Partnership

The correct interest on capital should be calculated at 10\% p.a., but it was credited at 6\% p.a.

The difference needs to be adjusted.

Adjusting journal entry:

Narration: Adjustment for under-crediting of interest on capital for Anvi, Vani, and Karan.

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Step 1: Goodwill Calculation Goodwill = Average Profits × 3 years purchase Purav’s share of goodwill (1/5 of total goodwill):

Step 2: Interest on Capital Interest on capital for 6 months:

Step 3: Purav’s Share of Profit As per the last year’s profit:

To calculate goodwill using the super profit method, follow these

steps: 1. Calculate the capital employed:

2. Calculate the normal profit:

3. Calculate the super profit:

4. Calculate the goodwill:

Final Answer Goodwill of the firm is rupee 1,50,000.

Goodwill is distributed among the partners in their sacrificing or gaining ratios.

On Sonu’s retirement:

Journal Entry:

The profit-sharing ratio is changed from 5 : 3 : 2 to equal sharing (1 : 1 : 1).

General Reserve and Profit and Loss Account balances are adjusted in the partners’ capital accounts:

The adjustment entry:

1. Balance in Mohit’s Capital Account after adjustments = rupee 1,80,000

2. Total amount agreed to be paid in full settlement = rupee 2,00,000

3. Mohit’s Share of Goodwill Calculation:

Thus, Mohit’s share of goodwill in the firm is rupee20,000 (Option D).

1. Annual Profit of the Firm = rupee 4,50,000

2. Sukriti’s Profit-Sharing Ratio =

3. Profit for the Period from 1superscript{st} April 2023 to 30superscript{th} June 2023 (3 months): Since the profit is for one full year, we calculate Sukriti’s share for 3 months (April–June):

Thus, the amount credited to Sukriti’s Capital Account = rupee45,000 (Option B).

1. Total profit of the firm = rupee 1,10,000

2. Profit-sharing ratio (Mahi: Ruhi: Ginni) = 6:4:1

3. Distribution of profit as per the ratio:

4. Guaranteed profit for Ginni = rupee 50,000. However, Ginni’s share from the distribution is only rupee 10,000.
- Deficiency to be paid by Mahi = .
- This amount is deducted from Mahi’s share.

5. Final share of Mahi after adjusting the guarantee:

Thus, the correct answer is rupee20,000 (Option A).

The old ratio of Isha and Manish is 3 : 2, and the new ratio is 1 : 1.
The sacrificing ratio is calculated as: For Isha: For Manish: The goodwill to be adjusted:

Journal entry:

Hitesh withdrew rupee 9,000 on 1st November, 2022.

Time period = 5 months (November to March).

We calculate Keshav's opening capital using the formula:

Given: - Closing Capital = rupee 55,000 - Keshav’s Share of Profit =
- Drawings during the year = rupee 1,500 × 4 = rupee 6,000
- Interest on Drawings:

Now, applying the formula:

Thus, the correct answer is rupee52,000 (Option D).

The total drawings at the end of each quarter = rupee 9,000.

The average period for quarterly drawings = 7.5 months (or 7.5/12 years).

The fixed capitals of Ridhima and Kavita are rupee 1,50,000 and rupee 2,00,000 respectively.

The partnership deed allows interest on capital at 8\% p.a.

However, the net profit of the firm is rupee 21,000, which is insufficient to fully pay the interest on capital (rupee 28,000).

Hence, the available profit is distributed in the ratio of interest entitlements:

Profit and Loss Appropriation Account

for the year ended March 31, 2024

Explanation and Calculations:

1. Interest on Capital:
   • The partnership was formed on October 1, 2023, and the accounting year ends on March 31, 2024. Therefore, interest is calculated for 6 months (October to March).
   • Aakash: ₹80,00,000 × 10% × (6/12) = ₹4,00,000
   • Baadal: ₹60,00,000 × 10% × (6/12) = ₹3,00,000
2. Divisible Profit:
   • Profit before interest on capital: ₹13,00,000
   • Total interest on capital: ₹7,00,000
   • Divisible profit: ₹13,00,000 - ₹7,00,000 = ₹6,00,000
3. Profit Sharing:
   • As the Profit is shared equally it's been shared in 1:1 ratio so 6,00,000/2
   • Each share will be worth 3,00,000
4. Baadal's Guarantee:
   • Baadal's guaranteed profit: ₹7,00,000
   • Baadal's Actual profit as per calculation: 3,00,000 +3,00,000(I.O.C) =6,00,000
   • Therefore, deficiency: ₹7,00,000 -₹ 6,00,000 = ₹1,00,000
5. Aakash's Contribution:
   • Aakash will cover the entire deficiency of ₹1,00,000. Aakashs' will contribute from her Profit share.
6. Final Profit Distribution:
   • Aakash:
     • Profit Share: ₹3,00,000
     • Deficiency borne: ₹1,00,000
     • Total capital Balance = ₹2,00,000
   • Baadal:
     • Profit Share: ₹3,00,000
     • Deficiency received from Aakash: ₹1,00,000
     • Total capital Balance:₹ 4,00,000

