
Answer:

Question 3.
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 t o 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.
Answer:

Question 4.
Naresh, Raj Kumar and Bishwajeet are equal partners. Raj Kumar decides to retire. On the date of his retirerftent, 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.
Answer:

Question 5.
Digvi jay, Brijesh and Parakaram were partners in a firm sharing profits in the ratio of 2 : 2 : 1. Their Balance Sheet as on March 31, 2007 was as follows:
Answer:

Brijesh retired on March 31, 2007 on the following terms:
(i) Goodwill of the firm was valued at Rs. 70,000 and was not to appear in the books.
(ii) Bad debts amounting to Rs. 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.
(Ans. Loss on Revaluation Rs. 11,000, Balance of Capital Accounts:Digvijay Rs. 66,333 and Parakaram Rs. 67,667, Balance Sheet Total Rs. 2,74,000)
Answer:

Question 6.
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:
Answer:

The terms were:
(a) Goodwill of the firm was valued at Rs. 13,000.
(b) Expenses owing to be brought down to Rs. 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 Rs. 24,300.
Prepare:
1. Revaluation Account;
2. Partner’s Capital Accounts; and
3. Balance Sheet of the firm after retirement of Sheela.
(Ans. Profit on revaluation Rs. 1,350, Balance of Capital Accounts: Radha Rs. 19,050 and Meena Rs. 16,350, Balance Sheet Total = Rs. 71,100)
Answer:

Question 7.
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 ot the firm was as follows :
Answer:

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. 450.
(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 and balance sheet of the firm after Naresh’s retirement.
(Ans.Profit on Revaluation Rs. 18,000, Balance of Capital Account of Pankaj, Rs. 47,000 and Saurabh, Rs. 25,000).
(Total amount at Credit in Naresh’s Capital = Rs. 54,000, Balance Sheet Total = Rs. 1,54,800)
Answer:

Question 8.
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 the 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.
(Ans. Total amount due is Rs. 75,400)
Answer:

Working Notes:
(i) The date of closing the accounts in 31st March and date of payment of an instalment is 30th September.
(ii) Total amount due to Pammy’s Executor Rs. 60,000 is payable in four equal annual instalments.

Yearly Instalment = \(\text { Rs. } \frac{60,000}{4}\)
= Rs. 15,000 Plus Interest.

(iii) Interest on capital for 6 months i.e. from March 31st, 2007 to September 30th, 2007
= Rs. 40,000 \(\times \frac{12}{100} \times \frac{6}{12} \)
= Rs. 2,400,

(iv) Share in accurred profit for 6 months on the basis of previous year’s profit:
Last year’s Profit = Rs. 30,000

Pammy’s Share in Profit = Rs. 30,000 \(\frac{6}{12} \times \frac{1}{5}\)
= Rs. 3,000.

(v) Goodwill
Goodwill of the firm = Average Profit x 3
Total profit of last four years :

Goodwill of the firm = Rs. 50 ,000 x 3 = Rs. 1,50,000
Pammy’s Share = Rs. 1,50,000 \(\times \frac{1}{5}\) = Rs. 30,000
(adjusted to Puneet’s and Pankaj’s Capital A/c in their gaining ratio 1: 1)

Question 9.
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; and
(d) Share of profit from the closing date of the last financial year to the date of death on the basis 6f 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.
(Ans. Rockey’s Executor Account is Rs. 33,821.)
Answer:

Question 10.
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 retirement of Bajaj. Surplus/deficit, if any, in their capital accounts will be adjusted through current accounts.
Prepare necessary ledger accounts and draw the Balance Sheet of the reconstituted firm.
(Ans. Profit on Revaluation, Rs. 6,960; Balance in Capital Accounts of Narang, Rs. 49,230; and that of Suri, Rs. 16,410. Amount at Credit in Bajaj Capital is Rs. 41,320.)
Answer:

New Capital in ratio i.e. 3: 1
Narangs Capital Rs. 65640 x \(\frac{3}{4}\)
Rs. 49,230
Suris Capital = Rs. 65,6443 x \(\frac{1}{4}\)
= Rs. 16,410

Question 11.
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:
(i) Stock was valued at 10% less than the book value.
(ii) Factory buildings were appreciated by 12%.
(iii) Reserve for doubtful debts be created up to 5%.
(iv) Reserve for legal charges to be made at Rs. 265.
(v) The goodwill of the firm be fixed at Rs. 10,000
(vi) The capital of the new firm 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.
(Ans. Loss on Revaluation, Rs. 400; Balance in Capital Accounts of Rajesh, Rs. 18,940; and of Nishant, Rs. 14,705; Pramod’s Loan Rs. 18,705, Balance Sheet Total = Rs. 65,220.)
Answer:

(adjusted in the Capital Accounts of Rajesh and Nishant ¡ri their gaining ratio i.e. 2:1.)

Question 12.
Following is the Balance Sheet of Jam, Gupta and Matik 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.
Answer:
Revaluation Account

(ii) Goodwill :
Goodwill of the firm = Rs. 9,000
Maliks share = Rs. 9,000 x \(\frac{2}{10}\)
= Rs. 1,800
(adjusted to Capital A/c’s of Jair and Gupta in their gaining ratio i.e. 1:3)

(iii) The amount of Rs. 16,500 payable to Malik on his retirement will be shared by Jain and Gupta in their new profit sharing ratio i.e. 3 : 2, assuming that there will be no change in the amount of cash of Rs. 5,500 shown in the balance sheet as required for working capital. Therefore the contribution made by the continuing partners are as follows.

Question 13.
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 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 past three years had been 10% on 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 less 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.
Answer:

Question 14.
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 Vitimes 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.
Answer:





Mithyas Share = Rs. 35,000 x \(\frac{2}{10}\) = Rs. 7000
His share of goodwill is adjusted in capital A/c’s of Nithya and Sathya in their gaining ratio i.e. 5 : 3.

(ii) Share of Profit
Last year profit = Rs. 15,000
Mithya’s Share = Rs. 15,000 x \(\frac{4}{12} \times \frac{2}{10}\)
= Rs. 1,000

Detailed, Step-by-Step NCERT Solutions for 12 Accountancy Chapter 3 Reconstitution of Partnership Firm: Admission of a Partner Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.

Reconstitution of Partnership Firm: Admission of a Partner NCERT Solutions for Class 12 Accountancy Chapter 3

Reconstitution of Partnership Firm: Admission of a Partner Questions and Answers Class 12 Accountancy Chapter 3

Test Your Understanding-I [Page No. 122]

Question 1.
A and B are partners sharing profits in the ratio of 3 :1. They admit C for \(\frac{1}{4}\) share in the future profits. The new profit sharing ratio will be :

Answer:
(a)

Question 2.
X and Y share profits in the ratio of 3:2. Z was admitted as a partner who sets \(\frac{1}{5}\) share. New profit sharing ratio, if Z acquires \(\frac{3}{20}\) from X and \(\frac{1}{20}\) from Y would be:
(a) 9:7:4
(b) 8:8:4
(c) 6:10:4
(d) 10:6:4
Answer:
(a) 9 : 7 : 4

Question 3.
A and B share profits and losses in the ratio of 3 :1, C is admitted into partnership for \(\frac{1}{4}\) share. The sacrificing ratio of A and B is:
(a) Equal
(b) 3:1
(c) 2 : 1
(d) 3:2
Answer:

Test Your Understanding-II [Page No. 142]

Choose the correct alternative :
Question 1.
At the time of admission of a new partner, general reserve appearing in the old balance sheet is transferred to :
(a) all partner’s capital account
(b) new partner’s capital account
(c) old partner’s capital account
(d) none of the above.
Answer:
(c) old partner’s capital account.

Question 2.
Asha and Nisha are partner’s sharing profit in the ratio of 2 :1. Asha’s son Ashish was admitted for \(\frac{1}{4}\) share of which \(\frac{1}{8}\) was gifted by Asha to her son. The remaining was contributed by Nisha. Goodwill of the firm in valued at Rs. 40,000. How much of the goodwill will be credited to the old partner’s capital account.
(a) Rs. 2,500 each
(b) Rs. 5,000 each
(c) Rs. 20,000 each
(d) None of the above.
Answer:
(b) Rs. 5,000 each.

Question 3.
A, B and C are partners in a firm. If D is admitted as a new partner:
(a) old firm is dissolved
(b) old firm and old partnership is dissolved
(c) old partnership is reconstituted
(d) None of the above.
Answer:
(c) old partnership is reconstituted.

Question 4.
On the admission of new partner increase in the value of assets is debited to:
(a) Profit and Loss Adjustment account
(b) Assets account
(c) Old partner’s capital account
(d) None of the above.
Answer:
(b) Assets account.

Question 5.
At the time of admission of a partner, undistributed profits appearing in ti e balance sheet of the old firm is transferred to the capital account of:
(a) old partners in old profit sharing ratio
(b) old partners in new profit sharing ratio
(c) all the partners in the new profit sharing ratio.
Answer:
(a) old partners in old profit sharing ratio.

Do it Yourself [Page No. 144]

Question 1.
A firm’s profits for the last three years are Rs. 5,00,000; Rs. 4,0, 000 and Rs. 6,00,000. Calculate value of firm’s goodwill on the basis of four years’, purchase of the average profits for the last three years. (Answer:Rs. 20,00,000)
Answer:

Question 2.
A firm’s profits for the last five years were Rs. 20,000; Rs. 30,000; Rs. 40,000; Rs. 50,000 and Rs. 60,000. Calculate the value of firm’s goodwill on the basis of three years’ purchase of weighted average profits after using weight of 1,2,3,4 and 5 respectively.
Answer:

Question 3.
A firm’s profits during 2003,2004,2005 and 2006 were Rs. 16,000; Rs. 20,000; Rs. 24,000 and Rs. 32,000 respectively. The firm has capital investment of Rs. 1,00,000. A fair rate of return on investment is 18% p.a. Compute goodwill based on three years’ purchase of the average super profits for the last four years.
Answer:

Super Profit:
Average Profit – Normal Profit
= Rs, 23,000 – Rs. 18,000
= Rs. 5,000
Goodwill at 3 years purchased = Super Profit x 3
= Rs. 5,000 x 3
= Rs. 15,000

Question 4.
Based on the data given in the above question, calculate goodwill by capitalisation of super profits method. Will the amount of goodwill be different if it is computed by capitalisation of average profits? Confirm your answer by numerical verification.
Answer:

Question 5.
Giri and Shanta are partners in firm sharing profits equally. They admit Kachroo into partnership who, in addition to capital, brings Rs. 20,000 as goodwill for \(\frac{1}{5} t h\) share of profits in the firm. What shall be journal entries if:
(a) no goodwill appears in the books of the firm;
(b) goodwill appears in the books of the firm at Rs. 40,000.
Answer:
Old Ratio of Giri and Shanta = 1 : 1
New Ratio of Giri, Shanta and Kachroo = 2:2:1
Sacrificing Ratio = 1 : 1

Question 6.
A and B are partners in a firm sharing profits in the ratio of 3 : 2. They admit C into partnership for \(\frac{1}{5}\) th share of profits in the firm. The goodwill of the firm is valued at Rs. 1,00,000. He is unable to bring in his share of goodwill. What will be the journal entries if:
(a) Goodwill is raised at full value and then written off;
(b) Goodwill is not raised.
Answer:
Old Ratio of A and B = 3 : 2
New Ratio of A, B and C = 9:6:5
Sacrificing Ratio = 3:2
(a) Goodwill is raised at full value and then written off
Journal

Do it Yourself [Page No. 151]

Question 1.
Aslam, Jackab, Hari are equal partners with capitals of Rs. 1,500; Rs. 1,750 and Rs. 2,000 respectively. They agree to admit Satnam into equal partnership upon payment in cash of Rs. 1,500 for one-fourth share of the goodwill and Rs. 1,800 as his capital, both sums to remain in the business. The liabilities of the old firm amount Rs. 3,000 and the assets, apart from cash, consist of Motors Rs. 1,200; Furniture Rs. 400; Stock Rs. 2,650; Debtors of Rs. 3,780. The Motors and Furniture were revalued at Rs. 950 and Rs. 380 respectively, and the depreciation written-off. Ascertain cash in hand and prepare the balance sheet of the firm after Satnam’s admission.
Answer:
Books of Aslam, Jackab and Hari
Balance Sheet as at… (before admission)

Question 2.
Benu and Sunil are partners sharing profits in the ratio of 3 : 2 on April 1, 2003. Ina was admitted for \(\frac{1}{4}\) share who paid Rs. 2,00,000 as capital and Rs. 1,00,000/- for premium in cash. At the time of admission, general reserve amounting to Rs. 1,20,000/- and profit and loss account amounting to Rs. 60,000 appeared on the asset side of the balance sheet. Required: Record necessary journal entries to record the above transactions.
Answer:

Question 3.
Ashoo and Rahul are partners sharing profits in the ratio of 5 : 3. Gaurav was admitted for \(\frac{1}{5}\) share and was asked to contribute proportionate capital and Rs. 4,000 for premium (goodwill). The Capitals of Ashoo and Rahul, after all adjustments relating to revaluation, goodwill etc., worked out to be Rs. 45,000 and Rs. 35,000 respectively.Required: Calculate new profit sharing ratio, capital to be brought in by Gaurav and record necessary journal entries for the same.
Answer:

(ii) Capital to be brought in by Gaurav
Capital of the Firm = Combined Adjusted Capital of Ashoo and Rahul x Reciprocal Proportion of Share of Ashoo and Rahul.

Short Answer Type Questions

Question 1.
Identify various matters that need adjustments at the time of admission of a new partner.
Answer:
At the time of admission of new partner, the followings are the various matters that need adjustments :

• Profit Sharing Ratio
• Valuation and adjustment of goodwill
• Revaluation of assets and Reassessment of liabilities
• Distribution of accumulated profits and reserves
• Adjustment of partners’ capital.

Various entries are to be passed at the time of goodwill brought in by new partner in cash, partial in cash and unable to brought in cash, then the goodwill be adjusted through capital account of new partner.

