Accounts Ch 4 Class 12th (Retirement / Death of a Partner)
Ch 4 (Retirement / Death of a Partner)
1.Calculate New Profit Sharing Ratio.
2.Gaining Ratio.
3.Accounting treatment of Goodwill.
4.Accounting treatment of Preserves Accumulated Profit / Accumulates Losses.
5.Accounting treatment of the revaluation of Assets & Losses.
1.Calculate New Profit Sharing Ratio.
Case 1st
C's Retired and his share of profit taken by A & B . Calculate new ratio.
A : B : C
3 : 2 : 1
C is Retired , C 1/6
New Ratio
A : B
3 : 2
Gaining Ratio
A : B
3 : 2
A acquires C's Share - 3/5 X 1/6 = 1/10
B Acquires C's Share - 2/5 X 1/6 = 1/15
New Share = Old Share + Gaining Share
A's New Share - 3/6 + 1/10 = 15+3/30 = 18/30
B's New Share - 2/6 + 1/15 = 10+2/30 = 12/30
New Ratio
A=B
18/30 : 12/30 = 18:12 = 3 : 2
Case 2nd
A : B : C
3 : 2 : 1
C's Retired and his share of profit taken by A & B equally. Calculate new ratio.
A : B : C
3 : 3 : 1
C=1/6
A acquires C's share of profit - 1/2 X 1/6 = 1/12
B Acquires C's share of profit - 1/2 X 1/6 = 1/12
A's new share - 3/6 + 1/12 = 7/12
B's new share - 2/6 + 1/12 = 5/12
New Ratio
A : B
7 : 5
Gaining Ratio = 1 : 1 of A & B
Case 3rd
A : B : C
3 : 2 : 1
C retired and his entire share of taken by A
Solution :-
A : B : C
3 : 2 : 1
C=1/6
A's New Share - 3/6 + 1/6 = 3+1/6 = 4/6
B's New Share - 2/6
New Ratio
A : B AND A = B
4/6 = 2/6 2 = 1
2 : 1
"Accounting Treatment of Goodwill on the Retirement / Death of a Partner"
GOODWILL
1.Purchased Goodwill
Old Partner's Capital A/c Dr.
To Goodwill A/c
(In Old Profit Sharing Ratio)
2.Non-Purchased Goodwill
Gaining Partner's Capital A/c Dr.
To Sacrificing Partner's Capital A/c
( Amount of Compensation Payable = Goodwill of the firm X Gaining Share )
When Continue Partner is also a Sacrificing Partner
For Example = X : Y : Z
3 : 2 : 1
Z Retired So, New Ratio is X : Y
1 : 2
X = 3/6 - 1/3 = 3-2/6 = 1/6 ( S )
Y = 2/6 - 2/3 = 2-4/6 = -2/6 ( G )
Z = 1/6 ( S )
Y's capital A/c Dr. XXX
To X's Capital A/c XXX
To Z's Capital A/c XXX
Settlement of Retirement Partner's Capital
After all adjustment the retired partner's capital can be settled in two ways"-
1.Immediately Paid -
Retired partner's capital A/c Dr.
To Cash / Bank A/c
2.Retired Partner's capital transferred to his loan A/c -
Retired Partner's Capital A/c Dr.
To retired partner's loan A/c
Alternate Point :-
Retired Partner's Capital A/c Dr.
To Cash / Bank A/c
To Retired Partner's Loan A/c
Special Note :- If there is no information has been given in the question about the settlement of retired partner's capital A/c.
We assumes it is transferred to his loan A/c
Adjustment of Capital :-
A : B : C
2 : 2 : 1
A retired. After the retirement of a capital of A , B & C after all adjustments being Rs.1,20,000 and Rs.1,40,000 respectively B and C want to adjust their capital in their new profit sharing ratio.
