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Question 19 Chapter 6 - Unimax Class 12 Part 1 - 2021
19. A, B and C are partners sharing profits as 20%, 30% and 50%. A decided to retire with the consent of other partners and sold his share to B. Goodwill was valued at two and a half year’s purchase of average profits of three years. Profits of these three years were Rs. 50000 ; Rs. 70000 and Rs. 60000. Reserve Fund stood in the balance sheet at Rs. 30000 at the time of his retirement. You are required to record necessary journal entries to record above adjustment on A’s retirement. Also prepare A’s Capital Account to find out the amount due to him when his capital balance in the balance sheet was Rs. 100000 before any adjustment.
| Date | Particulars | L.F. | Debit | Credit | |
|---|---|---|---|---|---|
| B’s Capital a/c | Dr. | 30,000 | |||
| To A’s Capital a/c | 30,000 | ||||
| (Being retiring partner A compensated by gaining partner B on account of goodwill) | |||||
| Reserve Fund a/c | Dr. | 30,000 | |||
| To A’s Capital a/c | 6,000 | ||||
| To B’s Capital a/c | 9,000 | ||||
| To C’s Capital a/c | 15,000 | ||||
| (Being reserve fund distributed among all partners in old profit sharing ratio) | |||||
| A’s Capital a/c | Dr. | 1,36,000 | |||
| To A’s Loan a/c | 1,36,000 | ||||
| (Being balance of capital account of A transferred to his loan a/c) |
A’s Capital a/c
| Liabilities | Rs. | Assets | Rs. |
|---|---|---|---|
| To A’s Loan a/c | 1,36,000 | By Balance b/d | 1,00,000 |
| By B’s Capital a/c | 30,000 | ||
| By Reserve Fund | 6,000 | ||
| 1,36,000 | 1,36,000 |
Working Note:
Calculation of A’s share of goodwill :
| Average profits of 3 years = | 50000 + 70000 +60000 |
| 3 |
Value of goodwill of firm = 60000 X 2.5
= Rs. 150000
A’s share of goodwill = 150000 X 20%
= Rs. 30000
Gaining partner B will transfer Rs. 30000 from his capital a/c to retiring partner’s capital a/c.
https://tutorstips.com/retirement-of-a-partner-explained-with-illustration/
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Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
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