Revaluation of assets and Reassessment of liabilities of the firm are recorded through Revaluation Account and the resultant profit or loss is to be recorded in the Capital Accounts of old partners in old profit sharing ratio.
Reserves and accumulated profits or losses exist in the books must be adjusted through the capital accounts of old partners in old profit sharing ratio.

Lastly, the capitals of old partners should be adjusted on the basis of capital of new partner or capital of all partners should be adjusted on the basis of adjusted capital of old partners.

Question 2.
Why it is necessary to ascertain new profit sharing ratio even for old partners when a new partner is admitted?
Answer:
On the admis ‘ion of a new partner, the old partners sacrifice a share of their profits ir favour of the new’ partner. On admission of a new partner, the profit sharing ratio among the old partners will change keeping in view their respective contribution to the profit sharing ratio of the incoming partner.

Hence, there is a need to ascertain new profit sharing ratio even for old partners when a new partner is admitted. Given the new partner’s share in profits and the ratio, in which he acquires it from the old partners the new share of each old partner shall be worked out by deducting his share of sacrifice from his old share in profits.

Question 3.
What is sacrificing ratio? Why is it calculated?
Answer:
The ratio in which the old partners have agreed to sacrifice their shares in profits in favour of new partner is called the sacrificing ratio. In principle, the sacrifice ratio is the difference between the old profit sharing ratio and the new profit sharing ratio.

Sacrificing Ratio = Old Ratio – New Ratio
The new partner is required to compensate the old partner’s for their sacrifice of share in the profits of the firm for which he brings in an additional amount known as premium or goodwill. This amount is shared by the old partners in the ratio in which they forego their shares in favour of the new partner which is known as sacrificing ratio.

Question 4.
On what occasions sacrificing ratio is used?
Answer:
Sacrificing ratio is used in following occasions :
1. To compensate old partners for their sacrifice of share in profits in favour of new partner by the way of goodwill which is brought in by new partner.
2. At the time of change in profit sharing ratio of the existing partners.
3. To find out the new profit sharing ratio of the firm.

Question 5.
If some goodwill already exists in the books and the new partner brings in his share of goodwill in cash, how will you deal with existing amount of goodwill?
Answer:
If the goodwill already exists is books of firms and new partner bring in his share of goodwill in cash, then goodwill appearing in the books of accounts will have to be written off by crediting goodwill and debiting old partners in their old profit sharing ratio.

The following journal entry will passed :
Old Partner’s Capital A/c’s Dr.
To Goodwill A/c
(For goodwill written off in old ratio)

Question 6.
Why there is need for the revaluation of assets and liabilities on the admission of a partner?
Answer:
At the time of admission of a partner, it is necessary to assess the correct and current value of assets and liabilities of the firm shown in books because the current value of various assets and liabilities may be different from the values shown in the balance sheet.

To revalue the assets and liabilities new account is opened called Revaluation Account. To revalue the assets and liabilities, all necessary adjustments are made through the Revaluation Account or Profit and Loss Adjustment Account.

Revaluation of assets and liabilities is needed at the time of admission so that the profit or loss arising on account of such revaluation may be adjusted in the old partner’s Capital Account in old profit sharing ratio and the new partner may not be affected by the profit or loss on account of revaluation of assets and liabilities.

Long Answer Type Questions

Question 1.
Do you advise that assets and liabilities must be revalued at the time of admission of a partner? If so, why? Also describe how is this treated in the books of account?
Answer:
At the time of admission of a partner, it is necessary to assess the correct and current value of assets and liabilities of the firm shown in books because the current value of various assets and liabilities may be different from the values shown in the balance sheet. Unrecorded assets and unrecorded liabilities must also be recorded at the time of admission of a partner.

To revalue the assets and liabilities and to record unrecorded assets and unrecorded liabilities, new account is opened called Revaluation Account. To revalue the assets and liabilities, all necessary adjustments are made through the Revaluation Account or Profit and Loss Adjustment Account.

Any gain or loss on revaluation of assets and reassessment of liabilities is transferred to the capital accounts of old partners in their old profit sharing ratio. Revaluation account is credited with increase in the value of assets and decrease in the value of liabilities.

Similarly, decrease of assets and increase in the value of liabilities is debited to revaluation account. If revaluation account shows a credit balance then it indicates gain and if there is debit balance then it indicates loss. Gain or loss on revaluation will be transferred to the capital accounts of the old partners in old ratio.

Revaluation of assets and reassessment of liabilities is needed at the time of admission, so that the profit or loss arising on account of such revaluation may be adjusted in the old partners capital accounts in old profit sharing ratio and the new partner may not be affected by the profit or loss on account of revaluation of assets and liabilities.

The following Journal Entries are recorded on revaluation of assets and liabilities:

Question 2.
What is goodwill? What factors affect goodwill?
Answer:
Goodwill: Goodwill is the value of reputation of a firm in respect of the profits expected in future over and above the normal profits earned by other similar firms belonging to the same industry. In other words, a well-established business develops an advantage of good name, reputation and wide business connections. This helps the business to earn more profits as compared to newly set-up business.

This advantage in monetary terms called ‘Goodwill’. In arises only if a firm is able to earn higher profits than normal.
“Goodwill is nothing more than the probability that old customers will resort to the old place.” —Lord Eldon

“The term goodwill is generally used to denote the benefit arising from connections and reputation.” —Lord Lindley
“Goodwill is a thing very easy to describe, very difficult to define. It is the benefit and advantage of the good name, reputation and connections of a business. It is the attractive force which brings in customers. It is one thing which distinguishes an old established business from a new business at its first start.” —Lord Macnaghten .

“Goodwill may be said to be that element arising from the reputation, connections or other advantages possessed by a business which enable it to C earn greater profits than the return normally to be expected on the capital represented by the net tangible assets employed in the business.” —Spicer and Pegler.

“When a man pays for goodwill, he pays for something which places him in the position of being able to earn more than he would be able to do by his own unaided efforts.” —Dicksee Thus, goodwill can be defined as “the present value of a firm’s anticipated excess earnings ‘or as’ the capitalised value attached to the differential profits capacity of a business.”

Characteristics of Goodwill:
1. Goodwill is an intangible asset but not a fictitious asset,
2. It is valuable asset. Its value is dependent on the subjective judgement of the valuer.
3. It helps in earning higher profits than normal.
4. It is very difficult to place an exact value on goodwill. It is fluctuating from time to time due to changing circumstances of the business.
5. Goodwill is an attractive force which brings in customers to old place of business.
6. Goodwill comes into existence due to various factors.

Factors Affecting the Value of Goodwill:

1. Nature of Business : Company produces high value added products or having stable demand in market. Such company will have more goodwill and is able to earn more profits.

2. Location : If a business is located at a favourable place, it will attract more customers and therefore will have more goodwill.

3. Efficient Management : Efficient management brings high productivity and cost efficiency to the business which enable it to earn higher profits and thus more goodwill.

4. Market Situation : A firm under monopoly or limited competition enjoys high profits which leads to higher value of goodwill.

5. Special Advantages: A firm enjoys higher value of goodwill if it has special advantages like import licences, low rate and assured’ supply of power, long-term contracts for sale and for purchase, patents, trademarks etc.

6. Quality of Products : If the quality of product of firm is good and regular, then it has more goodwill.

Question 3.
Explain various methods of valuation of goodwill.
Answer:
Goodwill is an intangible asset, so it is very difficult to calculate its exact value. There are various methods for the valuation of goodwill in the partnership, but the value of goodwill may differ in different methods. The method by which the value of goodwill is to be calculated, may be specifically decided among all the partners. The methods followed for valuing goodwill are :
1. Average Profit Method
2. Super Profit Method
3. Capitalisation Method.

1. Average Profit Method: Goodwill is calculated on the basis of the number of past years profits. In this method, the goodwill is valued at agreed number of ‘year’ purchase of the average profits of the past few years.

Steps:
1. Find the total profit of past given years.

2. Add all’abnormal losses like loss from fire or theft etc. and any normal income if not added before to the total profits of past given year.

3. Then, subtract, Abnormal Income (income from speculation or lottery etc.), Normal expenses (if not deducted), Income from investment (if not related to general activities of business) and remuneration of proprietor (if not given), if any, from the total profit of past given years.

4. After this, calculate actual average profit by dividing total profit by No. of years.

5. Then multiply Average Profit to the No. of years purchases to find out the value of goodwill.

Weighted Average Profit Method
Sometimes, if there exists an increasing or decreasing trend, it is considered to be better to give a higher weightage to the profits to the recent years than those of the earlier years. This method is an extension of average profit method.

Steps:
1. Multiply each year’s profits to the weight assigned to each year respectively.
2. Find the total of product.
3. Divide this product by total of weights for ascertaining average profits.
4. Average profits then multiplied with No’s of year purchased to find the value of goodwill.

2. Super Profit Method : Under this method goodwill is valued on the basis of excess profits earned by a firm in comparison to average profits earned by other firms when a similar type of firm gets return as a certain percentage of the capital employed, it is called ‘normal return’. The excess of actual profit over the normal profit is called ‘super profits’. To find out the value of goodwill, super profit is multiplied with the agreed number of year’s purchase.

Steps:
1. Calculate Actual Average Profit \(\text { i.e. }\left[\frac{\text { Total Profit }}{\text { No’s of Year }}\right]\)

2. Calculate Normal Profit i.e.
Capital Employed x \(\frac{\text { Normal Rate of Return }}{100}\)
[Capital Employed = Total Assets – Outside Liabilities]

3. Find Out Super Profits
Superprofits = Actual Average Profit-Normal Profit

4. Calculate the Value of Goodwill
= Super Profit x No’s of year purchased

3. Capitalisation Methods :
(a) by capitalizing the average profits
(b) by capitalizing the super profits.

(a) Capitalisation of Actual Average Profit Method : Steps:
1. Calculate Actual Average Profit: \(\left[\frac{\text { Total Profit }}{\text { No’s of Year }}\right]]\)

2. Capitalize the average profit on the basis of the normal rate of return:
Capitalised value of actual average profit
= Actual Average Profit x \(\frac{100}{\text { Normal Rate of Return }}\)

3. Find the actual capital employed :
Actual Capital Employed = Total Assets at their current value other than [Goodwill, Fictitious Assets and non-trade investments] – Outside Liabilities.

4. Compute the value of Goodwill
Goodwill = Capitalised value of Actual Average Profit – Actual capital employed.

(b) Capitalisation of Super Profit Method :
Steps:
1. Calculate Actual Capital Employed [same as above].
2. Calculate Super Profit [same as under Super Profit method].
3. Multiply the super profit by the required rate of return multiplier
Goodwill = Super Profit x \(\frac{100}{\text { NormalRate of Return }}\)

Question 4.
If it is agreed that the capital of all the partners should be proportionate to the new profit sharing ratio, how will you work out the new capital of each partner? Give example and state how necessary adjustments will be made?
Answer:
Sometimes at the time of admission, the partners may agree that their capitals should also be adjusted so as to proportionate to their profit sharing ratio. There are two situations. Under the first situation, the capital of new partner is given and the same can be used as a base for calculating the new capitals of the old partners.

New capitals of partners may be compared with their old capitals after all adjustments have been made, the partner adjustments have been made, the partner whose capital falls short, will bring the sufficient amount as necessary and the partner who has a surplus, will withdraw excess amount of capital.

This may be clarified with the following example : Alok and Bhola are partners sharing profits in the ratio of 2 :1. Charan is admitted into the tirm for \(\frac{1}{4} \mathrm{th}\) share of profits.

Charan brings in Rs. 20,000 as capital. The capitals of other partners after all adjustments have been worked out at Rs. 45,000 for Alok and Rs. 15,000 for Bhola. It is agreed that partner’s capitals will be according to the new profit sharing ratio. Determine the new capitals of Alok and Bhola and make necessary Journal Entries.
Solution:
Firstly, to calculate new profit sharing ratio as follows : Total share of the firm ± 1

Required capital of Alok and Bhola on the basis of Charan’s capital be calculated as follows:
Charan invested Rs. 20,000 as capital for \(\frac{1}{4} \text { th }\) share. Hence the capital of the entire firm should be Rs. 80,000 i.e. \(\left(20,000 \times \frac{4}{1}\right)\) and be divide;’ ‘tween the partners in their new profit stuuing ratio.

Alok’s share = Rs. 80,000 x \(\frac{2}{4}\) = Rs. 40,000 .
Bhola’s share = Rs. 80,000 x \(\frac{1}{4}\) = Rs. 20,000

The adjusted capitals of old partner Rs. 15,000 falls short by Rs. 5,000 and Rs. 45,000 shows surplus by Rs. 5,000. The Journal Entries of the above be passed as follows :

(ii) In the second situation, the total capitals of the firm be given and it is agreed that the capital of each partner should be proportionate to his share in profits. In such a situation each partner’s capital (including the new partner’s capital to be brought by him) is calculated on the basis of his share in profits.

The surplus or deficiency in old partner’s capital account can be transferred to respective current account subject to agreement between the partners. This may be proved through the following examples:

Example: A, B and C are partners in a firm sharing profits in the ratio of 3 : 2 : 1. D is admitted into the firm for \(\frac{1}{4}\) th share in profits which he gets from \(\frac{1}{8}[latex] A and [latex]\frac{1}{8}\) from B. The total capital of the firm is agreed upon Rs. 1,20,000 and D is to bring in cash the equivalent of \(\frac{1}{4}\) of amount as capital. The capitals of A, B and C after all adjustments have been worked out at Rs. 40,000; Rs. 35,000 and Rs. 30,000 respectively. Calculate the final capitals.
Answer:

A will bring in Rs. 5,000; B will withdraw Rs. 10,000; C will also withdraw Rs. 10,000 and D will bring in Rs. 30,000. Alternatively, the current accounts can be opened and the amounts to be brought in or withdrawn by A, B and C will be transferred to their respective current account: The Journal Entries in this regard will be passed as follows :

Question 5.
Explain how will you deal with goodwill when new partner is not in a position to bring his share of goodwill in cash.
Answer:
If new partner is not in a position to bring his share of goodwill in cash, then Revaluation Method is followed. In this situation, the goodwill account is raised in the books of accounts. When goodwill account is to be raised in the books there may be two possibilities :
(i) No goodwill appears in books at the time of admission;
(ii) Goodwill already appears in books at the time of admission.
(i) No Goodwill appears in the books :

Goodwill A/c Dr.
To Old Partner’s Capital A/c’s
(For goodwill raised at full value in the old profit sharing ratio)

The good will thus raised shall appear in the balance sheet at its full value.
Example : Aman and Amit are partners in a firm sharing profits and losses in the ratio of 3 : 2. They decide to admit Sumit into partnership for — share of profits which he acquire equally from Aman and Amit.