Revaluation Account

Partners’ Capital Accounts

Working Notes:

• Goodwill of firm = ₹1,20,000 ⇒ Nyaya’s share = 5/10 × 1,20,000 = ₹60,000
• Gaining Ratio (New Ratio assumed 3:2)
  Naval's gain: 3/5 - 3/10 = 3/10
  Nritya's gain: 2/5 - 2/10 = 2/10
  Gaining Ratio = 3:2
• So Naval compensates ₹36,000 and Nritya ₹24,000 to Nyaya for goodwill (but doubled due to full goodwill value). Hence:
  Naval = ₹72,000, Nritya = ₹48,000.

1. Write off Debit Balance in Profit and Loss Account:
Debit Balance in P&L: ₹1,80,000
Old Ratio: Bhawana 5/9 and Vedika 4/9

Journal Entry:

Calculation:
Bhawana = 1,80,000 × 5/9 = 1,00,000
Vedika = 1,80,000 × 4/9 = 80,000

2. No entry is required for General Reserve as it is NOT to be distributed.

Explanation:

P&L Debit Balance (Loss): A debit balance in the Profit and Loss account represents accumulated losses. These losses need to be written off against the partners' capital accounts in their old profit-sharing ratio. This decreases their capital balances.

General Reserve: The General Reserve is retained in the business. No distribution is made, so no journal entry is needed at this time.

To solve the problem, we need to determine the amount credited to the Bank Account for the balance payment of Shaan's loan after he took over furniture in part settlement, given that Shaan had advanced a loan of Rs 1,00,000 to the firm, and the firm was dissolved on 31st March 2024.

1. Understanding the Loan and Part Settlement:
Shaan advanced a loan of Rs 1,00,000 to the firm. During dissolution, assets and liabilities are transferred to the Realisation Account. Shaan took over furniture with a book value of Rs 90,000 in part settlement of his loan. This means Rs 90,000 of his loan is settled by taking the furniture, leaving a balance to be paid in cash through the Bank Account.

2. Calculating the Balance Amount of Shaan's Loan:
The total loan amount is Rs 1,00,000. The part settled by taking furniture is Rs 90,000. Therefore, the balance amount of the loan to be paid in cash is:

3. Determining the Bank Account Credit:
To settle the remaining loan amount, the firm will pay Shaan Rs 10,000 in cash. In accounting, when a loan is repaid, the Bank Account is credited (as cash is paid out). Therefore, the Bank Account will be credited with Rs 10,000 to settle the balance of Shaan's loan.

Final Answer:
For the payment of the balance amount of Shaan's loan, the Bank Account will be credited with Rs 10,000.

Journal Entries in the Books of Uma, Umesh and Daya
1. Bank A/c Dr. ₹12,00,000 To Daya's Capital A/c ₹10,00,000 To Premium for Goodwill A/c ₹2,00,000 (Being capital and goodwill brought in by Daya)
2. Premium for Goodwill A/c Dr. ₹2,00,000 To Uma’s Capital A/c ₹80,000 To Umesh’s Capital A/c ₹1,20,000 (Being goodwill distributed in sacrificing ratio of 2:3)
3. Land and Building A/c Dr. ₹2,00,000 To Revaluation A/c ₹2,00,000 (Being increase in value of Land and Building)
4. Revaluation A/c Dr. ₹10,000 To Furniture A/c ₹10,000 (Being depreciation of furniture @ 10% on ₹1,00,000)
5. Provision for Doubtful Debts A/c Dr. ₹5,000 Bad Debts A/c Dr. ₹3,000 To Debtors A/c ₹8,000 (Being ₹3,000 bad debts written off and old provision removed)
6. Revaluation A/c Dr. ₹4,000 To Provision for Doubtful Debts A/c ₹4,000 (Being new provision created @ 5% of ₹80,000)
7. Revaluation A/c Dr. ₹1,86,000 To Uma’s Capital A/c ₹74,400 To Umesh’s Capital A/c ₹1,11,600 (Being profit on revaluation distributed in old ratio 2:3)
8. General Reserve A/c Dr. ₹75,000 To Uma’s Capital A/c ₹30,000 To Umesh’s Capital A/c ₹45,000 (Being distribution of general reserve in 2:3)
9. Workmen Compensation Fund A/c Dr. ₹25,000 To Uma’s Capital A/c ₹10,000 To Umesh’s Capital A/c ₹15,000 (Being distribution of Workmen Compensation Fund)
10. Outstanding Electricity Bill A/c Dr. ₹10,000 To Bank A/c ₹10,000 (Being payment of outstanding electricity bill)

