ARIHANT PRE-UNIVERSITY COLLEGE

ACCOUNTANCY - 30
CHAPTER-1
ACCOUNTING FOR PARTNERSHIP: BASIC CONCEPTS
Section A One marks question:
I. Fill in the blanks:
1. Section 4 of Indian Partnership Act, 1932 defines Partnership,
2. A partnership has no separate Legal entity.
3. In order to form a partnership, there should be at least 2(Two) persons.
4. Partnership is the result of Agreement between two or more persons to carry on business and share its
profits and losses.
5. It is preferred that the partners have a written agreement.
6. The agreement should be to carry on some Lawful business.
7. Each partner carrying on the business is the principal as well as Agent the for all other partners.
8. The liability of a partner for his acts is Unlimited.
9. In the absence of Partnership Deed Interest of advance from Partner will be charged @ 6% p.a.
10. Under Fixed Capital Method, the capitals of the partners shall remain fixed.
11. Under Fluctuating Capital Method, the partners’ capital account balances Fluctuate from time to time.
12. Profit and Loss Appropriation Account is merely an extension of Profit & Loss A/c of firm.
13. Profit and Loss Appropriation Account Dr
To Interest on Partners’ Capital accounts
(Transferring in capital to P/L Appropriation a/c).
14. Profit and Loss Appropriation Account Dr
To Salary to Partners account
(Transferring partners salary to P/L Appropriation a/c)
15. P/L Appropriation A/c Dr
To Partners Capital/Current a/cs.
(Being Profit transferred to Partners)
16. When fixed amounts are withdrawn at the end of every month, interest on the total amount for the year
ending is calculated for 5.5
( 5 & 12 ) months.
17. Under fluctuating capital method, all the transactions relating to partners are directly recorded in the
Partners Capital accounts.
18. Under fixed capital method, the amount of capital remains Fixed.
19. Under fixed capital method, all the transactions relating to a partner are recorded in a separate account
called Partners Current A/c.
20. Under fixed capital method, the partners capital accounts show Credit balance
21. There is not much difference in the final accounts of a sole proprietary concern and that of a
Partnership Firm.

GAGANA M
M.Com, B.Ed
 II. Multiple Choice Questions.
1.The agreement between the partner should be in:
a) Oral b) Written c) Oral or Written d) None of the above
2. Partnership deeds contain:
a) Name of firm b) Name and address of the partners
c) Profit and Loss sharing ratio d) All of the above
3.Partnership deed may not contain:
a] Name of the firm b] Name and address of the partners
c] Profit and loss sharing ratio d] Ownership of property
4. If any partner has advanced some money to the firm beyond the amount of his capital, he shall be
entitled to
get interest on the amount at the rate of:
a) 5% p.a b) 6% p.a c) 8% p.a d) None of the above
5. Interest on capital is generally provided for in that situations when:
a) The partners contribute unequal amounts of capital but share profits equally.
b) The capital contribution is same but profit sharing is unequal
c) Both the situations above.
d) None of the above
6. When fixed amount is withdrawn on the first day of every month, interest on total amount of the year
ending will be calculated for:
a) 2 & ½ months b) 4 & ½ months
c) 6 & ½ months d) None of the above
7. When varying amounts are withdrawn at different intervals, the interest is calculated using.
a) Simple Method b) Average Method
c) Product Method d) None of the above
8. Adjustment for correction of omission and commission can be made:
a) Profit and Loss adjustment account.
b) Directly in the Capital Accounts of concerned partners
c) Both the situations above
d) None of the above
9. In order to form a Partnership there should be at least:
a) One person b) Two persons c) Seven persons d) None of the above
10. The business of a partnership concern may be carried on by:
a) All the partners b) Any of them acting for all
c) All partners or any of them acting for all d) None of the above
11. The agreement between Partners must be to share:
a) Profits b) Losses
c) Profits and Losses d) None of the above
12. The liability of a Partner for acts of the firm is:
a) Limited b) Unlimited
c) Both the above d) None of the above.

GAGANA M
M.Com, B.Ed
13. The partnership Deed should be properly drafted and prepared as per the
provisions of the
a) Partnership Act b) Stamp Act
c) Companies Act d) None of the above
14. The clauses of Partnership Deed can be altered with the consent of:
a) Two Partners b) Ten Partners
c) Twenty Partners d) All the Partners
15. If a firm is engaged in the banking business, the maximum number of partners is:
a) 10 b) 20 c)30 d) none of these
16. When the dates of withdrawal are not specified, interest on drawings is to be calculated for the average
period of
a] 5 months b] 6 months c] 7 months d] 8 months

III. True or False Questions

1. The agreement between partners must be in writing= False
2. The clauses of partnership deed can be altered with the consent of all the Partners. =True
If the partnership deed is silent about the profit-sharing ratio, the profit and loss of the firm is to be
shared equally. =True
3. A partner is entitled to claim interest at the rate of 10% p.a on the amount of capital contributed by
him. If there is no agreement in the firm. =False
4. In the absence of Partnership Deed, no partner is entitled to get salary. =True
5. Under fixed capital method the Partner’s Capital Accounts will always show a credit balance. =
True.
6. Under Fixed Capital Method the Partners Capital Accounts will always show a debit balance.
=False
7. P & L Appropriation A/c shows how the profits are appropriated among the partners. =True
8. When fixed amount is withdrawn during the middle of every month, interest on total amount is
calculated for 6 months. =True
9. If there is loss, no interest on capital is to be paid to partners, even if there is a provision in
Partnership Deed. =True
10. Accounting treatment for Partnership is similar to that of a sole Proprietorship Business. =True
11. There are two methods by which the capital accounts of partners can be maintained=True
12. Profit and Loss appropriation account is merely an extension of the Profit and Loss Account of a
firm. =True
13. Interest on partners’ capital is debited to Partner’s Capital Accounts. =False
14. In case of Guarantee of profit to a partner, assurance may be given by only one partner=True.

GAGANA M
M.Com, B.Ed
IV. Match the following

A B

1. Partnership deed Written agreement

2. Fixed Capital System Capital A/C balance remains constant

3. Current A/C Fixed Capital System

4. Company Act 2013

5. Partnership Two or more persons

6. Consent of all partner Alteration of partnership deed

7. Interest on drawings in absence of deed No partner is charged

8. Each partner has only one account Fluctuating capital method

9. Assurance to minimum amount of profit Guarantee of profit

IV. Very short answer questions:

1. Who is a Partner?
Ans: Partner is a person who had entered into partnership with other.
2. What do you mean by Partnership Firm?
Ans: Partnership Firm is one type of business organization where two or more persons come
together and carry on a joint business and share the profits of it.
3. State any one feature of Partnership.
Ans: Sharing Profits/Losses
4. What is the minimum number of partners in a firm?
Ans: 2 (two)
5. Name any one content of Partnership Deed.
Ans: Capital contribution
6. Name any one method of maintaining capital accounts of partners.
Ans: Fixed Capital Method
7. Name any one final account of partnership firm
Ans: Profit and Loss A/c

GAGANA M
M.Com, B.Ed
8. How do you distribute profit or loss among the partners in the absence
partnership deed?
Ans: Equally
9. Why the Profit and Loss Appropriation account is prepared?
Ans: Profit and Loss Appropriation A/c is prepared to show how the profits distributed among the
partners, after making necessary adjustments.
10. At what rate Interest on advances by Partners is to be paid as per Partnership Act?
Ans: 6% p.a
11. When interest is charged on partners drawings?
Ans: Interest is charged on partners’ drawings when there is a provision in agreement among the
partners about it.
12. When Partners Current Accounts are prepared in partnership firms?
Ans: Partners current A/cs are prepared in partnership firms when partners capital accounts are
maintained under fixed capital method.
13. State any one special aspect of partnership accounts.
Ans: Maintenance of Partners’ Capital A/cs
14. When the Current Accounts of Partners are opened?
Ans: Current A/cs of Partners are opened in Fixed Capital Method.
15. Under fluctuating capital method, how many accounts are maintained for each partner?
Ans: One
16. State any one feature of fluctuating capital method.
Ans: Capital balance of each partner changes year after year.
17. State any one situation in which provision of payment of interest on partner’s capital is made.
Ans: If firm had earned profit and agreement had the provision of interest on capital.
18. Find out interest at 8% p.a. on capital of Rs.50,000 for 9 months.
Ans: Rs.3, 000
19. Which is the suitable method of calculation of Interest on drawings, when fixed amount is
withdrawn every month?
Ans: Average period method.
20. Give one example for past adjustment?
Ans: Omission of interest on capital.

Section B: Two marks questions:

1. What is Partnership?
Ans: Partnership is a relation between two or more persons who join hands to set up a business and
share its profits and
losses.
2. Define Partnership?
Ans: According to Sec 4 of the Indian Partnership Act- “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”

GAGANA M
M.Com, B.Ed
3. State any two features of Partnership.
Ans: * Two or More person’s * Agreement between persons.

4. What is Partnership Deed?

Ans: Partnership Deed is the written agreement on stamp paper containing terms of partnership
duly signed by all partners.
5. What are the methods of maintaining capital accounts of partners?
Ans: * Fixed Capital Method * Fluctuating Capital Method
6. What is fixed capital method?
Ans: Fixed Capital Method is a method of maintaining partners capital a/cs, in which the capital
balances of the partners shall remain fixed. All adjustments relating to partners are recorded in a
separate account called partner’s current account.
7. What is fluctuating capital method?
Ans: Fluctuating Capital Method is a method of maintaining partners’ capital a/cs, in which all
adjustments relating to partners are recorded in their Capital A/cs.
8. State any two differences between fixed and fluctuating capital methods
Ans:
Fixed Capital Method Fluctuating Capital Method
a. Adjustments are made in partners a. Adjustments are made in Partners Capital
current A/cs
a/cs
b. Capital balance remains unchanged b. Capital balance fluctuates year by year.
c. The capital accounts always show a c. The capital accounts may sometimes show a debit
credit balance. balance.

9. What do you mean by Profit and Loss Appropriation Account?

Ans: Profit and Loss Appropriation A/c is the extension of P&L A/c which shows how the profits
are appropriated among the
partners.
10. What is guarantee of profit to a partner?
Ans: Guarantee of profit to a partner means giving assurance of certain minimum amount by way of
his share of profits of the
firm.
11. What do you mean by past adjustments?
Ans: Past Adjustments refer to making necessary rectifications for omissions or commissions
noticed after preparation of final
accounts.
12. State any two final accounts of a Partnership firm.
Ans: * Profit and Loss A/c * Balance Sheet
13. In the absence of partnership deed, specify the rules relating to the followings;
a) Sharing of profit and losses
b) Interest on partners’ capital

GAGANA M
M.Com, B.Ed
 Ans: a) Equally b) Not to be allowed
14. State the rules relating to the followings in the absence of Partnership Deed:
a) Interest on drawings b) Interest on advances from Partners.
Ans: a) Not to be charged b) Allowed @ 6% p.a
15. Name any two methods for calculation of Interest of drawings.
Ans: 1) Product Method 2) Average Period Method
16. When the interest on drawings is generally provided to partners?
Ans: Interest on drawings is generally charged on partners when it is expressed in agreement.
17. How do you close Profit and Loss Appropriation account in Partnership?
Ans: Profit and Loss Appropriation A/c in partnership is closed by transferring its balance to
Partners Capital or Current A/cs.
18. State any two special aspects of Partnership Accounts.
Ans * Maintenance of Partners capital A/cs
* Distribution of P&L among Partners
19. Name any two contents of Partnership Deed.
Ans: * P & L Sharing Ratio
* Capital Contribution by Partners.