Goodwill of the firm is valued at Rs. 1,20,000. Sumit brings in Rs. 48,000 as his share of capital but unable to bring his share of goodwill. No goodwill accounts appears in books of the firm. Goodwill account is to be raised at full value.
Solution:

(ii) When goodwill already exist in the books :

(i) When the value of goodwill appearing in books is equal to the agreed value : [No Entry is Required]

(ii) If the value of goodwill appearing in the books is less than the agreed value:
Goodwill A/c    –  Dr.
To Old Partner’s Capital A/c’s (For goodwill is raised to its agreed value)

(iii) If the value of goodwill appearing in the books is more than the agreed value :
Old Partner’s Capital A/c’s         –  Dr.
To Goodwill A/c’s
(For goodwill brought down to its agreed value) Example : Roily and Polly are partners in a firm sharing profits
and losses in the ratio 3 :2. They admit Dolly into partnership with share in profits.

Goodwill of the firm is valued at Rs. 1,20,000. Dolly bring in only her share of capital of Rs. 40,000 but unable to bring her share of goodwill. Give necessary journal entries under each of the following situations

(i) When the goodwill appears at Rs. 1,20,000 in the books.
(ii) When the goodwill appears at Rs. 80,000 in the books.
(iii) When the goodwill appears at Rs. 1,50,000 in the books.
Solution:
(i) When the goodwill appears at Rs. 1,20,000 in the books.
[No’Entry Required]
(ii) When the goodwill appears at Rs. 80,000 in the books.

If partners, after raising goodwill in the books and making necessary adjustments decide that the goodwill should not appear in the firm’s balance sheet, then it has to be written off.
All Partner’s Capital A/c’s        – Dr.
To Goodwill A/c
(For goodwill written off)
If in above example Roily, Roily and Dolly do not want goodwill to appear in the Balance Sheet, the entry for goodwill is follows :

Sometimes, the partners may decide not to show goodwill account anywhere in books.
New Partner’s Capital A/c Dr.
To Old Partner’s Capital A/c’s
(For adjustment for New Partner’s share of goodwill)
If in above example, we were to treat goodwill in this manner, the entry for goodwill is follows :

Question 6.
Explain various methods for the treatment of goodwill on the admission of a new partner.
Answer:
To compensate old partners for the loss (sacrifice) of their share in profits, the incoming partner, who acquire his share of profits from the old partners brings in some additional amount termed as share of goodwill.
Goodwill, at the time of admission, can be treated in two ways :
(i) Premium Method
(ii) Revaluation Method.

(i) Premium Method : Premium method is followed when the incoming partner pays his share of goodwill in cash. From the accounting point of view, following are the different situation related to treatment of goodwill:

(a) Goodwill (premium) paid privately (directly to old partners)
[No Entry is required]
(b) Goodwill (premium) brought in cash through the firm

(i) Cash A/c Dr.
To Goodwill A/c
(For the amount of goodwill brought by new partner)

When goodwill already exists in books: If the goodwill already exists in books of firms and incoming partner brings his share of goodwill in cash, then the goodwill appearing in the books will have to be written off.

(ii) Revaluation Method: If the incoming partner does not bring in his share of goodwill in cash, then this method is followed. In this case, the goodwill account is raised in the books of accounts. When goodwill account is to be raised in the books there are two possibilities :
(a) No goodwill appears in books at the time of admission.
(b) Goodwill already exists in books at the time of admission.

If the incoming partner brings in a part of his share of goodwill. In that case, after distributing the amount brought in for goodwill among the old partners in their sacrificing ratio, the goodwill account is raised in the books of accounts based on the portion of premium not brought by the incoming partner.

Example : X and Y are partners sharing profits in the ratio 3 : 2. They admit Z as new partner for \(\frac{1}{4} \text { th }\) share. The sacrificing ratio of X and Y is 2 : 1. Z brings Rs. 12,000 as goodwill out of his share of Rs. 18,0. No goodwill account appears in the books of the firm.
Solution:

(b) When goodwill already exists in the books
(i) When the value of goodwill appearing in books is equal to the agreed value :
[No Entry is Required]

(ii) If the value of goodwill appearing in the books is less than the agreed value :
Goodwill A/c  – Dr.
To Old Partner’s Capital A/c’s (For goodwill is raised to its agreed value)

(iii) If the value of goodwill appearing in the books is more than the agreed value :
Old Partner’s Capital A/c’s   – Dr.
To Goodwill A/c
(For goodwill brought down to its agreed value)

• If partners, after raising goodwill in the books and making necessary adjustments decide that the goodwill should not appear in the firm’s balance sheet, then it has to be written off.
All Partners Capital A/c’s  – Dr.
ToGoodwil A/c
(For goodwill written-off)

• Sometimes, the partners may decide not to show goodwill account anywhere in books.
New Partner’s Capital A/c – Dr.
To Old Partner’s Capital A/c
(For adjustment for new partner’s share of goodwill)

Hidden or Inferred Goodwill:
(i) To find out the total capital of the firm by new partner’s capital and his share of profit.
Example : New partner’s capital for \(\frac{4}{1}\) th share is Rs. 80,000, the entire capital of the new firm will be
Rs. 80,000 x \(\frac{4}{1}\) = Rs. 3,20,000

(ii) To ascertain the existing total capital of the firm : We will have to ascertain the existing total capital of the new firm by adding the capital (of all partners, including new partner’s capital after adjustments, if any excluding goodwill)

→ If assets and liabilities are given:
Capital = Assets (at revalued figures) –  Liabilities (at revalued figures)

(iii) Goodwill = Capital from (i) — Capital from (ii) Generally, this method is used, when the incoming partner does not briñg his share of goodwill in cash. Here, we find out the total goodwill of the firm. After that we can find out (he new partner’s share of goodwill and treat accordingly.

Question 7.
How will you deal with the accumulated profits and losses and reserves on the admission of a new partner?
Answer:
If, at the time of admission of a new partner, any reserves or accumulated profits or losses appear in the books of the firm, these should be transferred to old partner’s capital/current accounts in their old profit sharing ratio. This should be done because the new partner is not entitled to any share in such accumulated profits and losses as
these are earned/unclaimed by the old partners.

Question 8.
At what figures the value of assets and liabilities appear in the books of the firm after revaluation has been due. Show with the help of an imaginary balance sheet.
Answer:
After revaluation the assets and liabilities appears in the books of the firm are shown at their current values. For this it is necessary to assess the correct and current value of assets and liabilities of the firm shown in books because this current value of assets and liabilities are shown in the balance sheet of the reconstituted firm.

Unrecorded assets and unrecorded liabilities must also be recorded the time of revaluation. To revalue the assets and liabilities and to record unrecorded assets and unrecorded liabilities, new account is opened called Revaluation Account. To revalue the assets and liabilities, all necessary adjustments are made through the Revaluation Account or Profit and Loss Adjustment Account.

Any gain or loss on revaluation of assets and reassessment of liabilities is transferred to the capital accounts of existing partners in their old profit sharing ratio. Revaluation account is credited with increase in the value of assets and decrease in the value of liabilities.

Similarly decrease of assets and increase in the value of liabilities is debited to revaluation account. If revaluation account shows a credit balance then it indicates gain and if there is debit balance then it indicates loss. Gain or loss on revaluation will be transferred to the capital accounts of the existing partners in old ratio.

Revaluation of assets and reassessment of liabilities is needed at the time of admission, so that the profits or loss arising on account of such revaluation may be adjusted in the old partner’s capital accounts in old profit sharing ratio and the new partner may not be affected by the profit or loss on account of revaluation of assets and liabilities.

Example: Following is the Balance Sheet of Sahil and Isha, who share profits in the ratio of 3 : 2. .
Balance Sheet of Sahil and Isha as at April 1st, 2007

On that date, they admitted Ashu into partnership on the following terms :
1. That Ashu is to bring in Rs. 45,000 as capital and Rs. 15,000 as premium for goodwill for
2. That the value of stock is reduced by 10% while plant and machinery is appreciated by 15%.
3. That furniture is revalued at Rs. 27,000.
4. That a provision for doubtful debts is to be created on Sundry debtors at 5% and Rs. 600 is to be provided for an electricity bill.
5. Investment worth Rs. 3,000 (not recorded in the balance sheet) is to be taken into account.
6. A creditor of Rs. 300 is not likely to claim his money and is to be written off.
Record journal entries and prepare revaluation A/c, capital account of partners and the balance sheet of newly reconstituted firm.
Solution :
Books of Sahil, Isha and Ashu ‘
Journal
On that date, they admitted Ashu into partnership on the following terms :
1. That Ashu is to bring in Rs. 45,000 as capital and Rs. 15,000 as premium for goodwill for \(\frac{1}{6} \text { th }\)
2. That the value of stock is reduced by 10% while plant and machinery is appreciated by 15%.
3. That furniture is revalued at Rs. 27,000.
4. That a provision for doubtful debts is to be created on Sundry debtors at 5% and Rs. 600 is to be provided for an electricity bill.
5. Investment worth Rs. 3,000 (not recorded in the balance sheet) is to be taken into account.
6. A creditor of Rs. 300 is not likely to claim his money and is to be written off.
Record journal entries and prepare revaluation A/c, capital account of partners and the balance sheet of newly reconstituted firm.
Solution :
Books of Sahil, Isha and Ashu
Journal

Numerical Questions

Question 1.
A and B were partners in a firm sharing profits and losses in the ratio of 3:2. They admit C into the partnership with \(\frac{1}{6}p\) share in the profits. Calculate the new profit sharing ratio.
Answer:

Question 2.
A, B and C were partners in a firm sharing prof its in 3:2:1 ratio. They admitted D for 10% profits. Calculate the new profit sharing ratio.
Answer:

Question 3.
X and Y are partners sharing profits in 5:3 ratio admited Z for \(\frac{1}{10}\) share which he acquired equally for X and Y. Calculate new profit sharing ratio.
Answer:

Question 4.
A, B and C are partners sharing profits in 2:2:1 ratio admitted D for \(\frac{1}{8}\) which he acquired entirely from A. Calculate new profit sharing ratio?
Answer:

Question 5.
p and Q are partners sharing profits in 2:1 ratio. They admitted R into partnership giving him \(\frac{1}{5} \) share which he acquired from P and Q in 1:2 ratio. Calculate new profit sharing ratio.
Answer:

Question 6.
A, B and C are partners sharing profits in 3 : 2 : 2 ratio. They admitted D as a new partner for \(\frac{1}{5}\) share which he acquired from A, B and C in 2 : 2 :1 ratio respectively. Calculate new profit sharing ratio?
Answer:

Question 7.
A and B were partners in a firm sharing profits in 3:2 ratio. They admitted C for \(\frac{3}{7}\) share which he took\(\frac{2}{7}\) from A and \(\frac{1}{7}\) from B. Calculate new profit sharing ratio.
Answer:

Question 8.
A, B and C were partners in a finn sharing profits in 3:3:2 ratio. They admitted D as a new partner for \(\frac{4}{7}\) profit. D acquired his share \(\frac{2}{7}\) from A, \(\frac{1}{7}\) from B and \(\frac{1}{7}\) from C. Calculate new profit sharing ratio.
Answer:

Question 9.
Radha and Rukmani are partners in a firm sharing profits in 3:2 ratio. They admitted Gopi as a new partner. Radha \( \frac{1}{3}\) surrendered of her share in favour of Gopi and Rukmani \( \frac{1}{4}\) surrendered of her share in favour of Gopi. Calculate new profit sharing ratio.
Answer:

Question 10.
Singh, Gupta and Khan are partners in a firm sharing profits in 3:2:3 ratio. They admitted Jam as a new partner. Singh surrendered \(\frac{1}{3}\) of his share in favour of Jam : Gupta surrendered \(\frac{1}{4}\) of his share in favour of Jam and Khan surrendered \(\frac{1}{5}\)  in favour of Jam. Calculate new profit sharing ratio.
Answer:

Question 11.
Sandeep and Navdeep are partners in a firm sharing profits in 5 : 3 ratio. They admit C into the firm and the new profit sharing ratio was agreed at 4 : 2 :1. Calculate the sacrificing ratio.
Answer:

Question 12.
Rao and Swami are partners in a firm sharing profits and losses in 3 :2 ratio. They admit Ravi as a new partner for \(\frac{1}{8}\) share in the profits. The new profit sharing ratio between Rao and Swami is 4 :3. Calculate new profit sharing ratio and sacrificing ratio?
Answer:

Question 13.
Compute the value of goodwill on the basis of four years, purchase of the average profits based on the last five years? The profits for the last five years were as follows:
Answer:

Answer:

Question 14.
Capital employed in a business is Rs. 2,00,000. The normal rate of return on capital employed is 15%. During Ihe year 2002 the firm earned a profit of Rs. 48,000. Calculate goodwill on the basis of 3 years purchase of super profit.
Answer:

Super Profit = Average Profit – Normal Profit
Rs. 48,000 – Rs. 30,000
Rs. 18,000

Goodwill = Super Profit x 3 years purchase
Rs. 18,000 x 3
Rs. 54,000.