Step 1: Old ratio (Vimal : Bose : Ghosh) = 1 : 1 : Each had share
Step 2: New ratio between Vimal and Ghosh = 4 : 3
Vimal = , Ghosh =
Step 3: Calculate gain for each continuing partner:
- Vimal’s gain =
- Ghosh’s gain =
Step 4: Bose’s total share = , which is being distributed between Vimal and Ghosh in the ratio 5 : 2.
Step 5: Total goodwill = 2,10,000 Bose’s share =
Step 6: Distribute 70,000 in 5 : 2 ratio:
- Vimal =
- Ghosh =
Step 7: Entry (without opening goodwill account):
Vimal’s A/c Dr. & 50,000
Ghosh’s A/c Dr. & 20,000
To Bose’s A/c & 70,000

Step 1: Old ratio = Hari : Chander : Prakash : Govind = 5 : 3 : 1 : 1
Total parts =
Step 2: Hari’s share =
His share is acquired equally by Chander, Prakash and Govind. So each gets:
Step 3: Remaining partners' new shares:
- Chander:
- Prakash:
- Govind: Now simplify this to smallest whole number ratio: - Multiply each term by LCM of denominators (60 not needed here), or use original format:
Let’s express everything in terms of a total of 15 (common multiple of 5 and 10):
Old Ratio = 5 : 3 : 1 : 1 → Multiply by 3 → 15 : 9 : 3 : 3
- Hari's share = 15 parts
- Share acquired equally: 15 ÷ 3 = 5 parts each to Chander, Prakash, Govind
New ratio = 14 : 8 : 8 Simplify by dividing by 7 : 4 : 4

Step 1: Rishab's share in profits = Old partners' combined share =
Old ratio of Bharat : Ishu = 4 : 1
Step 2: Firm's goodwill = 4,00,000 Rishab's share =
But Rishab brought only 60,000 in cash for goodwill. Remaining 40,000 is not brought in.
Step 3: Goodwill already appearing in books = 50,000 (to be written off in old ratio 4 : 1)
Journal Entries:
1. For bringing capital and goodwill premium: Bank A/c Dr. & 2,60,000
To Rishab’s Capital A/c & 2,00,000
To Premium for Goodwill A/c & 60,000
2. For distributing goodwill premium among old partners in sacrificing ratio (same as old ratio 4 : 1): Premium for Goodwill A/c Dr. & 60,000
To Bharat’s Capital A/c & 48,000
To Ishu’s Capital A/c & 12,000
3. For writing off existing goodwill of 50,000 in old ratio 4 : 1: Bharat’s Capital A/c Dr. & 40,000
Ishu’s Capital A/c Dr. & 10,000
To Goodwill A/c & 50,000

Step 1: Adjusted Capital Balance
4,00,000 - 90,000 = 3,10,000

Step 2: Interest on Capital (12% for 4 months)
4,00,000 × (12/100) × (4/12) = 16,000

Step 3: Kishore’s Share of Goodwill (1/6)
60,000 × (1/6) = 10,000

Step 4: Kishore’s Share in Profit till Death (1/6 of Average Profit)
Average Profit = (2,00,000 + 2,20,000 + 1,20,000 + 1,80,000) / 4 = 1,80,000
Profit till 4 months = 1,80,000 × (4/12) = 60,000
Kishore’s Share = 60,000 × (1/6) = 10,000

Kishore’s Capital Account

Realisation Account

Balancing figure: Profit on Realisation = ₹ 7,90,000 distributed in 2 : 3 : 5
Guru’s Share =
Samta’s Share =
Prakash’s Share =

Final Realisation Entries:
To Partners’ Capital A/cs (Profit):
 Guru – ₹ 1,58,000
 Samta – ₹ 2,37,000
 Prakash – ₹ 3,95,000

Step 1: Key Details –
Amount due to Rohit = ₹ 6,00,000
Instalments = 4 equal yearly instalments = ₹ 1,50,000 per year
Interest = 9% p.a. on reducing balance
Payment starts from: 31st March, 2021

Step 2: Rohit's Loan Account

Calculation Breakdown:
Year 1 interest = 9% of ₹6,00,000 = ₹54,000
Year 2 interest = 9% of ₹5,04,000 = ₹45,360
Year 3 interest = 9% of ₹3,99,360 = ₹35,942
Year 4 interest = 9% of ₹2,85,302 = ₹25,677
Final payment = Principal + Last year’s interest = ₹2,85,302 + ₹25,677 = ₹3,10,979

Old ratio of Sameer and Sohan = 4 : 3
Total parts = 4 + 3 = 7
Sameer’s old share =
Sohan’s old share =

New profit sharing ratio among Sameer, Sohan, and Sudarshan = 2 : 3 : 2
Total parts = 2 + 3 + 2 = 7
Sameer’s new share =
Sohan’s new share =
Sudarshan’s new share =