Six Marks questions:

Problems on Preparation of P & L Appropriation A/c

1] Shreshtha and Jyeshtha commenced business in partnership on 01.04.2023 with a capital of 4,00,000
and 3,00,000 respectively agreeing to share profits and losses in the ratio of 3:2. For the year ending
31.03.2024, they earned the profits of 66,000 before allowing:
i] Interest on capital at 5% p.a.
ii] Interest on drawings: Shrestha 2,000 and Jyeshtha 1,500
iii] Yearly salary of Shreshtha `6,000 and commission to Jyeshtha 4000.
iv] Their drawings during the year: Shreshtha 40,000 and Jyeshtha 30,000.
Prepare Profit and Loss Appropriation Account.

2] Shivam and Swayam are partners sharing profits in the ratio of 2:1 with capitals of 2,50,000 and
1,50,000 respectively. Interest on capital is agreed @ 5 % p.a. Swayam is to be allowed an annual salary of
8,000. During the year 2023-24, they earned a profit of 30,000. A provision of 2000 is to be made in
respect of commission to the manager. Interest on drawings being; Shivam 2000 and Swayam 1000.
Prepare Profit and Loss Appropriation Account.

3] Salim & Khadar are Partners commenced Partnership business on 1.4.2023 sharing profits & losses in
the ratio of 3:2 with capitals of 1,00,000 and 80,000 respectively. They earned profits of 25,000 for the
year before allowing:
a] Interest on Capitals @ 10% p.a.
b] Interest on drawings: Salim 1,000 & Kadar 800

GAGANA M
M.Com, B.Ed
 c] Commission payable to Salim 2000 p.a.
d] Salary payable to Khadar 3000 p.a.
Prepare P & L Appropriation A/c for the year ending 31.03.2024.

4] Peter & Paul are the partners, sharing profits & losses in the ratio of 2:1 Their opening capital being
80,000 & 50,000 respectively. They earned a profit of 20,000 before allowing the following:
a] Interest on capital @ 8% p.a.
b] Interest on drawings: Peter 800, Paul 600
c] Salary to Peter 3,000 p.a.
d] Commission to Paul 2,000 p.a.
Prepare P & L Appropriation A/c

5] Shruti and Reshma are partners with Capitals of 3,00,000 and rupees 2,00,000 respectively on 1.4.2023.
They agreed to share profits in the ratio of 2:1. For the year ending 31st March they earned a profit 59,000
before allowing:
i] Interest on capital at 5% per annum.
ii] Interest on drawings Shruti 2500 Reshma 1500.
iii] Partnership salary to Shruti 5000 per annum.
iv] Commission payable to Reshma 500 per month.
Their drawings during the year amounted to Shruti 25000 and Reshma 15000. prepare a profit and loss
appropriation account of the firm

6] Chetan and Devan are partners sharing profits and losses equally with the capitals of 2,00,000, 1,50,000
respectively on 1.4.2023. Chetan is entitled to a salary of 10,000 per year. Interest on capital is to be
allowed at 6% per annum. Their drawings during the year were Chetan 12,000 Devan 8,000 interest on the
same being 1,200 and 800 respectively. The profit for the year ended 31st March 2024 amounted to 38,000
before the above adjustments
Prepare Profit and Loss appropriation account

7] Risha and Rakhi are partners in a firm with the capitals of 2,00,000 and 3,00,000 respectively. As per
partnership deed they share profits and losses in capital ratio. The profit of the firm for the year ended
2023-24 amounted to 33,200 before allowing the following adjustments
i] Salary of 500 per month to Rakhi
ii] Interest on capital at 5% per annum.
iii] Interest on drawings at 6% per annum
During the year Risha withdrew 7,000 and Rakhi 10,000 for their personal use
Prepare profit and loss appropriation account
Hint: interest is to be calculated for average of 6 months

8] Sanju and Gulab are partners sharing profits and losses in the ratio 6:4. Their capitals on 1.4 2023
2,00,000 and 1,00,000 respectively. They made a profit for the year ended 89,400 before making the
following adjustments:

GAGANA M
M.Com, B.Ed
 i] Interest on capital at 8% per annum.
ii] Salary of 1000 per month to each partner
iii] Their drawings during the year 20,000 and 15,000 respectively.
iv] Interest on drawings amounted to 2000 and 1800 respectively.
Prepare a profit and loss appropriation account for the year ended 31st March 2024.

Problems on Calculation of Interest on Drawings

1] Yashasvi and Tapashvi are partners in a firm. During the year ended 31st March 2024 Yashasvi makes
the drawings as under Date of Drawings Amount
01.08.2023 5,000
31.12.2023 10,000
31.03.2024 15,000
Partnership Deed provided that partners are to be charged interest on drawings @ 12% p.a.
Calculate the interest on drawings of Yashasvi under Product Method.

2] Sahana and Saniya are partners in the firm. Sahana’s drawings for the year 2023- 24 are given as under:
4,000 on 01.06.2023
6,000 on 30.09.2023
2,000 on 30.11.2023
3,000 on 01.01.2024
Calculate interest on Sahana’s drawings at 8% p.a. for the year ending 31.03.2024, under product method.

3] Murthy and Patil are partners in a firm sharing profits and losses in the ratio of 3:2. Murthy withdraws
4,000 quarterly.
i] At the beginning of each quarter
ii] At the end of each quarter
Calculate the interest on drawings at 9% p.a. for the year ending 31.03.2024, under product method.

4] Calculate interest on drawings of Mr. Kamalakar @10% p.a if he withdrew 1,000 per month by the short
cut method:
i] At the beginning of each month
ii] At the end of each month.

5] Calculate interest on drawings of Purohit @10%p.a. if he withdrew 48,000 in a year evenly.

i] At the beginning of each quarter. ii] At the end of each quarter.

6] Vishnu a partner withdrew the following amounts during the year ended March 31st 2024
May 1st 2023 2000
July 31st 2023 6000
October 1st 2023 9000

GAGANA M
M.Com, B.Ed
Calculate interest at 9% per annum on his drawings.

7] Mr. Poorna is a partner in a firm. He withdrew the following amounts during the year ended 31.3.2024
November 30th 2023 12000
January 1st 2024 8000
March 1st 2024 7000
Interest is to be charged at 6 % per annum. Calculate interest on drawings.

8] Anil and Charan are partners sharing profits and losses equally. Anil withdrew the following amounts on
:- July 1st 2023 5000
September 1st 2023 8000
January 1st 2024 4000
Accounts are closed on 31st March of every year. calculate interest on Anil's drawings at 7% per annum

Problems on Guarantee of a Profit to a partner

1] Sachin and Rahul were partners in a firm sharing profits and losses in the ratio of 3:2. They admit Dhoni
for 1/6th share in profits and guaranteed that his share of profits will not be less than 25,000. Total profits
of the firm were 90,000. Calculate share of profits for each partner when the Guarantee is given by a firm.
Prepare Profit and Loss Appropriation Account.

2] Roja and Usha were partners in a firm sharing profits and losses in the ratio of 3:2. They admit Sahana
for 1/6th share in profits and guaranteed that his share of profits will not be less than 25,000. Total profits
of the firm was 90,000. Calculate share of profits for each partner when the Guarantee is given by Roja.
Prepare Profit and Loss Appropriation Account.

3] Sandya and Neela were partners in a firm sharing profits and losses in the ratio of 3:2. They admit
Lalitha for 1/6th share in profits and guaranteed that his share of profits will not be less than 25,000. Total
profits of the firm were 90,000. Calculate share of profits for each partner when: Guarantee is given by
Sandya and Neela equally.
Prepare Profit and Loss Appropriation account.

4] Aarav and Neerav share profits and losses in the ratio of 2:1. They admit Sourav as a partner with ¼
share in profits with a guarantee that his share of profit shall be at least 25,000. The net profit of the firm
for the year ending March 31st 2016 was 80,000.
Prepare Profit and Loss Appropriation Account.

5] Charan and Sharan share profits and losses in the ratio of 3:2. They admit Sachin into their firm for 1/6
share in profits. Charan personally guaranteed that Sachin’s share of profit, after charging interest on
capital @ 10% p.a. would not be less than 15,000 in any year. The capital provided was as follows: Charan
1,25,000, Sharan 1,00,000 and Sachin 75,000. The profit for the year ending March 31st 2016 amounted to

GAGANA M
M.Com, B.Ed
75,000 before providing interest on capital. Show the Profit and Loss Appropriation
A/c if the new profit sharing ratio is 3:2:1

6] Sandesh and Kailesh share profits and losses in the ratio of 2:1. From April 01, 2015 they admit
Basavesh into their firm who is to be given a share of 1/10 of the profits with a guaranteed minimum of
50,000. Sandesh and Kailesh continue to share profits as before but agree to bear any deficiency on account
of guarantee to Basavesh in the ratio of 3:2 respectively. The profits of the firm for the year ending March
31st, 2016 amounted to 2,40,000.
Prepare Profit and Loss Appropriation Account

**************************************************************************************

GAGANA M
M.Com, B.Ed
 CHAPTER-2
RECONSTITUTION OF A PARTNERSHIP FIRM:
ADMISSION OF A PARTNER.
Section A: One-mark questions:
I Fill in the blanks:
1.Old ratio is used to distribute accumulated profits and losses at the time of admission of a new partner.
2. Profit or loss on revaluation is shared among the old partners in old ratio.
3. Old Ratio-New Ratio= Sacrificing Ratio.
4. Accumulated losses are transferred to the capital accounts of the old partners at the time of admission in
their old ratio.
5. General reserve is to be transferred to Capital accounts at the time of admission of a new partner.
6. Goodwill brought in by new partner in cash is to be distributed among old partners in Sacrificing ratio.
7. If the amount brought by new partner is more than his share in capital, the excess is known as Hidden
goodwill
8. Asset Account is debited for the increase in the value of an asset.
9. Unrecorded asset is to be credited to Revaluation account.
10. A and B are partners sharing profits & losses equally with capitals of Rs.45,000 each. C is admitted for
1/3rd share and he brings in.60, 000 as his capital. Hidden Goodwill is Rs.30,000.
11. Due to change in profit sharing ratio, some partners will gain in future profits while others will Loose.
12. Goodwill is an Intangible asset.
13. Goodwill account is credited for cash brought in by new partners for his share of goodwill.
14. New Profit-Sharing ratio is required for sharing future profits and also for adjustment of capitals.