Question 15.
The books of Ram and Bharat showed that the capital employed on 31.12.2002 was Rs. 5,00,000 and the profits for the last 5 years: 2002 Rs. 40,000; 2003 Rs. 50,000; 2004 Rs. 55,000; 2005 Rs. 70,000 and 2006 Rs. 85,000. Calculate the value of goodwill on the basis of 3 years purchase of the average super profits of the last 5 years assuming that the normal rate of return is 10%.
Answer:

Question 16.
Rajan and Rajani are partners in a firm. Their capitals. were Rajan Rs. 3,00,000; Rajani Rs 2,00,000. During the year 2002 the firm earned a profit of Rs. 1,50,000. Calculate the value of goodwill of the firm assuming that the normal rate of return is 20%.
Answer:

Question 17.
A business has earned average profits of Rs. 1,00,000 during the last few years. Find out the value of goodwill by capitalisation method, given that the assets of the business are Rs. 10,00,000 and its external liabilities are Rs. 1,80,000. The normal rate of return is 10%.
Answer:

Goodwill = Total Capitalised value of the firm – Total Assets of the firm
= Rs. 10,00,000 – Rs. 8,20,000
= Rs. 1,80,000.

Question 18.
Verma and Sharma are partners in a firm sharing profits and losses in the ratio of 5:3. They admitted Ghosh as a new partner for \(\frac{1}{5}\) share of profits. Ghosh is to bring in Rs. 20,000 as capital and Rs. 4,000 as his share of goodwill premium. Give the necessary journal entries:
(a) When the amount of goodwill is retained in the business.
(b) When the amount of goodwill is fully withdrawn.
(c) When 50% of the amount of goodwill is withdrawn.
(d) When goodwill is paid privately.
Ans.
Old ratio of Verma and
Sharma = 5:3 Sacrificing Ratio = 5:3
(a) When the amount of goodwill is retained in the business :




(d) When goodwill is paid privately: No entry is required.

Question 19.
A and B are partners in a firm sharing profits and losses in the ratio of 3:2. They decide to admit C into partnership with \(\frac{1}{4}\) share in profits. C will bring in Rs. 30,000 for capital and the requisite amount of goodwill premium in cash. The goodwill of the firm is valued at Rs. 20,000. The new profit sharing ratio is 2:1:1. A and B withdraw their share of goodwill. Give necessary journal entries.
Answer:

Question 20.
Arti and Bharti are partners in a firm sharing profits in 3:2 ratio. They admitted Sarthi for \(\frac{1}{4}\) share in the profits of the firm. Sarthi brings Rs. 50,000 for his capital and Rs. 10,000 for his \(\frac{1}{4}\) share of goodwill. Goodwill already appears in the books of Arti and Bharti at Rs. 5,000. The new profit sharing ratio between Arti, Bharti and Sarthi will be 2: 1 : 1. Record the necessary journal entries in the books of the new firm.
Answer:
Old ratio of Arti and Bharti = 3 :2
Newratio of Arti,BhartiandSarthi = 2:1:1
Sacrificing Ratio = Old Ratio – New Ratio
\(\text { Arti’s sacrifice }=\frac{3}{5}-\frac{2}{4}=\frac{12-10}{20}=\frac{2}{20}\)

Question 21.
X and Y are partners in a firm sharing profits and losses in 4:3 ratio. They admitted Z \(\frac{1}{8}\) for share. Z brought Rs. 20,000 for his capital and Rs. 7,000 for his \(\frac{1}{8}\) share of goodwill. Subsequently X, Y and Z decided to show goodwill in their books at Rs. 40,000. Show necessary journal entries in the books of X, Y and Z.
Answer:

Question 22.
Aditya and Balan are partners sharing profits and losses in 3:2 ratio. They admitted Christopher for \(\frac{1}{4}\) share in the profits. The new profit sharing ratio agreed was 2:1:1. Christopher brought Rs. 50,000 for his capital. His share of goodwill was agreed to at Rs. 15,000 . Christopher could bring only Rs. 10,000 out of his share of goodwill. Record necessary journal entries in the books of the firm
Answer:
Old ratio of Aditya and Balance = 3:2
New Ratio of Aditya, Balan and Christopher = 2:1:1
Sacrificing Ratio = Old Ratio – New Ratio

Question 23.
Amar and Samar were partners in a firm sharing profits and losses in 3:1 ratio. They admitted Kanwar for \(\frac{1}{4}\) share of profits. Kanwar could not bring his share of goodwill premium in cash. The goodwill of the firm was valued at Rs. 80,000 on Kanwar’s admission. Record necessary journal entry for goodwill on Kanwar’s admission.
Answer:

Question 24.
Mohan Lai and Sohan Lai were partners in a firm sharing profits and losses in 3 : 2 ratio. They admitted Ram Lai for \(\frac{1}{4}\) share on 1.1.2003. It was agreed that goodwill of the firm will be valued at 3 years purchase of the average profits of last 4 years which were Rs. 50,0 for 2003, Rs. 60,000 for 2004, Rs. 90,000 for 2005 and Rs. 70,000 for 2006. Ram Lai did not bring his share of goodwill premium in cash. Record the necessary journal entries in the books of the firm on Ram Lai’s admission when:
(a) Goodwill already appears in the books at Rs. 2,02,500.
(b) Goodwill appears in the books at Rs. 2,500.
(c) Goodwill appears in the books at Rs. 2,05,000.
Answer:

(a) When Goodwill already appears in the books at Rs. 2,02,500:
No Entry is required.
Because there is no difference between the value of goodwill appearing in the books and the agreed value of Goodwill.
(b) When Goodwill appears in the books at Rs. 2,500 :

Question 25.
Rajesh and Mukesh are equal partners in a firm. They admit Hari into partnership and the new profit sharing ratio.between Rajesh, Mukesh and Hari is 4:3: T. On Hari’s admission goodwill of the firm is valued at Rs. 36,000. Hari is unable to bring his share of goodwill premium in cash. Rajesh, Mukesh and Hari decided not to show goodwill in their balance sheet. Record necessary journal entries for the treatment of goodwill on Hari’s admission.
Answer:

Question 26.
Amar and Akbar are equal partners in a firm. They admitted Anthony as a new partner and the new profit sharing ratio is 4 : 3 :2. Anthony could not bring this share of goodwill Rs. 45,000 in cash. It is decided to do adjustment for goodwill without opening goodwill account. Pass the necessary journal entry for the treatment of goodwill.
Answer:
Old ratio of Amar and Akbar = 1 : 1
New profit sharing ratio of Amar, Akbar and Anthony = 4 : 3 : 2
Sacrificing Ratio – Old Ratio – New Ratio

Question 27.
Given below is the Balance Sheet of A and B, who are carrying on partnership business of 31.12.2006. A and B share profits and losses in the ratio of 2 :1.

C is admitted as a partner on the date of the balance sheet on the following terms:
(i) C will bring in Rs. 1,00,000 as his capital and Rs. 60,000 as his \(\frac{1}{4}\) share of goodwill for share in the profits.
(ii) Plant is to be appreciated to Rs. 1,20,000 and the value of buildings is to be appreciated by 10%.
(iii) Stock is found over valued by Rs. 4,000.
(iv) A provision for bad and doubtful debts is to be created at 5% of debtors.
(v) Creditors were unrecorded to the extent of Rs. 1,000. Pass the necessary journal entries, prepare the revaluation account and partners’ capital accounts, and show the Balance Sheet after the admission of C.
Answer:
Old Ratio of A and B = 2 :1
Sacrificing Ratio of A and B = 2 : 1


Partner’s Capital Accounts

Question 28.
Leela and Meeta were partners in a firm sharing profits and losses in the ratio of 5:3. On 1st Jan., 2007 they admitted Om as a new partner. On the date of Om’s admission the balance sheet of Leela and Meeta showed a balance of Rs. 16,000 in general reserve and Rs. 24,000 (Cr) in Profit and Loss Account. Record necessary journal entries for the treatment of these items on Om’s admission. The new profit sharing ratio between Leela, Meeta and Om was 5:3:2.
Answer:

Question 29.
Amit and Viney are partners in a firm sharing profits and losses in 3:1 ratio. On 1.1.2007 they admitted Ranjan as a partner.
On Ranjan’s admission the profit and loss account of Amit and Viney showed a debit balance of Rs. 40,000. Record necessary journal entry for the treatment of the same.

Question 30.
A and B share profits in the proportions of \(\frac{3}{4}\) and \(\frac{1}{4}\) Their Balance Sheet on Dec. 31, 2006 was as follows:

On jan. 1, 2007. C was admitted into partnership on the following terms:
(a) That C pays Rs. 10,000 as his capital. .
(b) That C pays Rs. 5000 for goodwill. Half of this sum is to be withdrawn by A and B.
(c) That stock and fixtures be reduced by 10% and a 5%, provision for doubtful debts be created on Sundry Debtors and Bills Receivable.
(d) That the value of land and buildings be appreciated by 20%.
(e) There being a claim against the firm for damages, a liability to the extent of Rs. 1,000 should be created.
(f) An item of Rs. 650 included in sundry creditors is not likely to be claimed and hence should be written back. Record the above transactions (journal entries) in the books of the firm assuming that the profit sharing ratio between A and B has not changed. Prepare the new Balance Sheet on the admission of C.

Question 31.
A and B are partners sharing profits and losses in the ratio of 3:1. On 1st Jan., 2007 they admitted C as a new partner for \(\frac{1}{4}\) share in the profits of the firm. C brings Rs. 20,000 as for his \(\frac{1}{4}\) share in the profits of the firm. The capitals of A and B after all adjustments in respect of goodwill, revaluation of assets and liabilities, etc. has been worked out at Rs. 50,000 for A and Rs. 12,000 for B. It is agreed that partner’s capitals will be according to new profit sharing ratio. Calculate the new capitals of A and Band pass the necessary journal entries assuming that A and B brought in or withdrew the necessary cash as the case may be for makin their capitals in proportion to their profit sharing ratio.
Answer:

New Profit Sharing Ratio among A, B and C =9 :3:4
Required Capital of A and B
Total capital of the firm based on C’s capital
= Rs. 20,000 x \(\frac{4}{1}\) = Rs. 80,000
Hence, based on their share in profits, the capital of A and B will be:
A’s capital = \(\frac{9}{16}\) x Rs. 80,000 = Rs. 45,000
B’s capital = \(\frac{3}{16}\) x Rs. 80,000 = Rs. 15,000
The capital of A and B after all adjustments:
A’s capital = Rs. 50,000
B’s capital = Rs. 12,000
Hence,
A will withdraw Rs. 5,000 (Rs. 50,000— Rs. 45,000)
and B will contribute additional capital of Rs. 3,000 (Rs. 15,000—
Rs. 12,000)

Question 32.
Pinky, Qumar and Roopa are partners ¡n a firm sharing profits and losses in the ratio of 3:2:1. S is admitted as a new partner for \(\frac{1}{4}\) share in the profits of the firm, which he gets \(\frac{1}{8}\) from Pinky, and \(\frac{1}{16}\) each from Qumar and Roopa. The total capital of the new firm after Seema’s admission will be Rs. 2,40,00. Seema is required to bring in cash equal \(\frac{1}{4}\) to of the total capital of the new firm. The capitals of the old partners.also have to be adjusted in proportion of their profit sharing ratio. The capitals of Pinky, Qumar and Roopa after all adjustments in respect of goodwill and revaluation of assets and liabilities have been made are Pinky Rs. 80,000, Qumar Rs. 30,000 and Roopa Rs. 20,000. Calculate the capitals of all the partners and record the necessary journal entries for doing adjustments in respect of capitals according to the agreement between the partners.
Answer:
Calculation of new profit sharing ratio:
Old ratio of Pinky, Qumar and Roopa =3:2: 1
Seema acquire

Question 33.
The following was the Balance Sheet of Aran, Bablu and Chetan sharing profits and losses in the ratio of \frac{6}{14}: \(\frac{5}{14}: \frac{3}{14}\) respectively.

They agreed to take Deepak into partnership and give him a \(\frac{1}{8}\) share of on the following terms: (a) that Deepak should bring in Rs. 4,200 as goodwill and Rs. 7,000 as his Capital; (b) that furniture be depreciated by 12%; (c) that stock be depreciated by 10% (d) that a Reserve of 5% be created for doubtful debts; (e) that the value of land and buildings having appreciated be brought upto Rs. 31,000; (f) that after making the adjustments the capital accounts of the old partners (who continue to share in the same proportion as before) be adjusted on the basis of the proportion of Deepak’s Capital to his share in the business, i.e., actual cash to be paid off to, or brought in by the old partners as the case may be.
Prepare Cash Account, Profit and Loss Adjustment Account (Revaluation Account) and the Opening Balance Sheet of the new firm.
Answer:

Question 34.
Azad and Babli are partners in a firm sharing profits and losses in the ratio of 2 :1. Chintan is admitted into the firm with \(\frac{1}{4}\) share in profits. Chintan will bring in Rs. 30,000 as his capital and the capitals of Azad and Babli are to be adjusted in the profit sharing ratio. The Balance Sheet of Azad and Babli as on December 31,2006 (before Chintan’s admission) was as follows :

It was agreed that:
(ï) Chintan will bring in Rs. 12,000 as his share of goodwill premium.
(ii) Buildings were valued at Rs. 45,000 and Machinery at Rs. 23,000.
(iii) A provision for doubtful debts is to be created @ 6% on debtors.
(iv) The capital accounts of Azad and Babli are to be adjusted by opening current accounts.
Record necessary journal entries, show necessary ledger accounts and prepare the Balance Sheet after admission.

Question 35.
Ashish and Dutta were partners in a firm sharing profits in 3:2 ratio. On Jan. 01, 2007 they admitted Vimal for \(\frac{1}{5}\) share in the profits. The Balance Sheet of Ashish and Dutta as on Jan. 01, 2007 was as follows:

It was agreed that:
(i) The value of Land and Building be increased by Rs. 15,000.
(ii) The value of plant be increased by 10,000.
(iii) Goodwill of the firm be valued at Rs. 20,000.
(iv) Vimal to bring in capital to the extent of \(\frac{1}{5} \text { th }\) of the total capital of the new firm.
Record the necessary journal entries and prepare Balance Sheet of the firm after Vimal’s admission.