Now, compute the sacrifice = Old Share – New Share
Sohan’s old share =
Sohan’s new share =
Sohan’s sacrifice =

But since the question mentions a change to a new ratio 2 : 3 : 2, and if that was actually meant to be a sacrifice by both partners, we must calculate the sacrifice ratio:
Old Ratio = Sameer : Sohan = 4 : 3
New Ratio = Sameer : Sohan : Sudarshan = 2 : 3 : 2
Let’s convert both to 21 parts for easy comparison:
Old Ratio: Sameer = , Sohan =
New Ratio: Sameer = , Sohan = , Sudarshan =

Sohan’s share remains unchanged, so no sacrifice.
Correct answer is (A) Nil, although if Sudarshan received some share from Sohan alone, a clarification in the question would be needed.

Given:
Capital of Prathma = ₹ 10,00,000
Capital of Madhyama = ₹ 8,00,000
Capital of Tritiya = ₹ 6,00,000
Rate of Interest on Capital = 10% per annum
Profit-sharing ratio = 2 : 2 : 1

(i) When Net Profit = ₹ 3,00,000
Step 1: Calculate Interest on Capital:
Prathma:
Madhyama:
Tritiya:
Total Interest = ₹ 2,40,000
Step 2: Compare Interest with Profit
Since Profit (₹ 3,00,000) > Interest on Capital (₹ 2,40,000),
Full interest on capital will be allowed.
Step 3: Remaining profit = ₹ 3,00,000 – ₹ 2,40,000 = ₹ 60,000
This remaining profit is distributed in ratio 2:2:1:
Total ratio = 5 parts
Prathma:
Madhyama:
Tritiya:
Final Distribution:
Prathma: ₹ 1,00,000 + ₹ 24,000 = ₹ 1,24,000
Madhyama: ₹ 80,000 + ₹ 24,000 = ₹ 1,04,000
Tritiya: ₹ 60,000 + ₹ 12,000 = ₹ 72,000

(ii) When Net Profit = ₹ 1,20,000
Step 1: Interest on Capital requirement = ₹ 2,40,000 (as above)
But profit is only ₹ 1,20,000, which is less than interest required.
Interest will be allowed in the ratio of capital contributions.
Capital Ratio:
10,00,000 : 8,00,000 : 6,00,000 = 10 : 8 : 6
Simplified = 5 : 4 : 3
Total parts = 12
Proportionate Interest Distribution:
Prathma:
Madhyama:
Tritiya:
Final Distribution:
Prathma: ₹ 50,000
Madhyama: ₹ 40,000
Tritiya: ₹ 30,000

In the Books of the Firm

Revaluation Account

Partners’ Capital Accounts

Working Notes

1. New Profit Sharing Ratio

Old Ratio (Asha : Indra) = Suraj’s Share = Remaining Share = Asha’s New Share: Indra’s New Share: Suraj’s Share: New Ratio = **9 : 6 : 5** ---

2. Goodwill Treatment

Firm’s Goodwill = ₹ 1,00,000 Suraj’s Share of Goodwill: ---

3. Sacrificing Ratio

Asha’s Sacrifice: Indra’s Sacrifice: Sacrificing Ratio = **3 : 2** ---

4. Distribution of Goodwill Premium

Asha’s Share: Indra’s Share: ---

5. Revaluation Adjustments

Increase in Plant & Machinery = ₹ 30,000 Decrease in Furniture = ₹ 20,000 Creditors no longer payable = ₹ 5,000 Net Profit: Distributed: - Asha = ₹ 9,000 - Indra = ₹ 6,000 ---

6. Suraj’s Proportionate Capital

Total Capital of Old Partners: This represents of total capital. Suraj’s Capital: Total brought by Suraj:

Realisation Account

Working Notes

1. Creditors Paid ₹5,000 Less

Creditors = 81,000 Paid = 81,000 − 5,000 = 76,000 Gain on settlement = 5,000 (credited to Realisation A/c)

2. Investments taken by Pinky at 10% less

30,000 − 10% = 30,000 − 3,000 = 27,000

3. Calculation of Profit on Realisation

Total Credit Side:

• Creditors = 81,000
• Building realised = 4,00,000
• Debtors realised = 44,000
• Investments sold = 19,000
• Stock taken by Rinku = 16,000
• Investments taken by Pinky = 27,000

Total = 5,87,000

Total Debit Side:

• Stock = 20,000
• Debtors = 50,000
• Investments = 30,000
• Building = 3,40,000
• Expenses = 6,000

Total = 4,46,000

Profit on Realisation = 62,000

Distribution in Profit-sharing Ratio (3:2)

• Rinku (3/5 of 62,000) = 37,200
• Pinky (2/5 of 62,000) = 24,800