Q.No.31 | Chapter 6 – Retirement/Death of a Partner | T.S. Grewal 12 Class Book Keeping Part - A - Vol. 1

Question 31 Chapter 6 of +2-A

31. Kanika, Disha, and Kabir were partners sharing profits in the ratio of 2: 1: 1. On 31st March 2016, their Balance Sheet was as under:

Liabilities	Amount	Assets	Amount
Trade creditors	53,000	Bank	60,000
Employees' Provident Fund	47,000	Debtors	60,000
Kanika's Capital	2,00,000	Stock	1,00,000
Disha's Capital	1,00,000	Fixed assets	2,40,000
Kabir's Capital	80,000	Profit and Loss A/c	20,000
	4,80,000		4,80,000

Kanika retired on 1st April 2016. For this purpose, the following adjustments were agreed upon:

1. Goodwill of the firm was valued at 2 years' purchase of average profits of three completed years preceding the date of retirement. The profits for the year: 2013-14 were 1,00,000 and for 2014-15 were 1,30,000.
2. Fixed Assets were to be increased to 3,00,000.
3. The stock was to be valued at 120%.

The amount payable to Kanika was transferred to her Loan Account. Prepare Revaluation Account, Capital Accounts of the partners, and the Balance Sheet of the reconstituted firm.

The solution of Question 31 Chapter 6 of +2-A: -

Revaluation Account

Particular		Amount	Particular		Amount
			By Fixed Assets A/c		60,000
			By Stock A/c		20,000
To Profit transferred to
Kanika’s Capital	40,000
Disha’s Capital	20,000
Kabir’s Capital	20,000	80,000
		80,000			80,000

 

Partners’ Capital Account

Part.	Kanika	Disha	Kabir	Part.	Kanika	Disha	Kabir
To Profit & Loss A/c	10,000	5,000	5,000	By Balance B/d	2,00,000	1,00,000	80,000
To Kanika’s Capital A/c	-	35,000	35,000	By Disha’s Capital A/c	35,000	-	-
To Kanika’s Loan A/c	3,00,000	-	-	By Kabir’s Capital A/c	35,000	-	-
				By Revaluation A/c	40,000	20,000	20,000
To Balance c/d	-	80,000	60,000
	3,10,000	1,20,000	1,00,000		3,10,000	1,20,000	1,00,000

 

Balance Sheet

Liabilities		Amount	Assets		Amount
Employees’ Provident Fund		47,000	Bank A/c		8,000
Trade Creditors		53,000	Sundry Debtors		17,000
Kanika’s Loan A/c		3,00,000	Fixed Assets A/c		3,00,000
Capital:			Stock		1,20,000
Disha’s Capital	80,000
Kabir’s Capital	60,000	1,40,000
		5,40,000			5,40,000

Working Note:-

Calculation of Goodwill

Average Profit	=	Total Profit for past given years
		Number of years
	=	1,00,000 + 1,30,000 + (- 20,000)
		3
	=	2,10,000
		3
	=	Rs 70,000/-

Number of years’ purchase = 2 

Goodwill = Average Profit X Number of years’ purchase

= 70,000 X 3 

= 1,40,000/-

Adjustment of Goodwill

Goodwill of the firm = Rs 1,40,000

 

Kanika’s Share of Goodwill	=	1,40,000	X	2
				4
	=	Rs 70,000

 

This share of goodwill is to be distributed between Disha and Kabir in their gaining ratio i. e. 1:1

Disha's Share	=	70,000	X	1
				2
	=	Rs 35,000/-

 

Kabir's Share	=	70,000	X	1
				2
	=	Rs 35,000/-

 

T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)

• Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
• Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
• Chapter No. 3 – Goodwill: Nature and Valuation
• Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
• Chapter No. 5 – Admission of a Partner
• Chapter No. 6 – Retirement/Death of a Partner
• Chapter No. 7 – Dissolution of a Partnership Firm

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 8 – Company Accounts –  Accounting for Share Capital
• Chapter No. 9 – Company Accounts – Issue of Debentures
• Chapter No. 10 – Redemption of Debentures

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 1 – Financial Statements of a Company
• Chapter No. 2 – Financial Statement Analysis 
• Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
• Chapter No. 4 – Accounting Ratios
• Chapter No. 5 – Cash Flow Statement

 

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