Detailed, Step-by-Step NCERT Solutions for 12 Accountancy Chapter 2 Accounting for Partnership: Basic Concepts Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.

Accounting for Partnership: Basic Concepts NCERT Solutions for Class 12 Accountancy Chapter 2

Accounting for Partnership: Basic Concepts Questions and Answers Class 12 Accountancy Chapter 2

Test Your Understanding-I [Page No. 67 – 68]

Question 1.
Mohan and Shyam are partners in a firm. State whether the claim is valid if the partnership agreement is silent in the following matters:
(i) Mohan is an active partner. He wants a salary of Rs. 10,000 per year
(ii) Shyam had advanced a loan to the firm. He claims interest @ 10% per annum;
(iii) Mohan has contributed Rs. 20,000 and Shyam Rs. 50,000 as capital. Mohan wants equal share in profits.
(iv) Shyam wants interest on capital to be credited @ 6% per annum.
Answer :
(i) Not valid, because in the absence of partnership deed, Mohan is not entitled to any salary.
(ii) Not valid, because in the absence of partnership deed, Shyam is entitled to interest only at the rate of 6% per annum.
(iii) Valid, because profit and losses will be shared equally in the absence of partnership deed.
(iv) Not valid, because in the absence of partnership deed, Shyam is not entitled to any interest on capital.

Question 2.
State whether the following statements are true or false:
(i) Valid partnership can be formulated even without a written agreement between the partners;
(ii) Each partner carrying on the business is the principal as well as the agent for all the other partners;
(iii) Maximum number of partners in a banking firm can be 20
(iv) Methods of settlement of dispute among the partners can’t be part of the partnership deed;
(v) If the deed is silent, interest at the rate of 6% p.a. would be charged on the drawings made by the partner;
(vi) Interest on partner’s loan is to be given @ 12% p.a. if the deed is silent about the rate.
Answer :
(i) True
(ii) True
(iii) True
(iv) False
(v) False
(vi) False

Test your Understanding-II [Page No. 77]

Question 1.
Raju and Jai commenced business in partnership on April 1, 2006. No partnership agreement was made whether oral or written. They contributed Rs. 4,00,000 and Rs. 1,00,000 respectively as capitals. In addition, Raju advanced Rs. 2,00,000 as loan to the firm on October 1, 2006. Raju met with an accident on July 1, 2006 and could not attend the business up to September 30, 2006. The profit for the year ended March 31, 2007 amounted to Rs. 50,600. Disputes have arisen between them on sharing the profits of the firm.
Raju Claims:
(i) He should be given interest at 10% p.a. on capital and so also on loan.
(ii) Profit should be distributed in the proportion of capitals.
Jai Claims:
(i) Net profit should be shared equally.
(ii) He should be allowed remuneration of Rs. 1,000 p.a. during the period of Raju’s illness.
(iii) Interest on capital and loan should be given @ 6% p.a.
State the correct position on each issue as per the provisions of the Partnership Act, 1932.
Answer :
(i) Raju Claims :
(a) As per the provisions of the Indian Partnership Act, 1932, Raju is not entitled to any interest on capital but he is only entitled to interest on loan only at the rate of 6% not at a 10% per annum.
(b) Profits should be distributed equally as per Act.

(ii) Jai Claims:
(a) His claim is perfectly right that Net Profit should be shared equally.
(b) He should not allowed any remuneration during the period of Raju’s illness.
(c) No interest is given on the capital but his claim on interest on loan at a rate of 6% is right.

Question 2.
Reena and Raman are partners with capitals of Rs. 3,00,000 and Rs. 1,00,000 respectively. The profit (as per Profit and Loss Account) for the year ended March 31,2007 was Rs. 1,20,000. Interest on capital is to be allowed at 6% p.a. Raman was entitled to a salary of Rs. 30,000 p.a. The drawings of partners were Rs. 30,000 and 20,000. The interest on drawings to be charged to Reena was Rs. 1,000 and to Raman, Rs. 500. Assuming that Reena and Raman are equal partners. State their share of profit after necessary appropriations.
Answer :

Test your Understanding-III [Page No. 82]

Question 1.
Rani and Suman are in partnership with capitals of Rs. 80,000 and Rs. 60,000, respectively. During the year 2006-2007, Rani withdrew Rs. 10,000 from her capital and Suman Rs. 15,000. Profits before charging interest on capital was Rs. 50,000. Rani and Suman shared profits in the ratio of 3:2. Calculate the amounts of interest on their capitals @ 12% p.a. for the year ended March 31, 2007.
Answer:
Interest on capital always calculated on opening capital
Rani’s Opening Capital = Rs. 80,000
Rate of Interest 12% p.a.
Interest on Capital = Rs. 80,000 x \(\frac{12}{100}\) = Rs- 9,600
Suman’s Opening Capital = Rs. 60,000
Rate of Interest = 12% p.a.
Interest on Capital = Rs. 60,000 x \(\frac{12}{100}\)
= Rs. 7,200.

Question 2.
Priya and Kajal are partners in a firm, sharing profits and losses in the ratio of 5:3. The balance in their fixed capital accounts, on April 1,2006 were: Priya, Rs. 6,00,000 and Kajal, Rs. 8,00,000. The profit of the firm for the year ended March 31, 2007 is Rs. 1,26,000. Calculate their shares of profits:
(a) when there is no agreement in respect of interest on capital, and
(b) when there is an agreement that the interest on capital will be allowed @ 12% p.a.
Answer:
(a) When there is not any agreement in respect of interest on capital, then interest on capital will not be given to partners. Only the profits distributed among them in profit sharing ratio
Priya get share of profit = Rs. 1,26,000 x \(\frac{5}{8}\) = Rs. 78,750
Kajal get share of profit = Rs. 1,26,000 x \(\frac{3}{8}\) = Rs. 47,250

(b) When there is an agreement that the interest on capital will be allowed @ 12% p.a., then the amount of interest on capital is greater than of the profit. Therefore, the payment of interest will be restricted to the amounts of profits. In that case, the profit will be effectively distributed in the ratio of interest on capital of each partner.
Interest @ 12% p.a.
For Priya = Rs. 72,000
and for Kajal = Rs. 96,000
Ratio of interest = 72 : 96 = 3 : 4
Profit distributed in this ratio as interest on capital
Priya get Rs. 1,26,000 x \(\frac{3}{7}\)= Rs, 54,000
Kajal get = Rs. 1,26,000 x \(\frac{4}{7}\)= Rs. 72,000

Do it Yourself [Page No. 72-73]

Question 1.
Soumya and Bimal are partners in a firm sharing profits and losses in the ratio of 3:2. The balance in their capital and current accounts as on April 01, 2006 were as under:

The partnership deed provides that Soumya is to be paid salary @ Rs. 500 per month whereas Bimal is to get a commission of Rs. 40,000 for the year. Interest on capital is to be credited at 6% p.a. The drawings of Soumya and Bimal for the year were Rs. 30,000 and Rs. 10,000 respectively. The net profit of the firm before making these adjustment was Rs. 2,49,000. Interest on Soumya’s drawings was Rs. 750 and Bimal’s drawings, Rs. 250. Prepare Profit and Loss Appropriation Account and Partner’s Capital and Current Accounts.
Answer:

Question 2.
Soniya, Charu and Smita started a partnership firm on April 1, 2006. They contributed Rs. 5,00,000; Rs. 4,00,000 and Rs. 3,00,000 respectively as their capitals and decided to share profits and losses in the ratio of 3:2:1. The partnership provides that Soniya is to be paid a salary of Rs. 10,000 per month and Charu a commission of Rs. 50,000. It also provides that interest on capital be allowed @ 6% p.a.

The drawings for the year were Soniya Rs. 60,000; Charu Rs. 40,000 and Smita Rs. 20,000. Interest on drawings was charged as Rs. 2,700 on Soniya’s drawings; Rs. 1,800 on Charu’s drawings and Rs. 900 on Smita’s drawings. The net amount of profit as per Profit and Loss Account for the year 2006-07 was Rs. 3,56,600.
(i) Record necessary journal entries.
(ii) Prepare Profit and Loss Appropriation Account
(iii) Show capital accounts of the partners.
Answer:
(i) journal Entries

Do it Yourself [Page No. 87-88]

Question 1.
Govind is a partner in a firm. He withdrew the following amounts during the year 2006-07 :

(Rs.)

April 30, 2006  – 6,000
June 30,2006   – 4,000
Sept. 30, 2006  – 8,000
Dec. 31, 2006  – 3,000
Jan. 31,2007  – 5,000
The interest on drawings is to be charged @ 6% p.a. The books are closed on March 31, every year.
Answer:

Interest on Drawings = Rs. 1,69,000 \(\times \frac{6}{100} \times \frac{1}{12}\)
= Rs. 845.

Question 2.
Ram and Syam are partners sharing profits/losses equally. Ram withdrew Rs. 1,000 p.m. regularly on the first day of every month during the year 2006-07 for personal expenses. If interest on drawings is charged @ 5% p.a. Calculate interest on the drawings of Ram.
Answer:
Total Amount Withdrawn = Rs. 1,000 x 12
= Rs. 12,000 Rate = 5% p.a.
Interest on Drawings = Rs. 12,000 x \(\times \frac{5}{100} \times \frac{6}{12}\)
Ram’s Interest on Drawings = Rs. 300

Question 3.
Ver ma and Kaul are partners in a firm. The partnership agreement provides that interest on drawings should be charged @ 6% p.a. Verma withdraw; Rs. 2,000 per month starting from April 01, 2006 to March 31,2007. K. ul withdrew Rs. 3,000 per quarter, starting from April 01, 2006. Calculate interest on partner’s drawings.
Answer:
Total Amount Withdrawn by Verma
= Rs. 2000 x 12 = Rs. 24,000
Rate = 6% p.a.
Time period =\(6 \frac{1}{2}\) month because drawings are regular starting from April 1, 2006
Verma’s Interest on Drawings = Rs. 24,000 x \(\frac{6}{100} \times \frac{61 / 2}{12}\)
= Rs. 24,000 x \(\times \frac{6}{100} \times \frac{13}{24}\)
= Rs. 780
Total Amount Withdrawn by Kaul = Rs. 3,000 per quarter
= Rs, 3,000 x 4 = Rs. 12,000
Rate = 6% p.a.

Time Period = \(7 \frac{1}{2}\) month because drawings are regular starting from April 1, 2006.
Kaul’s Interest on Drawings = Rs. 12,000 x \(\times \frac{6}{100} \times \frac{71 / 2}{12}\)
= Rs. 12,000 × \(\times \frac{6}{100} \times \frac{15}{24}\)
= Rs.450

Do it Yourself [Page No. 93]

Question 1.
Kavita and Lalit are partners sharing profits in the ratio of 2:1. They decide to admit Mohan with share in profits with a guaranteed amount of Rs. 25,000 Both Kavita and Lalit undertake to meet the liability arising out of guaranteed amount to Mohan in their respective profit sharing ratio. The profit sharing ratio between Kavita and Lalit does not change. The firm earned profits of Rs. 76,000 for the year 2006-07. Show the distribution of profit amongst the partners.
Answer:

Do it Yourself [Page No. 95]

Question 1.
Gupta and Sarin are partners in a firm sharing profits in the ratio of 3:2. Their fixed capitals are: Gupta 2,00,000 and Sarin 3,00,000. After the accounts for the year are prepared it is discovered that interest on capital @ 10% p.a. as provided in the partnership agreement, has not been credited in the capital accounts of partners before distribution of profits. Record adjustment entry to rectify the error.
Answer:

Question 2.
Krishna, Sandeep and Karim are partners sharing profits in the ratio of 3:2:1. Their fixed capitals are: Krishna Rs. 1,20,000; Sandeep Rs. 90,000 and Karim Rs. 60,000. For the year 2006-07, interest was credited to them @ 6% p.a. instead of 5% p.a. Record adjustment entry.
Answer:

Question 3.
Leela, Meera and Neha are partners and have omitted interest on capital @ 9% p.a. for three years ended March 31, 2007. Their fixed capitals on which interest was to be allowed throughout were: Leela Rs. 80,000; Meera Rs. 60,000 and Neha Rs. 1,00,000. Their profit sharing ratio during the last three years were:

Record adjustment entry.
Answer:

Short Answer Type Questions (Theoretical)

Question 1.
Define Partnership Deed.
Answer:
A partnership is formed by an agreement, it is essential that there must be some terms and conditions agreed upon by all the partners. These terms and conditions or Agreement may be written or oral. Though the Partnership Act does not expressly require that there should be an agreement in writing.

But in order to avoid all misunderstanding and disputes, it is always the best course to have a written agreement duly signed and registered under the Act.

A document in written which contain the terms of agreement for the partnership is called ‘Partnership Deed’. This document contains the details about all the aspects affecting the relationship between the partners including the objectives of business, contribution of capital by each partner, ratio in which the profit and losses will be shared by the partners and entitlement of partners to interest on capital, interest on loan, etc. The clauses of partnership deed can be altered with the consent of all the partners.

Contents of Partnership Deed—
1. Names and Addresses of the firm and its main business.
2. Names and Addresses of all partners.
3. Amount of capital contributed or to be contributed by each partner.
4. Accounting period of the firm. ‘
5. Date of commencement of partnership firm.
6. Rules regarding operations of bank account.
7. Profit and loss sharing ratio.
8. Duration of partnership, if any.
9. Rate of interest on capital, loan, drawings etc.
10. Salaries, commissions etc., if payable to any partner(s).
11. The rights, duties and liabilities of each partner.
12. Mode of auditor’s appointment, jf any.
13. Rules to be followed in case of admission, retiiement, death of a partner.
14. Rules to be followed in case of insolvency of one or more partners.
15. Settlement of accounts on dissolution of the firm.
16. Rules for the settlement of disputes among the partners.
17. Safe custody of the books of accounts and other documents of the firm.
18. Any other matter relating to the conduct of business.

Question 2.
Explain in 50 words as to why it is considered desirable to make to partnership agreement in writing.
Answer:
It is essential that certain terms and conditions agreed upon by all the partners. Such terms and conditions may be either oral or written. Although it is not compulsory under Indian Partnership Act, 1932 to make this agreement in writing, but written agreement has certain merits inherited in it.