II. Multiple Choice Questions

1. At the time of admission of a new partner, general reserve appearing in the old balance sheet in
transferred to:
a) All partners’ Capital Account b) New Partner’s Capital Account
c) Old Partners Capital Account d) None of the above
2. A, B and C are partners in a firm. If D is admitted as a new partner
a) Old firm if dissolved
b) Old firm and old partnership are dissolved
c) Old partnership is reconstituted
d) None of the above
3. On the admission of a new partner, increase in the value of asset is credited to
a) Profit and Loss Adjustment (Revaluation) Account
b) Asset Account
c) Old partners Capital Account
d) None of the above

GAGANA M
M.Com, B.Ed
4. At the time of admission of a partner, undistributed profits appeared in the Balance sheet of the old
firm is transferred to the
capital accounts of
a) Old partners in old profit sharing ratio.
b) Old partners in new profit sharing ratio.
c) All the partners in new profit sharing ratio
d) None of the above.
5. If new Partner brings cash for his share of goodwill, goodwill is transferred to Old Partners’ Capital
Account in:
a) Sacrificing ratio b) Old Profit sharing ratio.
c) New Profit sharing ratio d) None of the above.
6. Which of the following are treated as reconstitution of a Partnership Firm?
a) Admission of a partner b) Change in profit sharing ratio
c) Retirement of a partner d) All the above
7. Profit or loss on revaluation is shared among the partners in the
a) Old profit sharing ratio b) New profit sharing ratio
c) Capital ratio d) Equal ratio
8. Assets and Liabilities are recorded in Balance Sheet after the admission of a partner at:
a) Original Value b) Revalued Value
c) Realizable value d) None of the above
9. On the admission of a new partner, the increase in the value of an asset is credited to
a) Revaluation Account b) Asset Account
c) Old Partners Capital Account d) None of the above
10. Old Profit Sharing Ratio-New Profit Sharing Ratio is=
a) Sacrificing ratio b) Gaining ratio
c) Both the above d) None of the above.
11.In the absence of an agreement to the contrary, it is implied that old partners will contribute to new
partner’s share of profit in the ratio of
a) Capital b) Old profit sharing ratio
c) Sacrificing ratio d) Equally
12. The balance of reserves and other accumulated profits at the time of admission of a new partner are
transferred to;
a) All partners in the new ratio
b) Old partners in the new ratio
c) Old partners in the old ratio
d) Old partners in the sacrificing ratio
13. Goodwill raised in books at the time of admission of partners will be written off in:
a) Old profit sharing ratio b) New profit sharing ratio
c) Sacrificing ratio d) None of the above

GAGANA M
M.Com, B.Ed
 14. Revaluation Account is debited for the
a) Increase in provision for doubtful debts
b) Increase in the value of building
c) Decrease in the amount of creditors
d) Transfer of loss on revaluation
15. A and B are partners sharing profits in the ratio of 3:1. C is admitted into partnership for 1/4th share.
The sacrificing ratio of A and B will be:
a) Equal b) 3:1 c) 2:1 d) 3:2
16. If average profit is 15,000, Capital employed is 1,00,000 and Normal rate of return is 10%, then the
value of goodwill under capitalization method is;
a] 25,000 b] 50,000 c] 75,000 d] 10,000
17.Asha and Nisha are partners sharing profit in the ratio of 2:1. Asha’s son Ashish was admitted for
1/4 share of which 1/8 was gifted by Asha to her son. The remaining was contributed by Nisha.
Goodwill of the firm is valued at 40,000. How much of the goodwill will be credited to the old partners
capital account?
a]2,500 each b] 5,000 each c] 20,000 each d] 25,000 each
III. True or False type questions

1. Goodwill brought in cash by new partner is distributed among old partners in their Sacrificing
ratio.= True
2. In case of admission of a partner, profit or loss on revaluation is transferred to Old Partners’ Capital
Accounts.=True
3. Accumulated profit is transferred to all partner’s capital accounts including new partner.=False
4. The debit balance of Profit and Loss Account shown in the assets side of the Balance Sheet will be
debited to Old Partners Capital Accounts.=True
5. Increase in the value of an asset in credited to Revaluation Account=True
6. The traditional name of ‘Revolution A/c’ is ‘Profit and Loss Adjustment A/c’= True
7. Goodwill is an intangible asset.=True
8. Decrease in the value of liability is debited to Revaluation Account.=False
9. Sacrificing ratio is required to distribute the cash brought by new partner among old partners for
his share of goodwill.= True
10. Share sacrificed=Old share-New share.= True

IV. Match the following

A B

1. Sacrifice Ratio Admission of partner

GAGANA M
M.Com, B.Ed
 2. New Ratio Capital Adjustment

3. New share Old share – share sacrificed

4. Average profit method Valuation of Goodwill

5. Right of new partner Share in future profits

6. Shortage of funds Reason for admission

7. Accounting for Intangible asset AS-26

8. Goodwill Intangible asset

IV. Very Short answer type questions:

1. What do you mean by reconstitution of a Partnership Firm?

Ans: Reconstitution of a Partnership Firm means change in the existing agreement, relations and
composition of members.
2. State any one reason for admission of a new partner.
Ans: To increase the Capital
3. State any one right acquired by a newly admitted partner
Ans: Right to share the assets or profits of the partnership firm
4. Why the NPSR is required at the time of admission of a partner?
Ans: NPSR is required to share the future profits or losses.
5. What is Goodwill?
Ans: Goodwill is the monetary value of good name, reputation and wide business connections.
6. State any one factor affecting the value of goodwill.
Ans: Nature of business
7. What is normal profit?
Ans: Normal profit means normal return on capital employed.
8. State any one method of valuation of goodwill.
Ans: Average profit method
9. Give the formula for sacrificing ratio
Ans: Sacrificing Ratio = Old Ratio - New Ratio
10. Which account is to be debited to record the increase in the value of assets?
Ans: Asset A/c.
11. What is Revaluation Account?
Ans: Revaluation A/c is an a/c prepared in connection with recording of increase or decrease in value of
assets and liabilities and to find out the P/L on revaluation.
12. Which account will be credited when there is a loss on revaluation?
Ans: Revaluation A/c

GAGANA M
M.Com, B.Ed
13. Which account will be debited when the cash is brought by a new partner for
his share of goodwill?
Ans: Cash/Bank A/c
14. What is hidden goodwill?
Ans: Hidden goodwill refers to the difference between total required capital and actual capital of all
partners.

Section B: Two Marks Questions

1. When the goodwill is distributed among old partners in the sacrificing ratio?
Ans: When goodwill is brought in cash by new partner, it is distributed in sacrificing ratio
2. State any two methods of valuation of goodwill.
Ans: * Average profit method
* Super Profit method
3. State any two rights acquired by a new partner.
Ans: * Right to share the assets of the firm
* Right to share profits of the firm
4. What do you mean by hidden goodwill?
Ans: Hidden goodwill refers to goodwill which value is not given at the time
of admission but has to be inferred from arrangement of capitals and
profit sharing ratio
5. Pass the journal entry to write off the goodwill raised to the extent of full value.
Ans: All Partners’ Capital A/cs Dr xx—
To Goodwill A/c ---xx
( Being writing off of full value of goodwill)
6. State any two matters which need adjustments in the books of the firm at the time of admission of a
new partner.
Ans: * Revaluation of assets and liabilities
* Valuation and adjustment of goodwill
7. What is sacrificing ratio?
Ans: Sacrificing ratio refers to the ratio in which the old partners agree to
sacrifice their share of profit in favor of the new partner.
8. Why the sacrifice ratio is calculated?
Ans: Sacrificing ratio is calculated in order to distribute the goodwill
brought in cash by new partner.
9. What is the need for the revaluation of assets and liabilities on the admission of a partner?
Ans: The need for the revaluation of assets and liabilities is to ascertain true
financial position of the business.
10. State any two reasons for admitting a new partner.
Ans: * To increase the capital * To improve the managerial ability

GAGANA M
M.Com, B.Ed
11. How do you close revaluation account when there is a profit?
Ans: If there is profit, revaluation a/c is closed by debiting revaluation a/c
and crediting old partners capital a/cs

12.State any two factors which determine the goodwill of the firm.
Ans: * Nature of the business * Location of the business
13. What is average profit method of valuation of goodwill?
Ans: Average profit method is a method of valuating goodwill, where
average profit is multiplied with the agreed number of years purchase
to ascertain goodwill.
14. Goodwill of the firm valued at two years purchase of the average profit
of last four years. The total profits for last four years are Rs.40, 000.
Calculate the goodwill of the firm.
Ans: * Average Profit - Total Profit /No of years
= 40,000/ 4
= Rs.10, 000
* Goodwill = Average Profit x No of years purchase
= 10,000 x 2
= Rs.20,000
15. Pass the journal entry for increase in the value of building on the admission of a partner.
Ans: Building A/c Dr
To Revaluation A/c
(Being increase in the value of building)
16.Pass the journal entry for the decrease in the value of a liability.
Ans: Liability A/c Dr
To Revaluation A/c
(Being decrease in the value of liability)

GAGANA M
M.Com, B.Ed
 Six marks questions

Problems on calculation of NPSR

1] Anita and Kavita are partners sharing profits in the ratio of 3:2. They admitted Sunita as a new partner
for 1/5th share in future profits of the firm. Calculate new profit-sharing ratio of Anita, Kavita and Sunita.

2] Sudeep and Sandeep are partners in a firm sharing profits and losses in the ratio of 3:2. They admit Dilip
into the partnership for 1/6th share in the profits. Calculate the new profit-sharing ratio.

3] Ajay, Prakash and Santosh are partners sharing profits and losses in the proportion of 2/8, 3/8 and 3/8.
They admit Suresh for 1/4th share. Calculate the new profit-sharing ratio of all partners.

4] Ram and Rahim are partners sharing profits in the ratio of 3:2. They admit Rakshit as a new partner for
1/5th share in the future profits of the firm, which he gets equally from Ram and Rahim. Calculate new
profit-sharing ratio of Ram, Rahim and Rakshit.

5] Vani and Rani are partners sharing profits and losses in the ratio of 3:2. They admitted Mayuri as a new
partner 3/10 share, which she acquired 2/10 from Vani and 1/10 from Rani. Calculate the new profit-
sharing ratio.

6] Ravi and Shankar are partners sharing profits and losses in the ratio of 7:3. They admit Shiva into the
partnership. Ravi surrenders 1/2 of his share and Shankar 1/4th of his share in favour of Shiva. Calculate
new profit-sharing ratio of Ravi, Shankar and Shiva.

7] Rajesh and Rakesh are partners in a firm sharing profits and losses in the ratio of 3:2. They admit
Ramesh as a new partner. Rajesh agrees to surrender 1/4th of his share and Rakesh agrees to surrender
1/3rd of his share in favour of Ramesh. Calculate new profit-sharing ratio of Rajesh, Rakesh and Ramesh.

8] Amar and Akbar are partners sharing profits and losses in the ratio of 5:3. They admit Anthoni into the
partnership and offer him 1/6th share which he acquired in the ratio of 3:1 from the old partners. Calculate
the new profit-sharing ratio.

9] Suresh and Shankar are partners sharing profits and losses in the ratio of 2:1. They admit Jagadish into
the partnership giving him 1/5th share which he acquired from Suresh and Shankar in 1:2 ratio. Calculate
new profit-sharing ratio.

10] Sujata and Sangeeta are partners in a firm sharing profits in ratio of 4:1. They admit Revati as a new
partner for 1/4th share in future profits, which she acquired wholly from Sujata. Calculate the new profit-
sharing ratio of the all partners.

GAGANA M
M.Com, B.Ed
Problems on calculation sacrifice ratio

1] Anil and Sunil are partners sharing profits and losses in the ratio of 4:3. They admit Akash into
partnership. The new profit sharing ratio is agreed at 7:4:3 respectively. Find out the sacrifice ratio of old
partners.

2] Sharat and Bharat are partners sharing profits and losses in the ratio of 3:2. They admit Kamat into
partnership and the new ratio was agreed to be 5:4:3. Calculate the sacrifice ratio.

3] Avinash and Bhima are partners in a firm sharing profits in the ratio of 5:3. They admit Chandru as a
new partner for 1/7th share in the future profit. The new profit sharing ratio will be 4:2:1. Calculate the
sacrifice ratio of Avinash and Bhima.

4] Surekha and Sunita are partners sharing profits and losses in the ration of 5:3. They admit Savita into the
partnership. The new profit sharing ratio is 3:2:1 respectively. Find out the sacrifice ratio of the old
partners.