Solution:-
Capital of New Firm = Capital of B + Capital of C
1,40,000 + 1,00,000 = 2,40,000
New Profit Sharing
B : C
2 : 1
B's required Capital = 2,40,000 X 2/3 = 1,60,000
C's required Capital = 2,40,000 X 1/3 = 80,000
B C
Existing Capital 1,40,000 1,00,000
Required Capital 1,60,000 80,000
20,000 20,000
Introduced Withdrawn
Cash/Bank A/c Dr. 20,000
To B's Capital A/c 20,000
C's Capital A/c Dr. 20,000
To Cash/Bank A/c 20,000
Retirement and Settlement of Retired Partner's loan A/c
Retired partner's loan can be settled in two ways:-
1.Installment excluding Interest.
2.Installment including Interest.
1.Installment excluding Interest.
JOURNAL ENTRIES
a) Due to Interest on retired partner's loan A/c
Interest A/c Dr.
To Retired Partner's Loan A/c
b) Payment of Installment (Amt. of Installment + Interest)
Retired Partner's Loan A/c Dr.
To Bank A/c
Death of a Partner :-
1.Decreased partner's share of profit from the last losing accounts to till his/her death.
2.Settlement of decreased partner's capital account.
3.Settlement of decreases partner's execution account.
1.1.Decreased partner's share of profit from the last losing accounts to till his/her death.
31st March , 2019
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| >5 Months
\/
1st Sep , 2019
A : B : C
2 : 1 : 2
B decreases on 1 Sep,2019
Calculate these share of profit on the basis of average profit of lost three years. Profit of 31st March,2019 Rs.60,000 , 31st March,2018 Rs.80,000 and 31st March,2017 Rs.70,000. In future A&C decide to share profit in 3:2.
Average Profit = 60,000 + 80,000 + 70,000/3 = 2,10,000/3 = 70,000
B's Share of Profit =70,000/12 X 5 X 1/5 = 5833
31st March , 2019
|
| >5 Months
\/
1st Sep , 2019
1.Time Basis
For Example:-A : B : C
2 : 1 : 2
B decreases on 1 Sep,2019
Calculate these share of profit on the basis of average profit of lost three years. Profit of 31st March,2019 Rs.60,000 , 31st March,2018 Rs.80,000 and 31st March,2017 Rs.70,000. In future A&C decide to share profit in 3:2.
Average Profit = 60,000 + 80,000 + 70,000/3 = 2,10,000/3 = 70,000
B's Share of Profit =70,000/12 X 5 X 1/5 = 5833
JOURNAL ENTRY
a) Where there is no change in the profit sharing ratio of continuing partner's
P&L Suspense A/c Dr.
To Decreases Partner's Capital/Current A/c
a) Where there is no change in the profit sharing ratio of continuing partner's
P&L Suspense A/c Dr.
To Decreases Partner's Capital/Current A/c
b)Where there is change in the profit sharing ratio of continuing partner's
Gaining Partner's Capital A/c Dr.
To Sacrificing Partner's Capital/Current A/c
2.Turnover Basis
A : B : C
2 : 1 : 2
B decreases on 1st Sep. 2019
Calculate B's share of profit on the basis of previous year, turnover and profit i.e Rs.10,00,000 and Rs.3,00,000 respectively. The turnover of the firm from the last closing accounts to till the death of B is Rs.4,00,000
Solution:-
B's Share of Profit = 3,00,000/10,00,000 X 4,00,000 X 1/5 = 24,000
B's Share of Profit = 24,000
Settlement of Deceased Partner's Capital Account
Deceased Partner's Capital A/c Dr.
To Deceased Partner's Executor's A/c
Settlement of Deceased Partner's Executive Account
Deceased partner's Capital A/c Dr.
To Deceased Partner's Executor's A/c
For Example --
A's Capital A/C Dr. 20,000
To A's Executive's A/c 20,000
Int. A/c Dr. 12,000
To Executive A/c 12,000
A's Executive A/c Dr. 62,000
To Bank A/c 62,000
Retirement and Settlement of Retired partner's loan A/c -
Retired partner's Capital A/c Dr
To Cash/ Bank A/c
Retired partner's Capital A/c Dr 20,000
To Retired partner's Loan A/c 20,000
(1) Due the Interest on Retired partner's Loan A/c
Int. on retires partner's loan A/c Dr.
To Retired Partner's loan A/c
(2) Payment of Installment
Retired partner's Loan A/c Dr.
To Cash/ Bank A/c
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