It avoids all misunderstandings and disputes later on among the partners or their parties making conduct with the firm. It will be much better that the agreement must be duly signed and registered under Partnership Act, 1932.

Question 3.
List the items which may be debited or credited in capital accounts of the partners when :
(i) Capitals are fixed
(ii) Capitals are fluctuating
Answer:
(i) Capitals are fixed :
Items appears in Credit side of Capital A/c :
(i) Original capital invested by the partners
(ii) Additional capital introduced

Items appears in Debit side Capital A/c :
(i) Permanent amount withdrawn from capital i.e. Drawings
(ii) Capitals are fluctuating :

Items appears in Credit side of Capital A/c :
(i) Capital introduced or the Opening balance of Capital
(ii) Additional Capital introduced during the year, if any
(iii) Interest on Capital, if any
(iv) Salary to partners, if any
(v) Commission and bonus to the partners, if any
(vi) Share of profit

Items appears in Debit side of Capital A/c :
(i) Drawings made during the year, if any
(ii) Interest on drawings, if any
(iii) Share of loss, if any
(iv) Withdrawal of Capital, if any
(v) Closing Balance

Question 4.
Why is Profit and Loss Adjustment Account prepared? Explain.
Answer:
In partnership, net profit after adjustment of partner’s interest on capital, salary and commission to partners, interest on drawings etc. distributed among the partners in the agreed profit sharing ratio. For this purpose, a separate account is prepared called ‘Profit and Loss Adjustment Account’ or ‘Profit and Loss Appropriation Account’.

It is merely an extension of the Profit and Loss Account. All adjustments in respect of partner’s commission and salary, interest on capital and on drawings etc. are made through this account. It starts with the net profit/net loss as per Profit and Loss Account is transferred to this account.

Question 5.
Give two circumstances under which the fixed capitals of partners may change.
Answer :
Two circumstances are following under which the fixed capitals of partners may change :
(i) The capitals of the partners shall remain fixed unless some additional capital is introduced.
(ii) Some amount of capital is withdrawn permanently as per the agreement among the partners.

Question 6.
If a fixed amount is withdrawn on the first day of every quarter, for what period the interest on total amount withdrawn will be calculated?
Answer:
If a fixed amount is withdrawn on the first day of every quarter, then the interest is calculated on the total amount withdrawn during the year, for a period of seven and half months i.e. 7 \(\frac{1}{2}\) months.

Question 7.
In the absence of partnership deed, specify the rules relating to the following :
Answer:
(i) Sharing of profits and losses.
(ii) Interest on partner’s capital.
(iii) Interest on partner’s drawings.
(iv) Interest on partner’s loan.
(v) Salary to a partner.

In the absence of partnership deed, the rules relating to the following as per Indian Partnership Act, 1932 are :
(i) Sharing of profits and losses : If the partnership deed is silent about the profit sharing ratio, the profit and losses of the firm are to be shared equally by partners.

(ii) Interest on partner’s capital: No interest on capital is given, in absence of partnership deed.

(iii) Interest on partner’s drawings : In absence of partnership deed, no interest is to be charged on the drawings made by the partners.

(iv) Interest on partner’s loan: If partner advances loan to firm then he is entitled to get an interest on the amount of loan at the rate of 6 per cent per annum, in absence of partnership deed.

(v) Salary to a partner: No partner is entitled to get salary from the firm, in absence of partnership deed.

Long Answer Type Questions

Question 1.
What is Partnership? What are its chief characteristics? Explain.
Answer:
Meaning of Partnership—
Partnership is an agreement written/oral between two or more persons who have agreed to do some lawful business and to share profit or loss arising from business. According to Indian Partnership Act, 1932, Section 4 “Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”

In partnership, two or more persons join hands to set-up a business and share its profits and losses.Persons who have entered into partnership with one another are called individually partners and collectively ‘a firm’ and the name under which their business is carried on is called the ‘firm name’. A partnership firm is not a separate legal entity apart from the partners constituting it.

There must be minimum of two persons to form a partnership firm, according to Indian Partnership Act, 1932, but it does not specify the maximum number of partners. In this issue Section 11 of the Companies Act, 1956 limits the number of partners to 10 for a partnership carrying on banking business and 20 for a partnership carrying on any other type of business.

Characteristics of Partnership:
1. Two or More Persons—There must be minimum of two persons to form a partnership firm, according to Indian Partnership Act, 1932, but it does not specify the maximum number of partners. In this issue Section 11 of the Indian Companies Act, 1956 limits the number of 174 N.D. Study Material Based On partners to 10 (ten) for a partnership carrying on banking business and 20 (twenty) for a partnership carrying on any other type of business.

2. Agreement—Partnership comes into existence on account of an agreement among the partners, and not from status or operations of law. The agreement becomes the basis of relationship between the partners. It may be written or oral. It may be for a fixed period or for a particular venture or at will.

3. Business—Partnership can be formed for the purpose of carrying on some lawful business with the intention of earning profits. Mere co-ownership of a property does not amount to partnership.

4. Mutual Agency—The partnership business may be carried on by all the partners or any of them acting for all. This statement means that every partner is entitled to participate in the conduct of the affairs of its business and there exists a relationship of mutual agency between all the partners.

Partners are agents as well as principals for all other partners. Each partner can bind other partners by his acts and also is bound by the acts of other partners with regard to business of the firm. Relationship of mutual agency is so important feature of partnership that one can say that there would be no partnership, if this feature is absent.

5. Sharing of Profit—The agreement between the partners must be to share the profits (or losses). Though the definition of partnership, according to Partnership Act, describes partnership as relation between people who agree to share the profits of a business, the sharing of loss is implied. If some persons join hands for the purpose of some charitable activity, it will not be termed as partnership.

6. Liability of Partnership—The liability of partnership is unlimited. Each partner is liable jointly with all the other partners and also individually to the third party for all the acts of the firm done while he is a partner.

Question 2.
Discuss the main provisions of the Indian Partnership Act, 1932 that are relevant to partnership accounts if there is no partnership deed.
Answer:
Normally, the partnership deed covers ah matters relating to the mutual relationship of partners amongst
themselves. But if there is no partnership deed, the provisions of the Indian Partnership Act, 1932 shall apply.

The important provisions affecting partnership accounts are—
(i) Profit Sharing Ratio—In absence of deed or agreement, according to act, the profit sharing ratio is equal i.e. the profit and loss of the firm are to be shared equally by the partners, irrespective of their capital contribution in the firm.

(ii) Interest on Capital—No interest on capital shall be allowed to the partners. In case deed provides for payment of interest on capital but does not specify the rate, the interest will be paid at the rate of 6% p.a., only from the profits of the firm. It is not payable, if firm incurs losses during the period.

(iii) Interest on Drawings—No interest is to be charged on drawings.

(iv) Interest on Loan, Advances—If any partner, apart from his capital, provide loan to the firm, he is entitled to get an interest at the rate of 6% per annum. Such interest shall be paid even if there are losses to the firm.

(v) Remuneration to Partners—No partner is entitled to any salary or commission for participating in the business of the firm.

Apart from the above, the Indian Partnership Act specifies that subject to contract between the partners :
(i) If a partner derives any profit for himself/herself from any transaction of the firm or from the use of the property or business connection of the firm or the firm name, he/she shall account for the profit and pay it to the firm.

(ii) If a partner carries on any business of the same nature as and competing with that of the firm, he/she shall account for and pay to the firm, all profit made by him/her in that business.

Question 3.
Explain why it is considered better to make a partnership agreement in writing.
Answer:
A partnership can be formed only through an agreement between two or more persons. It is essential that certain terms and conditions agreed upon by all partners such terms and conditions may be either oral or written. Although it is not compulsory under Indian Partnership Act, 1932, to make this agreement in writing, but written agreement has certain merits inherited in it.

A written agreement is preferable because it serves as a record for future. It avoids all misunderstanding and disputes later on among the partners or their parties making conduct with the firm. It will be much better that the agreement must be duly signed and registered under Partnership Act, 1932.

Question 4.
Illustrate how interest on drawings will be calculated under various situations.
Answer:
Drawings is the amount withdrawn, in cash or in kind, for the personal use by the partner(s). Interest on drawings is calculated with reference to the date of withdrawal.

The calculation of interest on drawings under different situations is shown as under :

(1) Amount of drawings, rate of interest and date of withdrawal is given:
The following example will clarify the above situation : Suppose, Dhruv is a partner, who withdraw Rs. 50,000 on October 1st, 2006, interest on drawings is charged @ 10% per annum. The books of firm are closed on March 31st. The calculation of interest on drawings will be follows:
= Rs. 50,000 \(\times \frac{10}{100} \times \frac{6}{12}\) [Oct. 2006 to March 2007]
= Rs. 2,500

(2) Amount and rate of interest are given but date of withdrawal is not specified : Suppose, Mr. Daksh Kumar is a partner who withdraws Rs. 50,000 and interest on drawings is charged @ 10% per annum. The calculation of interest on drawings will be as follows :
= Rs. 50,000 \(\times \frac{10}{100} \times \frac{6}{12}\)
= Rs. 2,500

(3) Fixed amount is withdrawn at regular intervals :
(a) If withdrawal is made in the beginning of each month interest is calculated for 6\(\frac{1}{2}\) months.

(b) If withdrawal is made during the .month (assumed in the middle of each months), interest is calculated for 6 months.

(c) If withdrawal is made at the end of each month, interest is calculated for 5\(\frac{1}{2}\) months.

(d) If the withdrawal is made in the beginning of each quarter, the interest is calculated on total drawings for a period of seven and a half months i.e. 7 \(\frac{1}{2}\) months.

(e) If the amount is withdrawn at the end of each quarter, interest is calculated on total drawings for a period of 4 \(\frac{1}{2}\)months.

Example : A partner Priti Sharma makes a drawing of Rs. 2,000 regularly. Under the partnership agreement, interest is to be charged at 10% per annum. What is the interest that should be charged to Priti Sharma, if the drawings is made :
(i) in the beginning of the month
(ii) in the middle of the month
(iii) at the end of the month
(iv) in the beginning of the quarter
(v) at the end of the each quarter
Answer :
Total amount of drawings for (i), (ii) and (iii)
= Rs. 2,000 x 12
= Rs. 24,000
Total amount of drawings for (iv) and (v)
= Rs. 2,000 x 4
= Rs. 8,000

(i) When drawings is made in the beginning of the month :
= Rs. 24,000 \(\times \frac{10}{100} \times \frac{61 / 2}{12}\)
= Rs. 1,300

(ii) When drawings is made in the middle of the month :
= Rs. 24,000 \(\frac{10}{100} \times \frac{6}{12}\)
= Rs. 1,200

(iii) When drawings is made at the end of the month :
= Rs. 24,000 \(\frac{10}{100} \times \frac{51 / 2}{12}\)
Rs. 1,100

(iv) When drawings is made in the beginning of each quarter:
= Rs.8,000 x \(\frac{10}{100} \times \frac{772}{12}\)
= Rs.500

(v) When drawings is made at the end of each quarter:
= Rs.8,00 x \(\frac{10}{100} \times \frac{41 / 2}{12}\)
= Rs.300

4. Different amount are withdrawn at different intervals : When the partners withdraw different amount of money at different time intervals, the interest is calculated using the product method. In this method, each amount of drawing is multiplied by the number of days/months from the date of drawings to the last date of financial year to find out the product and then all the products are totalled. Here, the total product and interest for I month at the given rate is calculated.

Interest on Drawings = Total of Product x \(\frac{\text { Rate }}{100} \times \frac{1}{12} \text { or } \frac{1}{365}\)
For example, Varan withdraw Rs. 2,000 on 1st March, Rs 4,000 on 30th June, Rs. 2,000 on 1st November and Rs. 4,000 on 31st, December. Interest on drawing is charged at 10% per annum. In this case, interest is calculated as follows :

Question 5.
Write a note on guarantee of profit to a partner.
Answer:
Sometimes a partner may be guaranteed a minirpum amount of profit by one or some or by all the partners in the existing profit sharing ratio or some other agreed ratio. The minimum guaranteed amount shall be paid to a partner when his share of profit as per the profit sharing ratio is less than the guaranteed amount.

The following steps may be follows in this case :
(i) Calculate the share of profit of the partner who has been guaranteed a minimum amount of profit as per profit sharing ratio. If this amount is more than or equal to the amount guaranteed, no adjustment is required.

(ii) If the share of profit of that partner is less than the guaranteed amount, then we have to find out the difference between the guaranteed amount and share of profit of that partner.

(iii) Then, we add this difference to the share of the profit of the partner and deduct the difference from the share of profit of other partners or partner who have guaranteed the amount in the agreed ratio.

For Example : Ash. sh and Pradeep admit Sumit into partnership and offer him \(\frac{1}{6} \text { th }\) share of the profits. They further guarantee that  Sumit will receive a minimum of Rs. 10,000 as his share of profit. Now suppose the total profit of the firm is Rs. 36,000 only.

Sumit’s share comes to Rs. 6,000. Under such circumstances Sumit will be paid the guaranteed minimum of Rs. 10,000 and the balance profit (36,000 – 10,000) will be divided between Ashish and Pradeep in their profit sharing ratio.

Question 6.
How will you deal with a change in profit sharing ratio among existing Partners? Take imaginary figures to illustrate your answer?
Answer:
Existing partners may decide to change their profit sharing ratio. In such a case, any profit or loss up to the date of change is credited or debited in the capital account of the partners in their old profit sharing ratio.

Any undistributed profit like general reserve etc. is also credited to partners capital A/c’s in their old profit sharing ratio. In case if the revaluation of assets and liabilities takes place, than profit or loss on revaluation is also distributed between partners in their old profit sharing ratio.

However, when the profit sharing ratio is changed in the existing partners, some partners might gain while other might loose. Therefore, gaining partner shall be compensate the sacrificing partner to the extent of his gain.