5] Mohan and Madan are partners sharing profits and losses in the ratio of 3:2. They admit Murali into the
partnership. The new profit sharing ratio is 4:3:3. Calculate the sacrifice ratio of Mohan and Madan.

6] Radha and Rukmini are partners in a firm sharing profits and losses in the ratio of 3:2. They admit
Ranjeeta as a new partner for 1/4th share. The new profit sharing ratio between Radha and Rukmini will be
2:1. Calculate the sacrifice ratio.

7] Amir and Salman are partners in a firm sharing profits and losses in the ratio of 3:2. They admit
Shaharukh into the partnership. Amir agrees to surrender 1/2nd of his share and Salman agrees to surrender
1/4th of his share in favour of Shaharukh. Calculate the sacrifice ratio of Amir and Salman.

8] Chaya and Maya are partners sharing profits and losses equally. They admit Shreya into the partnership.
Chhaya agrees to surrender 1/3rd of her share and Maya agrees to surrender 1/4th of her share to Shreya.
Calculate the sacrifice ratio.

9] Pujari and Purohit are partners sharing profits and losses in the ratio of 2:1. They admit Pandit into the
partnership and gave him 1/6th share. Pujari and Purohit agreed to share the remaining share in the ratio of
3:2. Calculate the sacrifice ratio.

GAGANA M
M.Com, B.Ed
12 Marks Problems :

Case 1 : When new partner brings cash for his share of goodwill

1] Maya and Chhaya are partners sharing profits and losses in the ratio of 2:1. Their Balance Sheet as on
31.3.2024 was as follows:
Balance Sheet as on 31.03.2024
Liabitlties Amount Assets Amount
Creditors 20,000 Cash in Hand 8,000
Bills Payable 7,000 Stock 15,000
Reserve Fund 18,000 Debtors 20,000
Capitals: Machinery 30,000
Maya 60,000 Buildings 60,000
Chhaya 40,000 Investments 12,000
Total 1,45,000 Total 1,45,000

On 01.04.2024, Shreya is admitted into partnership on the following conditions:

a] Shreya should bring in cash `25,000 as her capital and `15,000 as goodwill for 1/5th share in
future profits. (as per AS-26)
b] Appreciate Buildings at 20% and Stock is revalued at `12,000.
c] Maintain Provision for doubtful debts at 5% on Debtors.
d] Outstanding salary `2,000.
Prepare : i] Revaluation Account.
ii] Partners’ Capital Accounts &
iii] New Balance Sheet of the firm.

GAGANA M
M.Com, B.Ed
2] Rekha and Surekha are partners in a firm sharing profits and losses in the ratio of 3:2. Their balance
sheet is given below:
Balance Sheet as on 31.03.2024

Liabitlties Amount Assets Amount

Creditors 18,000 Cash at Bank 20,000
O/s Salary 12,000 Sundry debtors 25,000
Reserve Fund 10,000 Less: PDD 2,000 23,000
Capitals: Stock 7,000
Rekha 60,000 Furniture 25,000
Surekha 40,000 1,00,000 Buildings 50,000
P & L Account 15,000
Total 1,40,000 Total 1,40,000

On 01.04.2024, they admit Chandrika as new partner into partnership on the following terms:
a] She brings in 40,000 as capital and 20,000 towards goodwill for 1/4th share in future profits. (as
per AS26)
b] Depreciate Furniture by 10% and buildings are revalued at 45,000.
c] PDD is increased to 3,500.
d] Prepaid insurance 2,000.
Prepare: i] Revaluation Account.
ii] Partners’ Capital Accounts &
iii] New Balance sheet as on 01.04.2024.

GAGANA M
M.Com, B.Ed
3] Suresh and Mahesh are partners in a firm sharing profits and losses equally. Their balance sheet as on
31.03.2024 was as follows.
Balance Sheet as on 31.03.2024
Liabitlties Amount Assets Amount
Creditors 40,000 Cash at Bank 10,000
Bills Payable 50,000 Sundry debtors 40,000
Reserve Fund 30,000 Less: PDD 2,000 38,000
Profit & Loss A/c 10,000 Stock 25,000
Capitals: Machinery 20,000
Suresh 40,000 Buildings 92,000
Mahesh 30,000 70,000 Patents 15,000
Total 2,00,000 Total 2,00,000

On 01.04.2024, they admit Ganesh as a new partner for ¼ th share in the future profits on the following
terms:
a] Ganesh should bring in cash `50,000 as his capital and `20,000 towards goodwill and goodwill
amount is withdrawn by old partners (as per AS26)
b] Depreciate Machinery by 10%.
c] Increase provision for doubtful debts by `4,000.
d] Buildings are revalued at `1,00,000.
Prepare: i] Revaluation Account
ii] Partners’ Capital Accounts &
iii] New Balance Sheet of the firm.

GAGANA M
M.Com, B.Ed
4] Amith and Sumit are partners in a firm sharing profits and losses in the ratio of 3:2. Their balance sheet
as on 31.03.2024 stood as follows:
Balance Sheet as on 31.03.2024
Liabitlties Amount Assets Amount
Creditors 40,000 Cash at Bank 21,000
General Reserve 5,000 Sundry debtors 18,000
Capitals: Less: PDD 1,000 17,000
Amit 30,000 Stock 20,000
Sumit 15,000 Machinery 4,000
Buildings 25,000
Bills Receivable 3,000
Total 90,000 Total 90,000

On 01.04.2024, they admit Ranjit as a new partner and offered him 1/5th share in the future profits on the
following terms:
a] He has to bring in `10,000 as his capital and `5,000 towards goodwill. Half of the goodwill
amount is withdrawn by old partners (as per AS26)
b] Stock is reduced by `2,000 and Appreciate buildings by 20%.
c] Maintain 5% PDD on debtors.
d] Provide for outstanding repair bills `100.
Prepare: i] Revaluation Account
ii] Partners’ Capital Accounts &
iii] New Balance Sheet of the firm

GAGANA M
M.Com, B.Ed
5] Anita and Vanita are partners in a firm sharing profits and losses in the ratio of 3:2. Their balance sheet
as on 31.03.2024 was as follows.
Balance Sheet as on 31.03.2024
Liabitlties Amount Assets Amount
Creditors 20,000 Cash at Bank 5,000
Bills Payable 6,000 Sundry debtors 20,000
Reserve Fund 4,000 Less: PDD 2,000 18,000
Capitals: Stock 17,000
Anita 40,000 Buildings 35,000
Vanita 30,000 70,000 Furniture 25,000

Total 1,00,000 Total 1,00,000

On 01.04.2024, Sunita is admitted into partnership on the following terms:

a] She brings 25,000 as capital and 10,000 towards goodwill for 1/6th share in the future profits.
Goodwill amount is withdrawn by old partners (as per AS-26)
b] Depreciate Furniture at 10% and appreciate Buildings by 20%.
c] Provision for doubtful debts is no longer required.
d] Provide 1,000 for Repair charges.
Prepare: i] Revaluation Account
ii] Partners’ Capital Accounts &
iii] New Balance Sheet of the firm

GAGANA M
M.Com, B.Ed
6] Tarun and Harish are partners in a firm. Their balance sheet as on 31.03.2024 was as follows:

Balance Sheet as on 31.03.2024

Liabitlties Amount Assets Amount
Creditors 1,50,000 Cash at Bank 50,000
General Reserve 50,000 Stock 50,000
Debtors 40,000
Capitals Furrniture 1,20,000
Tarun 1,20,000 Buildings 1,00,000
Harish 80,000 Investments 40,000

Total 4,00,000 Total 4,00,000

On 01.04.2024 Krishna is admitted into the partnership on the following terms:

a] He brings in `60,000 as his capital and `20,000 towards goodwill for 1/4th share in the future
profits. Goodwill is to be withdrawn by the Old Partners. (as per AS26)
b] Depreciate Furniture by 10% and appreciate Buildings by `22,000.
c] Investments are to be revalued at `50,000.
d] Creditors were unrecorded to the extent of `5,000
Prepare: i] Revaluation Account
ii] Partners’ Capital Accounts &
iii] New Balance Sheet of the firm

GAGANA M
M.Com, B.Ed
7] Pradeep and Sudeep are partners in a firm sharing profits and losses in the ratio of 3:2. Their balance
sheet as on 31.03.2024 was as follows:
Balance Sheet as on 31.03.2024

Liabitlties Amount Assets Amount

Creditors 40,000 Cash 25,000
General Reserve 25,000 Stock 25,000
Bills payable 20,000 Debtors 23,000
Capitals Less: PDD 3,000 20,000
Pradeep 60,000 Machinery 60,000
Sudeep 40,000 1,00,000 Buildings 50,000
P & L A/c 5,000
Total 1,85,000 Total 1,85,000

On 01.04.2024, they admit Sandeep as new partner and offer him 1/5th share in the future profits on the
following terms:
a] Sandeep has to bring in `30,000 as his capital and `10,000 towards goodwill. Goodwill amount is
withdrawn by the old partners.(as per AS26)
b] Depreciate Machinery by 5%.
c] Appreciate buildings by 10%.
d] PDD is reduced to `2,000 and Stock is to be revalued at `27,000.
Prepare: i] Revaluation Account
ii] Partners’ Capital Accounts &
iii] New Balance Sheet of the firm

GAGANA M
M.Com, B.Ed
8] Narayan and Gopal are equal partners. Their Balance Sheet as on 31.03.2024 was as follows:
Balance Sheet as on 31.03.2024
Liabitlties Amount Assets Amount
Creditors 12,000 Cash 2,000
Bills Payable 6,000 Sundry debtors 25,000
Reserve Fund 2,000 Less: PDD 5,000 20,000
Capitals: Stock 23,000
Narayan 40,000 Buildings 40,000
Gopal 30,000 70,000 Furniture 5,000
Total 1,00,000 Total 1,00,000

On 01.04.2024, they admit Vinayak as a new partner and offered him 1/4th share in the profit on the
following terms:
a] He should bring in `30,000 as capital and `20,000 towards goodwill.
b] Half of the goodwill amount is withdrawn by the old partners.(as per AS26)
c] Stock and Furniture to be depreciated by 10% each.
d] PDD is reduced by `3,000 and `200 to be provided for electricity charges
Prepare: i] Revaluation Account
ii] Partners’ Capital Accounts &
iii] New Balance Sheet of the firm

GAGANA M
M.Com, B.Ed
II. When goodwill of the firm is valued

9] Sharavati and Netravati are partners in a firm sharing profits and losses in the ratio of 3:2. Their Balance
Sheet as on 31.03.2024 stood as follows:
Balance Sheet as on 31.03.2024

Liabitlties Amount Assets Amount

Creditors 16,000 Cash 15,000
Bills Payable 14,000 Sundry debtors 20,000
Reserve Fund 5,000 Less: Provision 1,000 19,000
Capitals: Stock 5,000
Narayan 50,000 Buildings 25,000
Gopal 20,000 70,000 Patents 6,000
Machinery 35,000
Total 1,05,000 Total 1,05,000

On 01.04.2024, Kaveri is admitted into the partnership for 1/6th share in future profits on the following
terms:
a] Kaveri pays `20,000 as capital. The Goodwill of the firm is valued at `24,000 (as per AS 26)
b] Buildings are appreciated by `5,000
c] Machinery is depreciated by 20%.
d] Provision for doubtful debts is increased by `1,000.
Prepare: i] Revaluation Account
ii] Partners’ Capital Accounts &
iii] New Balance Sheet of the firm

GAGANA M
M.Com, B.Ed
10] Malaprabha, Ghataprabha and Hiranyakeshi are partners in a firm sharing profits and losses in the ratio
of 2:1:1. Their Balance Sheet as on 31.03.2024 was as follows:
Balance Sheet as on 31.03.2024
Liabitlties Amount Assets Amount
Creditors 1,00,000 Cash at Bank 17,000
Bank OD 8,000 Sundry debtors 1,20,000
Reserve Fund 32,000 Less: PDD 6,000 1,14,000
Capitals: Stock 80,000
Malaprabha 40,000 Buildings 60,000
Ghataprabha 50,000 Bills Receivable 19,000
Hiranyakeshi 60,000
Total 2,90,000 Total 2,90,000

On 01.04.2024, they admit Krishna into the partnership for 1/5th share in future profits on the following
terms:
a] Krishna brings `50,000 as her capital.
b] Goodwill of the firm is valued at `60,000 (as per AS-26)
c] Reduce Stock by 10% and appreciate Buildings to `70,000.
d] Provision for doubtful debts decreased by `2,000
Prepare: i] Revaluation Account
ii] Partners’ Capital Accounts &
iii] New Balance Sheet of the firm

GAGANA M
M.Com, B.Ed
11] Arati and Bharati are partners sharing profits and losses in the ratio 2:1. Their Balance Sheet as on
31.03.2024 was as follows:
Balance Sheet as on 31.03.2024
Liabitlties Amount Assets Amount
Creditors 13,000 Cash in Hand 10,000
Bills Payable 8,000 Debtors 6,000
Reserve Fund 9,000 Stock 10,000
Capitals: Furniture 4,000
Arati 20,000 Buildings 40,000
Bharati 20,000 40,000
Total 70,000 Total 70,000

On 01.04.2024, they admit Jayanti into partnership giving her 1/5th share in the future profits on the
following terms:
a] The new partner should bring 25,000 as her capital.
b] The Goodwill of the firm valued at 30,000. (as per AS26)
c] Value of Buildings is to be appreciated by 7,000 and Furniture to be depreciated by 1,000
d] Stock is valued at 10% less than the book value and there is an outstanding printing bill for 500
Prepare: i] Revaluation Account
ii] Partners’ Capital Accounts &
iii] New Balance Sheet of the firm

GAGANA M
M.Com, B.Ed
12] Ramya and Rakshita are partners sharing profits and losses in the proportion of 3/5 and 2/5. Their Balance
Sheet as on 31.03.2024 was as follows:
Balance Sheet as on 31.03.2024
Liabitlties Amount Assets Amount
Creditors 75,000 Cash at Bank 19,000
Reserve Fund 25,000 Stock 39,000
P & L Account 5,000 Debtors 60,000
Capitals: Less : PDD 3,000 57,000
Ramya 60,000 Furniture 10,000
Rakshita 30,000 Building 40,000
Machinery 25,000
Total 1,90,000 Total 1,90,000

On 01.04.2024, Rachita is admitted into partnership on the following terms:

a] She should bring 40,000 as capital for 1/6th share and goodwill of the firm is valued at 24,000
(as per AS26)
b] Depreciate Furniture by 10%.
c] Appreciate Buildings by 20%.
d] PDD is increased by 2,000.
e] Creditors were valued at 77,000, as one bill for goods purchased have been omitted to record in
books.
Prepare: i] Revaluation Account
ii] Partners’ Capital Accounts &
iii] New Balance Sheet of the firm

GAGANA M
M.Com, B.Ed
II. Capitals Adjustments Problems:

13] Mahesh and Suresh are equal partners in a firm. Their Balance Sheet as on 31.03.2024 stood as
follows:
Balance Sheet as on 31.03.2024
Liabitlties Amount Assets Amount
Creditors 40,000 Cash at Bank 15,000
Bank Loan 8,000 Stock 39,000
Debtors 32,000
Capitals: Less : PDD 2,000 30,000
Mahesh 80,000 Motor car 8,000
Suresh 40,000 1,20,000 Land & Building 40,000
Machinery 36,000
Total 1,90,000 Total 1,90,000

On 01.04.2024, Rakesh is admitted into partnership for 1/5th share in profits on the following terms:
a] Rakesh should bring `26,000 as capital.
b] Goodwill of the firm is valued at `10,000 (as per AS 26)
c] Motor car and Machinery are to be depreciated by 20% and `3,800 respectively.
d] Prepaid rent `600.
e] Provision for doubtful debts is to be maintained at 10%.
f] The Capital Accounts of all the partners are to be adjusted in their new profit sharing ratio 2:2:1,
based on Chandra’s Capital after adjusting goodwill (Adjustments are to be made in cash)
g] Sacrifice ratio of old partners is 1:1
Prepare: i] Revaluation Account
ii] Partners’ Capital Accounts &
iii] New Balance Sheet of the firm

GAGANA M
M.Com, B.Ed
14] Ram and Laxman are partners in a firm. Following is their Balance Sheet as on 31.03.2024
Balance Sheet as on 31.03.2024
Liabitlties Amount Assets Amount
Creditors 16,000 Cash in Hand 10,000
Bills Payable 4,000 Stock 15,000
Debtors 16,000
Capitals: Less : Provision 500 15,500
Ram 40,000 Furniture 4,500
Laxman 20,000 60,000 Land & Building 15,000
Plant & Machinery 20,000
Total Total 1,90,000

On 01.04.2024, Bharat is admitted into partnership on the following terms:

a] Bharat should bring 16,000 as capital.
b] Goodwill of the firm is valued at 6,000. (as per AS26)
c] Provision for doubtful debts is to be increased by `1,000.
d] Machinery is to be depreciated by 10%.
e] Land & Buildings are to be increased by `5,000.
f] Capital Accounts of partners are to be adjusted in their new profit-sharing ratio 3:2:1, based on
Bharat’s Capital after adjusting goodwill. (Adjustments to be made in cash)
g] Sacrifice ratio of old partners is 0:1
Prepare: i] Revaluation Account
ii] Partners’ Capital Accounts &
iii] New Balance Sheet of the firm

GAGANA M
M.Com, B.Ed
15] Bhanu and Bhoomi are partners in a firm sharing profit & loss in the ratio of 2:1. Following is their
Balance Sheet as on 31.03.2024.
Balance Sheet as on 31.03.2024

Liabitlties Amount Assets Amount

Creditors 20,000 Cash in Hand 37,000
Bills Payable 4,000 Stock 25,000
General Reserves 6,000 Debtors 17,000
Capitals: Less : Provision 1,500 15,500
Bhanu 80,000 Furniture 14,500
Bhoomi 40,000 1,20,000 Plant & Machinery 18,000
Building 40,000
Total 1,50,000 Total 1,50,000

On 01.04.2024, Akash is admitted into partnership on the following terms:

a] Akash should bring `29,000 as capital.
b] Goodwill of the firm is valued at `24,000.
c] Stock is to be increased by 10%.
d] Provision for doubtful debts is increased to `2,500.
e] Capital accounts of partners are to be adjusted in their new profit-sharing ratio 3:2:1, based on
Akash’s capital after adjusting goodwill (Adjustments to be made in cash).
f] Sacrifice ratio of old partners is 1:0
Prepare: i] Revaluation Account
ii] Partners’ Capital Accounts &
iii] New Balance Sheet of the firm

GAGANA M
M.Com, B.Ed
 CHAPTER-3
RECONSTITUTION OF A PARTNERSHIP FIRM:
RETIREMENT/DEATH OF A PARTNER
(A) RETIREMENT OF A PARTNER
Section-A One mark Question
I. Fill in the blanks:
1. Old ratio is used to distribute accumulated profits and losses at the time of retirement of a partner.
2. Profit or loss on revaluation is shared among the partners in Old ratio on retirement of a partner.
3. New ratio –Old ratio= Gaining Ratio
4. Accumulated losses are transferred to the Capital Accounts of the partners at the time of retirement
in their Old ratio.
5. General reserve is to be transferred to All Partners’ Capital Accounts at the time of retirement of a
partner.
6. Goodwill raised to the extent of retiring partner’s share only is to be debited to continuing partners
capital accounts in Gaining ratio.
7. In the absence of any instruction, Retiring Partner’s Capital A/c is closed by transferring its balance
to Retiring Partner’s Loan A/c.
8. New ratio is used for adjustment of continuing partners’ capitals.
9. X, Y and Z are the partners sharing profits and losses in the ratio of 3:2:1. If Y retires, the new ratio
X and Z will be 3:1.
10. Share gained is calculated by deducting old share from the New Share.
11. The ratio in which the remaining partners will share future profits after retirement is called New
ratio.
12. The balance in the retiring partner’s loan A/c is shown on the Liabilities side of the B/S till the last
installment is paid.
13. The amount paid to the Retiring Partner in excess of what is due to him is called Hidden goodwill.
14. In the absence of any agreement as the disposal of amount due to Retiring Partner, Sec 37 of the
Indian Partnership Act.1932 is applicable.
15. If goodwill already appears in the books, it will be written off by debiting All Partners’ Capital
A/cs in their OPSR.

II.Multiple Choice Questions:

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 the above
2. The old profit-sharing ratio among Rajendra, 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
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

GAGANA M
M.Com, B.Ed
 will be:
a) 8:7 b) 4:5 c) 3:2 d) 2:3
4.In the absence of any information regarding the acquisition of share in the
profit of the retiring/decreased partner by the remaining partners, it is
assumed that they will acquire his/her share in
a) Old Profit-Sharing Ratio b) New Profit-Sharing Ratio
c) Equal Ratio d) None of the above
5. 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 the above.
6. Govind, Hari and Pratap are partners, On retirement of Govind,the
goodwill already appears in the Balance Sheet at Rs.24,000. The goodwill
will be written off by debiting
a) All Parnters’ Capital Accounts in their old profit sharing ratio.
b) Remaining Partners’ Capital Accounts in their new profit sharing ratio.
c) Retiring Partner’s Capital Accounts from his share of goodwill.
d) None of the above.
7. 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 by:
a) debiting Chaman’s Capital Account with Rs.15,000 each.
b) debiting Chaman’s Capital Account and Suman’s Capital Account
with Rs.21,429 and 8,571 respectively.
c) debiting only Suman’s Capital Account with Rs.30,000.
d) debiting Raman’s Capital Account with Rs.30,000.
8. 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 partner.
c) remaining partners only (who have sacrificed).
d) none of the above.

III.True or False Type Questions:

1. Profit or loss on revaluation is transferred to All Parnters’ Capital Accounts in case of retirement of
partner. = True
2. Accumulated profit is transferred to Continuing Partners’ Capital Accounts. = False
3. Adjustment of partners’ capitals of the remaining partners is to be made in the New Ratio.= True
4. New Share= Old share + share sacrificed.= False
5. Share gained is computed by deducting Old share from the New Share. = True
6. Increase in the value of asset is debited to Revaluation Account.= False

GAGANA M
M.Com, B.Ed
 7. Gain ratio is used to adjust the goodwill raised to the extent of retiring partner
share only.= True
8. Full value of goodwill raised on retirement is credited to All Partners’ Capital Accounts including
retiring partner in their old ratio. = True
9. Sec 37 of the Indian Partnership Act, 1932 states that the outgoing partner has an option to receive
either interest @ 6% p.a till the date of payment or such share of profits which has been earned with
his money.= True
IV. Match the following

A B

1. Gaining ratio New share – Old share

Required for contribution to retiring partner share
2. Gained share
of goodwill
3. New share Old share + acquired share

4. Executor’s account New Share – Old share

5. Section 37 of Partnership Act Transfer to Executor’s account

Required for contribution to retiring partner’s share
6. Amount due to deceased partner
of Goodwill

IV. Very Short Answer Questions:

1. What do you mean by retirement of a partner?
Ans: A partner is said to be retired from the firm, when his relation with the
firm as a partner comes to an end.
2. Give the formula for calculating Gain Ratio.
Ans: Gaining Ratio=New Ratio-Old Ratio.
3. Why the Gain Ratio is required on retirement of a partner?
Ans: Gaining Ratio is required to write off goodwill created only to the extent of
retiring partner’s share.
4. Why the New Ratio is required on retirement of a partner?
Ans: New Ratio is required to share future profits/losses between remaining
partners.
5. Give the formula for calculation of new profit sharing ratio on retirement of a partner.
Ans: New Profit Sharing Ratio = Old share + Acquired share
6. What do you mean by Hidden Goodwill?
Ans: Hidden goodwill refers to the amount paid to retiring partner in excess of
actual amount due to him.
7. Portion gained=New Share.
Ans: Portion gained =New Share-Old Share.

GAGANA M
M.Com, B.Ed
 Section B: Two marks questions

1] Mention any two circumstances for retirement of a partner.

Ans: * Old age of a partner *Insolvency of any partner * Unknownful business
2] What is Gain Ratio?
Ans: The ratio in which the continuing partners gain the share of retiring partner on his retirement.
3] State any two differences between sacrificing ratio and gaining ratio.
Ans:
Sacrificing Ratio Gaining Ratio
• It is calculated at the time of Admission of • It is calculated at the time of Retirement
a partner of a partner
• Sacrifice Ratio = Old Ratio – New Ratio • Gain Ratio = New Ratio – Old Ratio
4] State any two purposes of calculating new profit-sharing ratio?
Ans: * To share the future profits of the firm * To write off the firm’s goodwill
5] How to close the Revaluation Account on Retirement of a partner?
Ans: At the time of retirement of a partner, by transferring the profit or loss on revaluation to all the
partners’ capital accounts in their old profit-sharing ratio.
6] Mention any two modes of disposal of amount due to Retiring Partner.
Ans: * payment of the full amount due to retiring partner in cash
*Transferring of the full amount due to retiring partner to retiring partners loan A/c.
7] Pass the journal entry to close Retiring Partner’s Capital Account when the payment is made
immediately.
Ans: Retiring Partner’s Capital A/c Dr. xxx ––––
To Cash or Bank, A/c –––– xxx
(Being Payment made to retiring partner)
8] Give the journal entry to close Retiring partner capital Account when it is transferred to Loan A/c.
Ans: Retiring Partner’s Capital A/c Dr. xxx ––––
To Retiring Partner’s Loan A/c ––––– xxx
(Being amount due to retiring partner transferred to his loan A/c)
9] Why do firms revalue the assets and liabilities on retirement?
Ans: At the time of retirement assets and liabilities are revalued for the purpose of ascertaining net
profit or loss on revaluation and to transfer the same to the capital accounts of all the partners
including retiring partner in their old profit-sharing ratio.

Problems on calculation of Gain Ratio.

GAGANA M
M.Com, B.Ed
 1] Ajay, Vijay and Sanjay are partners in a firm sharing profits and losses in the
ratio of 4:3:2. Ajay retires from the firm. Vijay and Sanjay agreed to share future profits in the ratio of
5:3. Calculate gain ratio of Vijay and Sanjay.

2] Kishan, Ratan and Nayan are partners in a firm sharing profits and losses in the ratio of 4:3:2. Nayan
retires from the firm. Kishan and Ratan agreed to share equally in future. Calculate gain ratio of Kishan
and Ratan

3] Sharat, Bharat and Kamat are Partner’s sharing Profits and Losses in the ratio of 1:1:1. Bharat retires
from the Firm. Sharat and Kamat decided to share the profit in future in the ratio of 4:3. Calculate the
Gain ratio.

4] Sahana, Bhavana and Raveena are Partners’ Sharing Profits and Losses in the proportion of 1/2, 3/10
and 1/5. Bhavana retires from the firm. Sahana and Raveena decided to share future profits and losses
in the ratio of 3:2. Calculate the Gain Ratio.

5] Bhumika, Pratixa and Anushka are partners sharing profits and losses in the proportion of 1/2 , 3/10
and 1/5 respectively. Bhumika retires from the firm. Pratixa and Anushka decided to share future
profits and losses in the ratio of 5:3. Calculate the Benefit ratio of Pratixa and Anushka.

6] Raja, Rani and Mantri are partners sharing profits and losses in the proportion of 3:2:1 respectively.
Raja retires from the firm. Rani and Mantri decided to share future profits and losses equally. Calculate
the Benefit ratio of Rani and Mantri.

7] Arati, Bharati and Hemavati are partners sharing profits and losses in the ratio of 4:3:2 respectively.
Bharati retires from the firm. Arati and Hemavati decided to share future profits and losses in the ratio
of 5:3. Calculate the Gain ratio of Arati and Hemavati.

8] Puneet, Pankaj and Prakash are partners sharing profits and losses in the ratio of 3:2:1. Puneet retires
from the firm and his share is acquired by Pankaj and Prakash in the ratio of 5:3. Calculate the Gain
ratio of Pankaj and Prakash.

9] Pavan, Madan and Suman are partners sharing profits and losses in the ratio of 5:3:2 respectively.
Madan retires from the firm. Pavan and Suman decided to share equally in future. Calculate the Gain
ratio of Pavan and Suman.

10] Prakash, Ramesh and Suresh are partners sharing profits and losses in the ratio of 4:2:3
respectively. Suresh retires from the firm. Prakash and Ramesh are decided to share equally in future.
Calculate the Gain ratio of Prakash and Ramesh.

Problems on calculation of NPSR.

GAGANA M
M.Com, B.Ed
 1] Raju, Ravi and Roopa are partners sharing profits and losses in the ratio of
3/8,1/2 and 1/8. Raju retires and surrenders 2/3rd of his share in favour of Ravi and the remaining share
in favour of Roopa. Calculate new profit sharing ratio.

2]Akash, Anil and Adarsh are partners sharing profits and losses in the ratio of 5:3:2. Anil retires from
the firm and his share is acquired by Akash and Adarsh in the ratio of 2:1. Calculate new profit sharing
ratio.

3]White, Black and Green are partners sharing profits and losses in the ratio of 3:2:1. Black retires. His
share is taken by White and Green in the ratio of 3:1. Calculate new profit sharing ratio.

4]Girish, Mahesh and Varun are Partners Sharing Profits in the ratio of 3:2:1. Mahesh retires and his
share is acquired by Girish and Varun in the ratio of 3:2. Calculate NPSR

5]Amit, Bhima and Chandra are partners sharing profits and lossed in the ratio of 5:3:2. Bhima retires
from the firm. Bhima surrenders 2/3 of his share in favour of Amit and 1/3 of his share to Chandra.
Calculate New profit sharing ratio of Amit and Chandra.

6]Rajesh, Rakesh and Ramesh are partners sharing profits and losses in the ratio of 4:3:2 respectively.
Ramesh retires from the firm. Rajesh and Rakesh are decided to share Ramesh’s share of profit in the
ratio of 2:1. Calculate New profit sharing ratio of Rajesh and Rakesh.

7]Pankaj, Naresh and Sourabh are partners sharing profits and lossed in the ratio of 6:5:2. Naresh
retires from the firm. His share is acquired by Pankaj and Sourabh equally. Calculate New profit
sharing ratio of Pankaj and Sourabh.

8]Radha, Sheela and Meena are partners sharing profits and lossed in the ratio of 3:2:1. Meena retires
from the firm. Her share is acquired by Radha and Sheela in the ratio of 2:1. Calculate New profit
sharing ratio of Radha and Sheela.

9]Vani, Rani and Soni are partners sharing profits and lossed in the ratio of 5:3:2. Vani retires from the
firm. Her share is acquired by Rani and Soni in the ratio of 2:1. Calculate New profit sharing ratio of
Rani and Soni.

10]Lata, Abhishek and Apexa are partners sharing profits and lossed in the ratio of 4:3:2. Apexa retires
from the firm. Her share is acquired by Lata and Abhishek in the ratio of 1:2. Calculate New profit
sharing ratio of Lata and Abhishek.

GAGANA M
M.Com, B.Ed
 12 Marks Problems

1] Amar, Akbar and Anthoni were partners in a firm sharing profits in the ratio of 2 : 2 : 1. Their Balance

Sheet as on March 31, 2024 was as follows:

Balance Sheet as on 31-03-2024

Liabilities Amount Assets Amount

Creditors 50,000 Cash 15,000

Reserves 20,000 Debtors 20,000

Amar’s Capital 80,000 Stock 40,000

Akbar’s Capital 60,000 Buildings 1,50,000

Anthoni’s Capital 75,000 Machinery 50,000

Patents 10,000

2,85,000 2,85,000

Akbar retired on March 31, 2024 on the following terms:

a] Goodwill of the firm was valued at `60,000. (as per AS26)

b] Bad debts amounting to `2,000 were to be written off.

c] Patents were considered as valueless.

d] Appreciate Building by 10%.

Prepare: i] Revaluation Account

ii]Partners’ Capital Accounts and

iii] New Balance Sheet after Akbar’s retirement.

GAGANA M
M.Com, B.Ed
2] Pradeep, Sudeep and Sundar were in partnership sharing profits and losses in the proportion of 3:2:1.
Their Balance Sheet was as follows:
Balance Sheet as on 31-03-2024
Liabilities Amount Assets Amount
Trade Creditors 10,000 Cash at Bank 12,500

Bills Payable 3,000 Debtors 15,000

O/S Expenses 5,000 Stock 12,000

General Reserve 12,000 Factory Premises 22,500

Capitals :
Machinery 8,000

Pradeep 20,000 Loose Tools 5,000

Sudeep 15,000

Sundar 10,000 45,000

75,000 75,000

On April 1, 2024, Sudeep retires from the firm. The terms were:

a] Goodwill of the firm was valued at 6,000. (as per AS26)

b] O/s Expenses to be brought down to 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 25,550.

Prepare: i] Revaluation Account

ii]Partners’ Capital Accounts and

iii] Balance Sheet of the firm after retirement of Sudeep.

GAGANA M
M.Com, B.Ed
3] Anita, Kavita and Sunita are partners sharing profits in the ratio of 5:3:2. Anita

retired from the firm due to her illness. On that date the Balance Sheet of the firm was as follows.

Balance Sheet as on March 31, 2024

Liabilities Amount Assets Amount

Sundry Creditors 15,000 Bank 8,500

Bills Payable 12,000 Debtors 6000

Provision for Legal Damages 6,000 Less : PDD 500 5500

General Reserve 10,000 Stock 9,000

Capitals : Furniture 40,000

Anita 50,000 Premises 80,000

Kavitha 30,000

Sunitha 20,000 1,00,000

1,43,000 1,43,000

Additional Information:

a] Premises have been appreciated by 20%,

b] Stock depreciated by 10% and provision for doubtful debts was to be made at 10% on debtors.

c] Furniture to be brought up to `45,000.

d] Goodwill of the firm be valued at `40,000 (as per AS26)

e] `35,000 from Anita’s Capital Account be transferred to her Loan Account and balance be paid

through bank. If required, necessary overdraft may be obtained from Bank.

Prepare: i] Revaluation A/c,

ii] Partners Capital Accounts and

iii] Balance Sheet of the firm after Anitas’s Retirement.

GAGANA M
M.Com, B.Ed
4] Following is the Balance Sheet of Arati, Bharati and Jayanti as on March 31st,

2024.

Balance Sheet as on March 31, 2024

Liabilities Amount Assets Amount

Sundry Creditors 20,000 Cash 5,000

O/s Telephone bills 500 Sundry Debtors 15,000

Accounts payable 9,500 Land and Building 60,000

Profit and Loss A/c 15,000 Stock 18,000

Capitals : Office Furniture 25,000

Arati 40,000 Plant and Machinery 42,000

Barathi 60,000

Jayanthi 20,000 1,20,000

1,65,000 1,65,000

The partners have been sharing profits in the ratio of 5:3:2. Jayanti decided to retire from business on

April 1, 2024 and her share in the business is to be calculated as per the following terms:

a] Revaluation of assets : Stock 15,000; Office furniture 24,000; Plant and Machinery 40,000; Land and

Building 70,000.

b] A provision of 1,500 to be created for doubtful debts.

c] The goodwill of the firm is valued at 30,000. The continuing partners agreed to pay 15,000 as cash

on retirement of Jayanti, to be contributed by continuing partners in the ratio of 3:2. The balance in the

Capital Account of Jayanti will be treated as Loan.

Prepare : i] Revaluation a/c,

ii] Partners Capital Accounts, and

iii] Balance Sheet of the reconstituted firm.

GAGANA M
M.Com, B.Ed
5] Mohan, Madan and Murali were partners sharing profits and losses in the ratio of 2: 2:1 respectively.

Their Balance Sheet as on 31.3.2024 was as under.

Balance Sheet as on 31.03.2024

Liabilities Amount Assets Amount

Creditors 35,500 Cash 20,000

Reserves Fund 20,000 Debtors 40,000

Profit and Loss A/c 2,500 Less : PDD 2,000 38,000

Capitals :
Stock 15000
Mohan 50000

Madan 30000 Machinery 25000

Murali 20000 1,00,000 Furniture 10000

Building 50000

1,58,000 1,58,000

Murali retired on 1.4.2024 from the firm. The following adjustment are to be made:

a] Stock to be increased by 20%.

b] Maintain P.B.D at 10% on debtors.

c] Depreciate Machinery and Furniture by 10% each.

d] Buildings are revalued at 60.000

e] Goodwill of the firm valued at 15,000. (as per AS26)

Prepare: i] Revaluation Account,

ii]Partners Capital Accounts and

iii] Balance Sheet as on 1.4.2024

GAGANA M
M.Com, B.Ed
6] Anil, Sunil and Ashok are partners sharing profits and losses equally. Their

Balance sheet as on 31.03.2024 was as follows.

Balance Sheets as on 31.03.2024

Liabilities Amount Assets Amount

Creditors 30,000 Cash 26,000

Bank Overdraft 25,000 Debtors 30,000

Reserve Fund 15,000 Stock 45,000

Furniture 25,000

Capitals : Machinery 50,000

Anil 60,000 Bills Receivable 28,000

Sunil 50,000 Profit and Loss A/C 6000

Ashok 30,000 1,40,000

2,10,000 2,10,000

Ashok retired on 1.4.2024 from the business and the following adjustments are to be made:

a] Goodwill of the firm is valued at 18,000 (as per AS26)

b] Maintain provision for doubtful debts at 5% on Debtors

c] Increase stock by 6,000

d] Depreciate Machinery and Furniture by 10% each.

Prepare: i] Revaluation Account,

ii]Partners Capital Accounts and

iii] Balance Sheet as on 1.4.2024.

Problems with Capital Adjustments

GAGANA M
M.Com, B.Ed
7] Akash, Prakash and Venkatesh are partners in a firm sharing profits and losses in

proportion of ½, 1/6 and 1/3 respectively. The Balance Sheet on March 31, 2024 was as follows:

Balance Sheet as on March 31, 2024

Liabilities Amount Assets Amount
On
Creditors 18,000 Freehold Premises 20,000
01-04-
Reserves 12,000 Machinery 30,000
2024,
Bills Payable 12,000 Furniture 15,000

Capitals :
Stock 20,000
Akash 40,000

Sundry Debtors 20,000

Prakash 20,000
Less : PBD 1,000 19,000

Venkatesh 28,000 88,000 Cash 6,000

1,30,000 1,30,000

Venkatesh retires from the business and the partners agreed 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% each.

c] Bad Debts provision is to be increased to 1,500.

d] Goodwill is valued at 24,000 (as per AS26)

e] The continuing partners have decided to adjust their capitals in their new profit-sharing ratio after

retirement of Venkatesh. Surplus/deficit, if any, in their Capital Accounts will be adjusted through cash.

Prepare: i] Revaluation Account,

ii]Partners Capital Accounts and
iii] Balance Sheet

GAGANA M
M.Com, B.Ed
8] Sachin, Dravid and Ashwin were partners sharing profits in the ratio of 5:3:2

respectively. Their Balance sheet as on 31st March, 2024 was as follows:

Balance sheet as on 31st March, 2024

Liabilities Amount Assets Amount

Creditors 39,000 Fixed Assets 1,00,000

Reserve Fund 10,000 Stock 40,000

Debtors 30,000

Capitals : Bills Receivable 10,000

Sachin 70,000 Cash 20,000

Dravid 51,000

Ashwin 30,000

2,00,000 2,00,000

Ashwin retired on 1st April,2024 on the following terms;

a] Stock is revalued at 53,000

b] Depreciate Fixed assets at 5% 2,00,000

c] Provision for doubtful debts is to be made at 10% on debtors.

d] Goodwill of the firm is valued at 40,000 (As per AS26)

e] The continuing partners have decided to adjust their capitals in their new profit sharing ratio which

is agreed by them as 3:2 and their gaining ratio is 0:1. Surplus/deficit, if any, in their Capital Accounts

will be adjusted through cash.

Prepare i] Revaluation Account.

ii] All Partners Capital A/cs.

iii] New Balance Sheet after retirement of Ashwin.

GAGANA M
M.Com, B.Ed
9] Anil, Vishal and Sumit were partners in a firm Sharing profits according to their

capitals. Their Balance sheet as on March 31, 2024 was as under:

Balance Sheet as on March 31, 2024

Liabilities Amount Assets Amount

Creditors 28,000 Buildings 1,00,000

General Reserves 12,000 Machinery 50,000

Stock 18,000

Capitals : Debtors 20,000

Anil 80,000 Less: PDD 1,000 19,000

Vishal 40,000 Cash at bank 13,000

Sumit 40,000

2,00,000 2,00,000

On the above date, Vishal decided to retire from the firm and the partners agreed to the following:

a] Buildings to be appreciated by 20%.

b] Provision for Bad debts to be increased up to 15% on Debtors.

c] Machinery to be depreciated by 20%.

d] Goodwill of the firm is valued at 72,000 (as per AS26)

e] The capital of the new firm be fixed at 1,20,000. The continuing partners have decided to adjust their

capitals in their new profit-sharing ratio after retirement of Vishal. Surplus/deficit, if any, in their

Capital Accounts will be adjusted through cash.

Prepare i] Revaluation Account.

ii] All Partners Capital A/c.

iii] New Balance Sheet after retirement of Vishal

GAGANA M
M.Com, B.Ed
10] Mahesh, Suresh and Sandesh were partners sharing profits in the ratio of 3:2:1

respectively. Their Balance sheet as on 31st March, 2024 was as follows:

Balance sheet as on 31st March, 2024

Liabilities Amount Assets Amount

Sundry Creditors 23,000 Buildings 45,000

Bills Payable 15,000 Machinery 25,000

Profit and Loss A/c 12,000 Stock 15,000

Capitals : Debtors 20,000

Mahesh 40,000 Bills Receivable 10,000

Suresh 30,000 Cash 25,000

Sandesh 20,000

1,40,000 1,40,000

Suresh retired on 1st April,2024 due to illness on the following terms;

a] Depreciate Machinery by 10%

b] Building is revalued at 46,500

c] Provision for doubtful debts is to be made at 10% on debtors.

d] Goodwill of the firm is valued at 48,000 (As per AS26)

e] The capital of the new firm be fixed at 80,000. The continuing partners have decided to adjust their

capitals in their new profit-sharing ratio after retirement of Suresh. Surplus/deficit, if any, in their

Capital Accounts will be adjusted through cash. And retiring partner’s claim is settled immediately.

Prepare i] Revaluation Account.

ii] All Partners Capital A/c.

iii} New Balance Sheet after retirement of Suresh

GAGANA M
M.Com, B.Ed
 (B) DEATH OF A PARTNER
Section A: One Mark Questions

I. Fill in the blanks

1. Executors account is generally prepared at the time of Death of a partner.
2. Accounting treatment at the time of retirement and death is Similar.
3. The period from date of the last Balance sheet and the date of the partner’s
death is called Intervening period.
4. Profit & Loss Suspense A/c account is debited for the transfer of share of
accrued profit of a deceased partner.
5. Accrued profit is calculated on the bases of Previous Year’s profit/Average
Profit/Sales.
6. Amount payable to the Executors of the deceased partner is transferred to
Executors Loan A/c.

II. Multiple Choice Questions

1. Accrued profit is ascertained on the following ways:
a) Average Profit b) Previous year’s profit c) On sales d) All of the above.
2. Amount due to deceased partner is settled in the following manner
a) Immediate full payment b) Transferred to Loan Account
c) Partly paid in cash and the balance transferred to Loan A/c
d) All of the above.
3. Deceased partner’s share of profit in the accrued profit may be calculated on the basis of:
a) Last year’s profit b) average profits of past few years
c) Sales d) All the above
4. Amount payable to the Executors of the deceased partner is transferred to:
a) Executors Loan Account b) Executors Account
c) Remaining Partners’ Capital A/cs d) None of the above.
5. Items to be considered while calculating the amount payable to the deceased partner is
a) His share of capital b) His share in reserve
c) His share in accrued profit d) All the above.

III. True or False type questions:

1. Deceased partner’s claim is transferred to his Executor’s Account. = True
2. Deceased partner’s share of profit for the intervening period may be calculated on the basis of last
year’s profit/average profit of past few years or on the basis of sales. = True
3. Deceased partner may be paid in one lump sum of installments with
interest. =True
4. Retirement normally takes place at the end of an accounting period,where as death of a partner
may occur any time.= True
5. Amount payable to the Executors of the deceased partner is transferred to
ExecutorsLoanAccount.=True.

GAGANA M
M.Com, B.Ed
IV. Very short Answer Questions:
1. Who is an ‘Executor’?
Ans: Executor is the legal representative of a deceased partner in a
partnership firm.
2. When do you prepare Executors Account?
Ans: Executors A/c is prepared at the time of death of a partner.
3.Which account is credited for the share of accrued profit of a deceased partner?
Ans: Deceased Partner’s Capital/Executors A/c.
4.What is intervening period?
Ans: The period from last balance sheet and the date of the partner’s death
is the intervening period.
5.How do you close the Executors Account?
Ans: Executors A/c is closed by transferring its balance to Executors Loan
A/c.

V. Two marks Question

1] Pass the journal entry for Deceased Partner’s Share of profits for the intervening period
Ans: Profit and Loss Suspense A/c Dr. xxx ––––
To Deceased partner’s capital A/c –––– xxx
(Being share of profit transferred to deceased partner’s capital A/c)
2] Give the meaning of accrued profit.
Ans: The profit from the date of last Balance sheet till to the date of death of a partner in a
partnership form is considered as accrued profit.
3] State any two differences between retirement and death of a partner.
Ans: 1) Retirement of a partner takes place generally at the end of the year, while death of a
partner may take place at the time during the year.
2) In case of retirement, settlement takes place between the firm and the retirement partner
himself or herself, while in case of death, settlement take place between the phone and
executors of the deceased partner.
4] Write any two ways of settlement of claims of the deceased partner.
Ans: 1) Immediate payment in cash to the deceased partners executors
2) Transfer of the amount due to the disease department to his executor’s loan account and
payment in installment with interest
5] Write the journal entry to close the deceased partner’s Capital Account.
Ans: Deceased partner’s capital account Dr. xxx ––––
To Deceased partner’s executor’s a/c –––– xxx
6] Pass Journal entry for transfer of accrued profit of the deceased partner.
Ans: Profit and Loss Suspense A/c Dr. xxx ––––
To Deceased partner’s capital A/c –––– xxx
(Being share of accrued profit transferred to deceased partner’s capital A/c)
7] Write the journal entry for cash paid immediately to the executors of the deceased partner.
Ans: Deceased partner’s executor’s A/c Dr. xxx ––––
To Bank A/c –––– xxx
(Being Payment made to executors)
8] How do you close the executors account when the payment is not made immediately?
Ans: When the payment is not made immediately executor's account can be closed by transfer in the
balance amount due to the executor's loan account

GAGANA M
M.Com, B.Ed
 9] A, B, C were partners in a firm sharing profits in the ratio of 5:4:1. The profit of
the firm for the year ending on 31-3-2024 was 12,000. B dies on 30-6-2024. Calculate
B’s share of profit from 1-4-2024 to 30-6-2024.
Ans : 12000 x 3/12 x 4/10
= 1200
10] P, Q and R are partners in a firm sharing profits in the ratio of 3:2:1. R retires and the balance in his
Capital Account after making necessary adjustments workout to be 60,000. P and Q agreed to pay him
75,000 in full settlement of his claim. Find out the hidden goodwill.
Ans: Amount paid to Retiring partner – amount due to Retiring as per capital account balance.
75,000 – 60,000 = 15,000

Six Marks Problems: On Death Of Partner

1] Rajesh, Rakesh and Ramesh are the partners sharing profits and losses in the ratio of 3:2:1, Their capitals as
on 01.04.2024 were 1,00,000, 90,000 and 60,000 respectively.
Rajesh died on 01-10-2024 and the Partnership Deed provided the following:
a] Interest on Rajesh’s Capital at 10% p.a.
b] Rajesh’s salary `2,000 p.m.
c] His share of accrued profit up to the date of death based on previous year’s profit. Firms profit
for 2023-24 24,000
d] His share of Goodwill 12,000 (as per AS26)
Ascertain the amount payable to Rajesh’s Executor by preparing Rajesh’s Capital A/c
2] Ram, Rahim and Rakshit are partner’s sharing profits and losses in the ratio of 2:2:1. Their capital balances
on 01.04.2024 stood at 90,000, 60,000 and 40,000 respectively.
Mr. Rahim died on 01.07.2024 and partnership deed provides the following:
a] Interest on capital at 10% p.a.
b] Salary to Rahim 2,000 per month.
c] Rahim’s share of Goodwill(as per AS26)
d] His share of profit up to the date of death on the basis of previous year’s profit.
i) Total good will of the firm is 60,000 ii) Profit of the firm for the year 2023-24 is 40,000
You are required to ascertain the amount payable to Executors of Rahim by preparing Rahim’s Capital
Account.
3] Dinesh, Mahesh and Ramesh are partners sharing profit and losses in the ratio of 4:3:3. Their capital
balances on 01.04.2023 stood 1,00,000, 80,000 and 50,000 respectively.
Dinesh died on 31.12.2023. The partnerships deed provides the followings:
a] Interest on capital at 12% p.a.
b] He had withdrawn 5,000 up to the date of death.

GAGANA M
M.Com, B.Ed
 c] Dinesh’s share of goodwill 5,000 (as per AS26)
d] His share of profit up to the date of death on the basis of previous year profits. Previous year’s
profits 20,000.
Prepare Dinesh’s Executors Account.
4] Radha, Rukmini and Ranjita are partners sharing profits and losses in the ratio of 2:2:1. Their capital
balances on 01.04.2023 stood at 70,000, 50,000 and 40,000 respectively.
Rukmini died on 01.01.2024. According to partnership deed, Rukmini’s executors are entitled to get the
following:
a] Rukmini’s capital as on 01.04.2023.
b] Interest on capital at 6% p.a.
c] Salary to Rukmini at 1,000 per month.
d] Rukmini’s share of goodwill. Goodwill of the firm is 60,000 (as per AS26)
e] Rukmini is entitled for commission of 4,000 per year .
Prepare Rukmini’s Capital Account.
5] Raga, Tala and Shruti were partners sharing profits and losses in the ratio of 6:3:2 respectively. Their
capitals on 01.04.2024 stood at 60,000, 30,000 and 20,000 respectively.
Shruti died on 30th Sept 2024. According to partnership deed, Shruti’s executors are entitled to get the
following:
a] The deceased partner’s share of goodwill is 9,000.
b] The deceased partner’s share in accrued profit up to the date of her death is 4,200
c] Shruti’s commission is 600 p.m. Her drawings up to the date of death amounted to 7,500.
d] Interest on capital at 10% p.a.
Prepare Shruti’s Capital Account.
6] Veena, Vani and Rani were partners in a firm sharing profits and losses in the ratio of 5:3:2. On 31st March
2024, their Balance Sheet was as under
Balance Sheet as on 31.3.2024
Liabilities Amount Assets Amount
Creditors 14,000 Cash 8,000
Reserve Fund 6,000 Debtors 11,000
Stock 10,000
Patents 11,000
Capitals : Machinery 50,000

GAGANA M
M.Com, B.Ed
 Veena 30,000
Vani 25,000
Rani 15,000 70,000
90,000 90,000

Veena died on 30th Sept 2024. It was agreed between her executors and the 90,000 surviving partners that:
a] Goodwill to be valued at two years purchase of the average profits of the previous four years, which
were: 2020-21:12,000, 2022-23:13,000, 2021-22:20,000, 2023-24:15, 000 (as per AS26)
b] Share in the profit from the date of last Balance Sheet till to the date of death to be calculated on the
basis of last year’s profit.
c] Interest on capital to be allowed at 12% p.a.
d] Share in the Revaluation Account balance, her share is `5, 000(Cr).
Prepare Veena’s Capital Account.
7] Ramya, Bhavya and Rakshita were partners sharing profits & losses in the ratio of 2:1:1. Their balance sheet
as on 31.3.2024 was as under:
Balance Sheet as on 31-03-2024
Liabilities Amount Assets Amount
Sundry Creditors 25,000 Cash 6,000
Reserve Fund 20,000 Stock 12,000
Ramya capital 15,000 Debtors 15,000
Bhavya capital 10,000 Investments 15,000
Rakshita capital 10,000 Buildings 32,000
80,000 80,000
The partnership deed provides that in the event of death of partner, her executors entitled to get the
following:
a] The Capital at the date of last Balance Sheet
b] His proportion of reserve fund.
c] Interest on capital @ 12% p.a
d] Her share of profit to the date of death based on the average profits of the last three years profits.

GAGANA M
M.Com, B.Ed
 e] Her share of goodwill. Goodwill of the firm is three years purchase of the
average profit of last 3 years profits, the profits for the last three years were: 2021-22 16,000, 2022-
23- 17,000, and 2023-24 15,000(as per AS26)
Rakshita died on July 1st, 2024. She had also withdrawn `5000 till to the date of her death.
Prepare Rakshita’s Executors Account.

8] Sujata, Sangeeta and Revati are partners in a business sharing profits and losses in the ratio of 2:2:1
respectively.
Their Balance Sheet as on March 31, 2024 was as follows.
Liabilities Amount Assets Amount
Sundry Creditors 1,00,000 Cash at Bank 20,000
Reserve Fund 50,000 Stock 30,000
Sundry Debtors 80,000
Investments 70,000
Capital Accounts Furniture 35,000
Sujata 60,000 Buildings 1,15,000
Sangeeta 1,00,000
Revati 40,000 2,00,000
3,50,000 3,50,000
Revati died on 30th Sept 2024. The partnership deed provided the following:
a] The deceased partner will be entitled to her share of profit up to the date of death calculated on
the basis of previous year’s profit.
b] She will be entitled to her share of goodwill of the firm calculated on the basis of 3 year’s
purchase of average of last 4 years’ profit. The profits for the last four financial years are given
below: For 2020-21:80,000, for 2021-22:50,000, for 2022-23:40,000, and for 2023-24:30,000 (as
per AS26)
c] The drawings of the deceased partner up to the date of death is 10,000.
d] Interest on Capital is to be allowed at 12% per annum.
Prepare Revati’s capital Account.
9] Pradeep, Sandeep and Sanket are partners sharing profits in the ratio of 3:2:1 and their Balance Sheet as
on 31st March 2024 stood as follows:
Balance sheet as on 31st March,2024

GAGANA M
M.Com, B.Ed
 Liabilities Amount Assets Amount
Sundry Creditors 14,000 Cash in Hand 12,000
Reserve Fund 12,000 Stock 1,750
Bills payable 12,000 Sundry Debtors 12,000
Investments 13,250
Capital Accounts Bank 13,700
Pradeep 20,000 Buildings 21,000
Sandeep 12,000 Bills Receivable 4,300
Sanket 8,000 40,000
78,000 78,000

Sandeep died on 1st July 2024 and according to the deed of the partnership her executors are entitled to be
paid as under.
a] The capital to his credit at the time of his death and interest there on at 10% per annum.
b] His proportionate share of reserve fund.
c] His share of profits for the intervening period will be based on the sales during that period,
which were calculated as 1,20,000. The rate of profit during past three years had been 10% on sales.
d] His share in goodwill to be calculated by taking twice the amount of the average profit of the last
three years.
The profits of the previous years were: 2021-22 9,200 2022-23 8,000 2023-24 9,800 (as per AS26)
The investments were sold for 16,250 and his executors were paid on.
Prepare the Sandeep’s Executors Account
10] Deepa, Pushpa and Parimala were partners sharing profits and losses in the ratio of 5:3:2. Their balance
sheet as on 31 March 2024 was as follows.
Balance sheet as on 31st March, 2024.
Liabilities Amount Assets Amount
Creditors 14,000 Investments 10,000
Reserve Fund 6,000 Premises 25,000
Capital Accounts Patents 6,000
Deepa 30,000 Machinery 43,000
Pushpa 30,000 Bank 8,000

GAGANA M
M.Com, B.Ed
 Parimala 20,000 80,000 Debtors 8,000
1,00,000 1,00,000
Parimala died on 1st November, 2024. The agreement between the Executors of Parimala and the
continuing partners stated that:
a] Goodwill of the firm be valued at 2 ½ times the average profits of last four years.
The profits of fast four years were: 2020-21 -13,000, 2021-22 -12,000, 2022-23 -16,000, and 2023-
24 -15,000. (as per AS26)
b] The share of profit of Parimala should be calculated on the basis of last year’s profit.
c] 5,000 should be paid immediately and the balance should be transferred to Executors loan A/c.
Prepare Parimala’s Executor’s Account.

GAGANA M
M.Com, B.Ed