(Accountancy) Accounts Theory : CBSE Class 12th Partnership (Retirement/Death of a Partner)
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Accounts Theory : CBSE Class 12th Partnership (Retirement/Death of a Partner)
Q.1. What adjustments are required to be made at the time of retirement of a partner?
Answer: The following adjustments are made at the time of retirement of a partner:
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Calculations of New Profit Sharing Ratio and Gaining Ratio of remaining partners.
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Distribution of Reserves and Undistributed Profits/Losses.
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Revaluation of Assets and Liabilities.
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Treatment of Goodwill.
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Calculation of amount payable to retiring partner.
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Adjustment of Capital.
Q.2. Distinguish between sacrificing ratio and gaining ratio.
Answer.
|
Basis of Difference |
Sacrificing Ratio |
Gaining Ratio |
|
1. Meaning |
Sacrificing Ratio is a ratio in which the old partners have agreed to surrender their share of profit in favour of new partner. |
Gaining Ratio is a ratio in which remaining partners’ gain the retiring partner’s share. |
|
2. Objective |
The main purpose to calculate the sacrificing ratio is to ascertain the compensation to be paid by incoming partner to the sacrificing partner’s in the form of goodwill. |
The main purpose to calculate the gaining ratio is to find out the compensation to be paid by the gaining partner’s to the retiring partner. |
|
3. When to Calculate |
Sacrificing Ratio is calculated at the time of admission of a new partner. |
Gaining Ratio is calculated at the time of retirement of a partner. |
|
4. Method |
Sacrificing Ratio = Old Ratio – New Ratio |
Gaining Ratio = New Ratio – Old Ratio |
Q.3. Discuss the accounting treatment of Goodwill at the time of retirement of a partner.
Answer: The accounting treatment of goodwill at the time of retirement is as follows:
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Calculate retiring partner’s share of Goodwill.
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Calculate gaining ratio of remaining partners.
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Pass an adjusting entry in the following manner:
Remaining Partner’s Capital A/c Dr.
To Retiring Partner’s Capital A/c
Condition: No goodwill should already appear in the books. In case goodwill already appears in the books it should be written off in old ratio. Entry will be:
All (Old) Partners Capital A/c Dr.
To Goodwill A/c
Example: A, B and C are partners sharing profits in the ratio of 4:3:2. B retires and Goodwill of the firm is valued on that date Rs. 27,000. Pass necessary journal entries when goodwill already appears in the books at Rs. 9,000.
Solution.
Journal
|
Date |
Particulars |
L.F. |
Dr. Rs. |
Cr. Rs. |
|
|
A’s Capital A/c Dr. |
|
6,000 |
|
|
|
C’s Capital A/c Dr. |
|
3,000 |
|
|
|
To B’s Capital A/c |
|
|
9,000 |
|
|
(For B’s share of goodwill credited to him by A and C in gaining ratio of 2:1) |
|
|
|
|
|
A’s Capital A/c Dr. |
|
4,000 |
|
|
|
B’s Capital A/c Dr. |
|
3,000 |
|
|
|
C’s Capital A/c Dr. |
|
2,000 |
|
|
|
To Goodwill A/c |
|
|
9,000 |
|
|
(For existing goodwill in the books written off in old ratio) |
|
|
|
Workings:
-
B’s share of goodwill = 3/9 x Rs. 27,000 = Rs. 9,000.
-
Gaining Ratio of A and C is 4:2 i.e. 2:1.