Journal Entry:
Gaining Partner’s Capital A/c Dr
To Sacrificing Partner’s Capital A/c

For Example : X, Y and Z are partners in a firm sharing profit in the ratio of 3:3:2. They decided to share profits equally with effect from 1st April, 2006. On that date, the profit and loss account showed the credit balance of Rs. 36,000. Instead of closing the profit and loss account, it was decided to record on adjustment entry reflecting the change in the profit sharing ratio. It can be done as :

Numerical Questions
Fixed and Fluctuating Capitals

Question 1.
Tripathi and Chauhan are partners in a firm sharing profits and losses in the ratio of 3:2. Their capitals were Rs. 60,000 and Rs. 40,000 as on January 01,2005. During the year they earned a profit of Rs. 30,000. According to the partnership deed both the partners are entitled to Rs. 1,000 per month as salary and 5% interest on their capital. They are also to be charged an interest of 5% on their drawings, irrespective of the period, which is Rs. 12,000 for Tripathi, Rs. 8,000 for Chauhan. Prepare Partner’s Accounts when, capitals are fixed.
Answer:

Question 2.
Anubha and Kajal are partners of a firm sharing profits and losses in the ratio of 2:1. Their capital were Rs. 90,000 and Rs. 60,000. The profit during the year were Rs. 45,000. According to partnership deed, both partners are allowed salary, Rs. 700 per month to Anubha and Rs. 500 per month to Kajal. Interest allowed on capital @ 5% p.a. The drawings at the end of the period were Rs. 8,500 for Anubha and Rs. 6,500 for Kajal. Interest is to be charged @ 5% p.a. on drawings. Prepare partners capital accounts, assuming that the capital account are fluctuating.
Answer:

Distribution of Profits

Question 3.
Harshad and Dhiman are in partnership since April 01, 2006. No Partnership agreement was made. They contributed Rs. 4,0, 000 and 1,00,000 respectively as capital. In addition, Harshad advanced an amount of Rs. 1,00,000 to the firm, on October 01,2006. Due to long illness, Harshad could not participate in business activities from August 1,2006 to September 30,2006. The profits for the year ended March 31,2006 amounted to Rs. 1,80,000. Dispute has arisen between Harshad and Dhiman.
Harshad Claims:
(i) He should be given interest @ 10% per annum on capital and loan.
(ii) Profit should be distributed in proportion of capital. Dhiman Claims:
(i) Profits should be distributed equally.
(ii) He should be allowed Rs. 2,000 p.m. as remuneration for the period he managed the business, in the absence of Harshad.
(iii) Interest on Capital and loan should be allowed @ 6% p.a. You are required to settle the dispute between Harshad and Dhiman. Also prepare Profit and Loss Appropriation Account.
Answer:

Question 4.
Aakriti and Bindu entered into partnership for making garment on April 01,2006 without any Partnership agreement. They introduced Capitals of Rs. 5,00,000 and Rs. 3,00,000 respectively on October 01, 2006. Aakriti advanced Rs. 20,000 by way of loan to the firm without any agreement as to interest.

Profit and Loss Account for the year ended March, 2007 showed profit of Rs. 43,000. Partners could not agreed upon the question of interest and the basis of division of profit. You are required to divide the profits between them giving reason for your solution.
Answer:

Reasons : In the absence of any partnership deed, No partner is allowed to take interest on capital, salary and commission etc. however only interest on loan is allowed at the rate of 6% p.a. and profit sharing ratio should be equal.

Question 5.
Rakhi and Shikha are partners in a firm, with capitals of Rs. 2,00,000 and Rs. 3,00,000 respectively. The profit of the firm, for the year ended 2006-07 is Rs. 23,200. As per the Partnership agreement, they share the profit in their capital ratio, after allowing a salary of Rs. 5,000 per month to Shikha and interest on Partner’s capital at the rate of 10% p.a. Dining the year Rakhi withdrew Rs. 7,000 and Shikha Rs. 10,000 for their personal use. You are required to prepare Profit and Loss Appropriation Account and Partner’s Capital Accounts.
Answer:

Question 6.
Lokesh and Azad are partners sharing profits in the ratio 3:2, with capitals of Rs. 50,000 and Rs. 30,000, respectively. Interest on capital is agreed to be paid @ 6% p.a. Azad is allowed a salary of Rs. 2,500 p.a. During 2006, the profits prior to the calculation of interest on capital but after charging Azad’s salary amounted to Rs. 12,500, A provision of 5% of profits is to be made in respect of manager’s commission. Prepare accounts showing the allocation of profits and partner’s capital accounts.
Answer:

Question 7.
The partnership agreement between Maneesh and Girish provides that:
(i) Profits will be shared equally;
(ii) Maneesh will be allowed a salary of Rs. 400 p.m.
(iii) Girish who manages the sales department will be allowed a commission equal to 10% of the net profits, after allowing Maneesh’s salary;
(iv) 7% interest will be allowed on partner’s fixed capital;
(v) 5% interest will be charged on partner’s annual drawings;
(vi) The fixed capitals of Maneesh and Girish are Rs. 1,00,000 and Rs. 80,000, respectively. Their annual drawings were Rs. 16,000 and Rs. 14,000, respectively. The net profit for the year ending March 31, 2006 amounted to Rs. 40,000; Prepare firm’s Profit and Loss Appropriation Account.
Answer:

Question 8.
Ram, Raj and George are partners sharing profits in the ratio 5:3:2. According to the partnership agreement George is to get a minimum amount of Rs. 10,000 as his share of profits every year. The net profit for the year 2006 amounted to Rs. 40,000. Prepare the profit and Loss Appropriation Account.
Answer:

Question 9.
Amann, Babita and Suresh are partners in a firm. Their profit sharing ratio is 2:2:1. Suresh is guaranteed a minimum amount of Rs. 10,000 as share of profit, every year. Any deficiency on that account shall be met by Babita. The profits for two years ending December 31, 2005 and December 31, 2006 were Rs. 40,000 and Rs. 60,0, respectively. Prepare the Profit and Loss Appropriation Account for the two years.
Answer:

Question 10.
Simmi and Sonu are partners in a firm, sharing profits and losses in the ratio of 3:1. The Profit and Loss Account of the firm for the year ending March 31, 2006 shows a net profit of Rs. 1,50,000. Prepare the Profit and Loss Appropriation Account by taking into consideration the following information:
(i) Partners’ capital on April 1, 2005: Simmi, Rs. 30,000 Sonu, Rs. 60,000;
(ii) Current Accounts balances on April 1, 2005; Simmi, Rs. 30,000 (cr.); Sonu, Rs. 15,000 (cr.)
(iii) Partners drawings during the year amounted to Simmi, Rs. 20,000; Sonu, Rs. 15,000
(iv) Interest on capital was allowed @ 5% p.a.
(v) Interest on drawings was to be charged @ 6% p.a. at an average of six months
(vi) Partners’ salaries: Simmi Rs. 12,000 and Sonu Rs. 9,000. Also, show the partner’s current accounts.
Answer:

Question 11.
Ramesh and Suresh were partners in a firm sharing profits in the ratio of their capitals contributed on commencement of business which were Rs. 80,000 and Rs. 60,000 respectively. The firm started business on April 1, 2005. According to the partnership agreement, interest on capital and drawings are 12% and 10% p.a., respectively. Ramesh and Suresh are to get a monthly salary of Rs. 2,000 and Rs. 3,000, respectively.

The profits for year ended March 31,2006 before making above appropriations was Rs. 1,00,300. The drawings of Ramesh and Suresh were Rs. 40,000 and Rs. 50,000, respectively. Interest on drawings amounted to Rs. 2,000 for Ramesh and Rs. 2,500 for Suresh. Prepare Profit and Loss Appropriation Account and Partner’s Capital Accounts, assuming that their capitals are fluctuating.
Answer:

Question 12.
Sukesh and Vanita were partners in a firm. Their partnership agreement provides that:
(i) Profits would be shared by Sukesh and Vanita in the ratio of 3:2;
(ii) 5% interest is to be allowed on capital;
(iii) Vanita should be paid a monthly salary of Rs. 600.
The following balances are extracted from the books of the firm, on December 31, 2006:

Net profit for the year, before charging interest on capital and after charging partner’s salary was Rs. 9,500. Prepare the Profit and Loss Appropriation Account and the Partner’s Current Accounts.
Answer:

Calculation of Interest on Capital and Interest on Drawings

Question 13.
Rahul, Rohit and Karan started partnership business on April 1, 2006 with capitals of Rs. 20,00,000; Rs. 18,00,000 and Rs. 16,00,000, respectively. The profit for the year ended March 2007 amounted to Rs. 1,35,000 and the partner’s drawings had been Rahul Rs. 50,000; Rohit Rs. 50,000 and Karan Rs. 40,000. The profits are distributed among partner’s in the ratio of 3:2:1. Calculate the interest on capital @ 5% p.a.
Answer:
Interest on Capital:
Rohit’s Interest on Capital = Rs. 2,00,000 × \(\frac{5}{100}\) =  Rs. 1,00,000
Rohit’s Interest on Capital = Rs. 18,00,000 × \(\frac{5}{100}\) = Rs. 90,000.
Karan’s Interest on Capital = Rs. 16,00,000 × \(\frac{5}{100}\) = Rs. 80,000.

Question 14.
Sunflower and Pink Rose started partnership business on April 01, 2006 with capitals of Rs. 2,50,000 and Rs. 1,50,000, respectively. On October 01, 2006, they decided that their capitals should be Rs. 2,00,000 each. The necessary adjustments in the capitals are made by introducing or withdrawing cash. Interest on capital is to be allowed @ 10% p.a. Calculate interest on capital as on March 31,2007.
Answer:

Question 15.
On March 31, 2006 after the close of accounts, the capitals of Mountain, Hill and Rock stood in the books of the firm at Rs. 4,00,000; Rs.3,00,000 and Rs. 2,00,000, respectively. Subsequently, it was discovered that the interest on capital @ 10% p.a. had been omitted. The profit for the year amounted to Rs. 1,50,000 and the partner’s drawings had been Mountain Rs. 20,000; Hill Rs. 15,000 and Rock Rs. 10,000. Calculate interest on capital.
Answer:
Opening Capital = Closing Capital + Drawings – Share of Profit
Mountain’s Opening Capital = Rs. 4,00,000 + Rs. 20,000 – \(\frac{1}{3}\) of Rs. 1,50,000
= Rs. 4,00,000 + Rs. 20,000 – Rs. 50,000
= Rs. 3,70,000.
Hill’s Opening Capital = Rs. 3,00,000 + Rs. 15,000 – Rs. 50,000
= Rs. 2,65,000.
Rock’s Opening Capital = Rs. 2,00,000 + Rs. 10,000 – Rs. 50,000
= Rs. 1,60,000.

Interest on Capital:
Interest on Mountain’s Capital = Rs. 3,70,000 × \(\frac{10}{100}\) = Rs 37,000
Interest on Hill’s Capital = Rs. 2,65,000 × \(\frac{10}{100}\) = Rs 26,500
Interest on Rock’s Capital = Rs. 1,60,000 × \(\frac{10}{100}\) = Rs 16,000

Question 16.
Following is the extract of the Balance Sheet of, Neelkant and Mahadev as on March 31,2007:
Answer:

During the year Mahadev’s drawings were Rs. 30,000. Profits during 2007 is Rs. 10,00,000. Calculate interest on capital @ 5% p.a. for the year ending March 31,2007.
Answer:
Interest on Capital:
On Neelkant’s Capital = Rs. 10,00,000 \(\times \frac{5}{100}\) = Rs. 50,000.
On Mahadev’s Capital = Rs. 10,00,000 \(\times \frac{5}{100}\) = Rs. 50,000.

Question 17.
Rishi is a partner in a firm. He withdrew the following amounts during the year ended March 31,2007:
May 01,2006  – Rs. 12,000
July 31, 2006 – Rs. 6,000
September 30, 2006  – Rs. 9,000
November 30,2006 – Rs. 12,000
January 01,2007 – Rs. 8,000
March 31,2007 – Rs. 7,000
Interest on drawings is charged @ 9% p.a. Calculate interest on drawings.
Answer:

Question 18.
Hie capital accounts of Moli and Golu showed balances of Rs. 40,000 and Rs. 20,000 as on April 01,2006. They shared profits in the ratio of 3:2. They allowed interest on capital @ 10% p.a. and interest on drawings, @ 12 p.a. Golu advanced a loan of Rs. 10,000 to the firm on August 01,2006.

During the year, Moli withdrew Rs. 1,000 per month at the beginning of every month whereas Golu withdrew Rs. 1,000 per month at Use end of every month. Profit for the year, before the above- mentioned adjustments was Rs. 20,950. Calculate interest on drawings show distribution on profits and prepare partner’s capital accounts.
Answer:

Question 19.
Rakesh and Rohan are partners, sharing profits in the ratio of 3:2 with capitals of Rs. 40,000 and Rs. 30,000, respectively. They withdrew from the firm the following amounts, for their personal use:

Interest is to be charged @ 6% p.a. Calculate interest on drawings, assuming that books of accounts are closed on March 31, 2007, every year.
Answer:

Question 20.
Himanshu withdraws Rs. 2.500 at the end of each month. The partnership deed provides for charging the interest on drawings @ 12% p.a. Calculate interest on Himanshu’s drawings for the year ending 31st December, 2006.
Answer:
Himanshu’s Drawings = Rs. 2,500 x 12
= Rs. 30,000.
Interest on Drawings = Rs. 30,000 x \(\times \frac{12}{100} \times \frac{5 1 / 2}{12}[latex]
= Rs. 1,650.

Question 21.
Bharam is a partner in a firm. He withdraws Rs. 3,000 at the starting of each month for 12 months. The books of the firm closes on March 31 every year. Calculate interest on drawings if the rate of interest is 10% p.a.
Answer:
Bharam’s Drawings = Rs. 3,000 x 12
= Rs. 36,000.
Interest on.Drawings = Rs. 36,000 x [latex]\times \frac{10}{100} \times \frac{6 1 / 2}{12}\) x = Rs. 1,950.

Question 22.
Raj and Neeraj are partners in a firm. Their capitals as on April 01, 2005 were Rs. 2,50,000 and Rs. 1,50,000, respectively. They share profits equally. On July 01,2005, they decided that their capitals should be Rs. 1,00,000 each. The necessary adjustment in the capitals were made by introducing or withdrawing cash by the partners’. Interest on capital is allowed @ 8% p.a. Compute interest on capital for both the partners for the year ending on March 31,2006.
Answer:
Interest on Ram’s capital:
On Rs. 2,50,000 for 3 months and on Rs. 1,00,000 for 9 months

Question 23.
Amit and Bhola are partners in a firm. They share profits in the ratio of 3:2. As per their partnership agreement, interest on drawings is to be charged @ 10% p.a. Their drawings during 2006 were Rs. 24,000 and Rs. 16,000, respectively. Calculate interest on drawings based on the assumption that the amounts were withdrawn evenly, throughout the year.
Answer:
Amit’s Drawings = Rs. 24,000
Interest on Drawings = Rs. 24,000 x \(\times \frac{10}{100} \times \frac{6}{12}\) Rs. 1,200
Bhola’s Drawings = Rs. 16,000
Interest on Drawings = Rs. 16,000 x \(\times \frac{10}{100} \times \frac{6}{12}\)

Question 24.
Harish is a partner in a firm. He withdrew the amounts during the year 2006 :

(Rs.)

February 01 – 4,000
May 01 – 10,000
June 30 – 4,000
October 31 – 12,000
December 31 – 4,000
Interest on drawings is to be charged @ 7 1/2 % p.a.
Calculate the amount of interest to be charged on Harish’s drawings for the year ending December 31, 2006.
Answer:

Question 25.
Menon and Thomas are partners in a firm. They share profits equally. Their monthly drawings are Rs. 2,000 each. Interest on drawings is to be charged @ 10% p.a. Calculate interest on Menon’s drawings for the year 2006, assuming that money is withdrawn: (i) in the beginning of every month, (ii) in the middle of every month and (iii) at the end of every month.
Answer:

Question 26.
On March 31,2003, after the close of books of accounts, the capital accounts of Ram, Shyam and Mohan showed balance of Rs. 24,000; Rs. 18,000 and Rs. 12,000, respectively. It was later discovered that interest on capital @ 5% had been omitted. The profit for the year ended March 31, 2003, amounted to Rs. 36,000 and the partner’s drawings had been Ram, Rs. 3,600; Shyam, Rs. 4,500 and Mohan, Rs. 2,700. The profit sharing ratio of Ram, Shyam and Mohan was 3:2:1. Calculate interest on capital.
Answer:

Question 27.
Amit, Sumit and Samiksha are in partnership sharing profits in the ratio of 3:2:1. Samiksha’s share in profit has been guaranteed by Amit and Sumit to be a minimum sum of Rs. 8,000. Profits for the year ended March 31,2006 was Rs. 36,000. Divide profit among the partners.
Answer:

Question 28.
Pinki, Deepati and Kaku are partner’s sharing profits in the ratio of 5:4:1. Kaku is given a guarantee that his share of profits in any given year would not be less than Rs. 5,000. Deficiency, if any, would be bome’by Pinki and Deepti equally. Profits for the year amounted to Rs. 40,000. Record necessary journal entries in the books of the firm showing the distribution of profit.
Answer:

Kaku’s share in profit = Rs. 40,000 x \(\frac{1}{10}\) = Rs. 4,000
Deficiency of Kaku’s (5,000 – 4,000) i.e. Rs. 1,000 will be shared by Pinki and Deepati equally.
∴ Pinki will get Rs. 20,000 – 500 = Rs. 19,500
Deepati will get Rs. 16,000 – 500 = Rs. 15,500
Kaku will get Rs. 4,000 + 1,000 = Rs. 5,000

Question 29.
Abhay, Siddharth and Kusum are partners in a firm, sharing profits in the ratio of 5:3:2. Kusum is guaranteed a minimum amount of Rs. 10,000 as per share in the profits. Any deficiency arising on that account shall be met by Siddharth. Profits for the years ending March 31,2006 and 2007 are Rs. 40,000 and 60,000 respectively. Prepare Profit and Loss Appropriation Account.
Answer:

Note: Here Kusum will getting more than her guaranteed amount i.e. Rs. 10,000, so there is no need of adjustment.

Question 30.
Radha, Mary and Fatima are partners sharing profits in the ratio of 5:4:1. Fatima is given a guarantee that her share of profit, in any year will not be less than Rs. 5,000. The profits for the year ending March 31,2006 amounts to Rs. 35,000. Shortfall if any, in the profits guaranteed to Fatima is to be borne by Radha and Mary in the ratio of 3:2. Record necessary journal entry to show the distribution of profit among partner.
Answer:

Question 31.
X, Y and Z are in partnership, sharing profits and losses in the ratio of 3:2:1 respectively. Z’s share in the profit is guaranteed by X and Y to be a minimum of Rs. 8,000. The net profit for the year ended March 31, 2006 was Rs. 30,000. Prepare Profit and Loss Appropriation Account, indicating the amount finally due to each partner.
Answer:

Question 32.
Aran, Boby and Chintu are partners in a firm sharing profit in the ratio or 2:2:1. According to the terms of the partnership agreement, Chintu has to get a minimum of Rs. 60,000, irrespective of the profits of the firm. Any deficiency to Chintu on account of such guarantee shall be borne by Aran. Prepare the Profit and Loss Appropriation Account showing distribution of profits among partners in case the profits for year 2006 are: (i) Rs. 2,50,000; (ii) 3,60,000.
Answer:

Note : Here Chintu is getting more than his guaranteed amount of Rs. 60,000 so there is no need of adjustments.

Question 33.
Ashok, Brijesh and Cheena are partners sharing profits and losses in the ratio of 2:2:1. Ashok and Brijesh have guaranteed that Cheena share in any year shall be less than Rs. 20,000. The net profit for the year ended March 31, 2006 amounted to Rs. 70,000. Prepare Profit and Loss Appropriation Account.
Answer:


Ashok will get Rs. (28,000 – 3,000) = Rs. 25,000
Brijesh will get Rs. (28,000 – 3,000) = Rs. 25,000
Cheena will get Rs. (14,000 + 3,000 + 3,000) = Rs. 20,000.

Question 34.
Ram, Mohan and Sohan are partners with capitals of Rs. 5,00,000, Rs. 2,50,000 and Rs. 2,00,000 respectively. After providing interest on capital @ 10% p.a. the profits are divisible as follows:
Ram \(\frac{1}{2}\), Mohan \(\frac{1}{3}\) and Sohan \(\frac{1}{6}\). But Ram and Mohan have 2 guaranteed that Sohan’s share in the profit shall not be less than Rs. 25,0, in any year. The net profit for the year ended March 31,2007 is Rs. 2,00,000, before charging interest on capital. You are required to show distribution of profit.
Answer:

Question 35.
Amit, Babita and Sona form a partnership firm, sharing profits in the ratio of 3:2:1, subject to the following :
(i) Sona’s share in the profits, guaranteed to be not less than Rs. 15,000 in any year.
(ii) Babita gives guarantee to the effect that gross fee earned by her for the firm shall be equal to her average gross fee of the proceeding five years, when she was carrying on profession alone (which is Rs. 25,000). The net profit for the year ended March 31, 2007 is Rs. 75,000. The gross fee earned by Babita for the firm was Rs. 16,000.
You are required to show Profit and Loss Appropriation Account (after giving effect to the alone).
Answer:


Sona’s was guaranteed a minimum sum of Rs. 15,000. Hence the deficiency of Rs. 1,000 will be borne by Amit and Babita in the ratio of 3:2.

∴ Amit will get Rs. [42,000 600] = R. 41,400
Babita will gèt Rs. [28,000 –  400] = Rs. 27,600
Sona will get Rs. [14,000 + 600 + 4001 = Rs. 15,000.

Past Adjustment:

Question 36.
The net profit of X, Y and Z for the year ended March 31, 2006 was Rs. 60,000 and the same was distributed among them in their agreed ratio of 3:1:1. It was subsequently discovered that the under-mentioned transactions were not recorded in the books:
(i) Interest on Capital @ 5% p.a.
(ii) Interest on drawings amounting to X Rs. 700, Y Rs. 500 and Z Rs. 300.
(iii) Partner’s Salary: X Rs, 1,000, Y Rs. 1,500 p.a.
The capital accounts of partners were fixed as: X Rs. 1,00,000, Y Rs. 80,000 and Z Rs. 60,000. Record the adjustment entry.
Answer:

Question 37.
The firm of Harry, Porter and Ali, who have been sharing profits in the ratio of 2:2:1, have existed for same years. Ali wants that he should get equal share in the profits with Harry and Porter and he further wishes that the change in the profit sharing ratio should come into effect retrospectively were for the last three year. Harry and Porter have agreement on this account.
The profits for the last three years were :

(Rs.)

2003-04 – 22,000
2004-05 – 24,000
2005-06 – 29,000
Show adjustment of profits by means of a single adjustment journal entry.
Answer:

Question 38.
Mannu and Shristhi are partners in a firm sharing profit in the ratio of 3:2. Following is the balance sheet of the firm as on March 31,2006:

Profit for the year ended March 31, 2006 was Rs. 5,000 which was divided in the agreed ratio, but interest @ 5% p.a. on capital and @ 6% p.a. on drawings was inadvertently enquired. Adjust interest on drawings on an average basis for 6 months. Give the adjustment entry.
Answer:

Question 39.
On March 31,2006 the balance in the capital accounts of Eluin. Monu and Ahmed, after making adjustments for profits, drawings, etc. were Rs. 80,000; Rs. 60,000 and Rs. 40,000; respectively. Subsequently, it was discovered that interest on capital and interest on drawings had been omitted.

The partners were entitled to interest on capital @ 5% p.a. The drawings during the year were Eluin Rs. 20,000; Monu, Rs. 15,000 and Ahmed, Rs. 9,000. Interest on drawings chargeable to partners were Eluin Rs. 500; Monu Rs. 360 and Ahmed Rs. 200. The net profit during the year amounted to Rs. 1,20,000. The profit sharing ratio was 3:2:1. Pass necessary adjustment entries.
Answer:

Question 40.
Azad and Benny are equal partners. Their capitals are Rs. 40,000 and Rs. 80,000, respectively. After the accounts for the year have been prepared it is discovered that interest at 5% p.a. as provided in the partnership agreement, has not been credited to the capital accounts before distribution of profits. It is decided to make an adjustment entry at the beginning of the next year. Record the necessary journal entry.
Answer:

Question 41.
Kavita and Pradeep are partners, sharing profits in the ratio of 3:2. They employed Chandan as their manager, to whom they paid a salary of Rs. 750 per month. Chandan deposited Rs. 20,000 on which interest is payable @ 9% p.a. At the end of 2001 (after the division of profit), it was decided that Chandan should be treated as partner w.e.f. Jan. 1,1998 with \(\frac{1}{6} \text { th }\) share in profits. His deposit being considered as capital carrying interest @ 6% p.a. like capital of other partners. Firm’s profits after allowing interest on capital were as

Answer:

Question 42.
Mohan, Vijay and Anil are partners, the balance on their capital accounts being Rs. 30,000; Rs. 25,000 and Rs. 20,000, respectively. In arriving at these figures, the profits for the year ended March 31,2007 amounting to Rs. 24,000 had been credited to partners in the proportion in which they shared profits. During the year their drawings for Mohan, Vijay and Anil were Rs. 5,000; Rs. 4,000 and Rs. 3/000, respectively. Subsequently, the following omissions were noticed:
(a) Interest on Capital, at the rate of 10% p.a., was not charged
(b) Interest on Drawings: Mohan Rs. 250, Vijay Rs. 200, Anil Rs. 150 was not recorded in the books.
Record necessary corrections through journal entries.
Answer:

Question 43.
Anju, Manu and Mamta are partners whose fixed capitals were Rs. 10,000; Rs. 8,000 and Rs. 6,000, respectively. As per the partnership agreement, there is a provision for allowing interest on capitals @ 5% p.a. but entries for the same have not been made for the last three years. The profit sharing ratio during three years remained as follows:

Question 44.
Dinker and Ravinder were partners sharing profits and losses in the ratio to 2:1. The following balances were extracted from the books of account, for the year ended December 31, 2005.



Prepare final accounts for the year ended December 31, 2005,with following adjustment:
(a) Stock on December 31, 2005, was Rs. 42,500.
(b) A provision is to be made for bad debts at 5% debtors.
(c) Rent outstanding was Rs. 1,600.
(d) Wages outstanding were Rs. 1,200.
(e) Interest on capital to be allowed on capital @4% per annum and interest on drawings to be charged @ 6% per annum.
(f) Dinker and Ravinder are entitled to a Salary of Rs. 2,000 per annum.
(g) Ravinder is entitled to a commission Rs. 1,500.
(h) Depreciation is to be charged on Building @ 4%, Plant and Machinery 6% and Furniture and fixtures 5%.
(i) Outstanding interest on loan amounted to Rs. 350
Answer:

Question 45.
Kajol and Sunny were partners sharing profits and losses in the ratio of 3:2. The following Balances were extracted from the books of account for the year ended March 31, 2006.



Prepare final accounts for the year ended December 31, 2005, with following adjustment:
(a) Stock on December 31, 2005, was Rs. 42,500.
(b) A provision is to be made for bad debts at 5% debtors.
(c) Rent outstanding was Rs. 1,600.
(d) Wages outstanding were Rs. 1,200.
(e) Interest on capital to be allowed on capital @ 4% per annum and interest on drawings to be charged @ 6% per annum.
(f) Dinker and Ravinder are entitled to a Salary of Rs. 2,000 per annum.
(g) Ravinder is entitled to a commission Rs. 1,500.
(h) Depreciation is to be charged on Building @ 4%, Plant and Machinery 6% and Furniture and fixtures 5%.
(i) Outstanding interest on loan amounted to Rs. 350
Answer: