Subject: 12th Accountancy

Topic: DPS Paper (Goodwill till Retirement)

Date of Test: 6.7.24
Total Marks: 40 marks
Time Limit: 1.5 hours Confidence Holds Our Heads High

QUESTIONS
1. Charu and Harsha were partners sharing profits in 3:2. They admitted Vaishali on 1st April 2021.
Following Balances appear on the date of admission:
General Reserve Rs.20,000, Provision for Doubtful Debts Rs.3,000, Debtors Rs.80,000. It was decided to
transfer 20% of the amount of General Reserve to provision for Doubtful Debts. The amount of General
Reserve credited to the accounts of Charu and Harsha will be [1]
(a) Rs.9,600, Rs.6400 respectively (b) Rs.10,800, Rs.7,200 respectively
(c) Rs.12,000, Rs.8,000 respectively (d) Rs.8,000, Rs.8,000 respectively

2. Ganga and Jamuna are partners sharing profits in the ratio of 2: 1. They admit Saraswati for 1/5th share
future profits. On the date of admission, Ganga's capital was Rs.1,02,000 and Jamuna's capital was
Rs.73,000. Saraswati brings Rs.25,000 as her share of goodwill and she agrees to contribute proportionate
capita the new firm. How much capital will be brought by Saraswati? [1]
(a) Rs.43,750 (b) Rs.37,500
(c) Rs.50,000 (d) R.40,000

3. A, B and C who were sharing profits and losses in the ratio of 4: 3:2 decided to share the future profits
and losses in the ratio of 2:3:4 with effect from 1st April, 2023. An extract of their Balance Sheet as at
31st March, 2023 is:
Liabilities Rs. Assets Rs.
Workmen Compensation Reserve 65,000
At the time of reconstitution, a certain amount of claim on workmen compensation was determined for
which B's share of loss amounted to ₹5,000. The Claim for workmen compensation would be [1]
(a) Rs.15,000. (b) Rs.70,000
(c) Rs.50,000. (d) Rs.80,000.

4. B and C are in partnership sharing profits and losses as 3:1. They admitted D into the firm, D pays
premium of ₹ 15,000 for 1/3rd share of the profits. As between themselves, B and C agree to share future
profits and losses equally. Draft Journal entries showing appropriations of the premium money. [3]
Date Particulars L.F. Debit Credit
(Rs.) (Rs.)
Cash A/c Dr. 15,000
To Premium for Goodwill A/c 15,000
(D brought his share of goodwill in cash)

Premium for Goodwill A/c Dr. 15,000

To B's Capital A/c 15,000
(Premium for goodwill transferred to B 's Capital)

C's Capital A/c Dr. 3,750

To B 's Capital A/c 3,750
(Goodwill charged from C's Capital Account due to his gain in
profit sharing)
5. Calculate goodwill of a firm on the basis of three years' purchase of the Weighted Average Profits of the
last four years. The profits of the last four years were:
Year (ending 31st March) 2020 2021 2022 2023
Amount (Rs.) 28,000 27,000 46,900 53,810
(a) On 1st April, 2020, a major plant repair was undertaken for Rs.10,000 which was charged to
revenue. The said sum is to be capitalised for goodwill calculation subject to adjustment of depreciation
of 10% on reducing balance method.
(b) For the purpose of calculating goodwill, the company decided that the years ending 31st March,
2020 and 31st March, 2021 be weighted as 1 each (being COVID affected) and for the years ending 31st
March, 2022 and 31st March, 2023 weights be taken as 2 and 3 respectively. [3]
ANS
CALCULATION OF TOTAL OF WEIGHTED PROFIT
Years (ending 31st Adjusted Profit
March) (Rs.) * Weight Product (Rs.)
2020 28000 28,000 1 28,000
2021 27000+10000-1000 36,000 1 36,000
2022 46900-900 46,000 2 92,000
2023 53810-810 53,000 3 1,59,000
Total 7 3,15,000
 Weighted Average Profit = Total of Weighted Profits/ Total of Weights
= Rs. 3,15,000/ 7
=Rs. 45,000
Goodwill= Weighted Average Profit* No. of Years if Purchase
= Rs. 45,000*3 = Rs. 1,35,000

Calculation of Depreciation:
(i) Depreciation of 2021= 10% of Rs. 10,000= Rs. 1,000
(ii) Depreciation of 2022= 10% of Rs. 9,000= Rs. 900
(iii) Depreciation of 2023= 10% of Rs. 8,000= Rs. 810

6. Om, Shanti and Namo are partners sharing profits and losses in the ratio of 5:3:2. They decided to share
profits and losses in the ratio 2: 3: 5 with effect from 1st April, 2023. For this purpose, goodwill is to be
valued on the basis of 4 years' purchase of average profit of past 5 years. The profits were:
Year Ended 31st March, 31st March, 31st March, 31st March, 31st March,
2019 2020 2021 2022 2023
Profit/Loss (Rs.) 30,000 70,000 1,00,000 1,40,000 (1,20,000)
On 1st April, 2022, 5 cycles costing Rs.20,000 were purchased and were wrongly debited to Travelling
Expenses. Depreciation on cycles was to be charged @ 25%.
Journalise the transactions giving working notes. [3]
ANS
Dr. Cr.
Date Particulars L.F. (Rs.) (Rs.)
2023
April 1 Namo’s Capital A/c (Rs. 1,88,000* 3/10) Dr. 56,400
To Om's Capital A/c (Rs. 1,88,000* 3/10) 56,400
(Adjustment made on account of charge in profit- sharing ratio by
debiting gaining partner and crediting sacrificing partner)
Working Notes:
1. Calculation of Normal Profit:
Year Ended Rs.
31st March, 2019 30,000 (Profit)
31st March, 2020 70,000 (Profit)
31st March, 2021 1,00,000 (Profit)
31st March, 2022 1,40,000 (Profit)
31st March, 2023 1,05,000 (Loss) (Note 2)
Total Normal Profit 2,35,000
Average Profit= Total Normal Profit/ Number of Years
= Rs. 2,35,000/5 = Rs.47,000
Goodwill= Average Profit x Number of Years’ Purchase
= Rs. 47,000 x 4 = Rs. 1,88,000

2. Calculation of Adjusted Loss for the year ended 31st March, 2023:
Rs.
st
Loss for the year ended 31 March, 2023 (1,20,000)
Add: Cost of Cycles wrongly debited to Profit & Loss A/c 20,000
(1,00,000)
Less: Depreciation @25% on Rs. 20,000 (cycles) (5,000)
Loss for the year (1,05,000)
 3. Calculation of Sacrifice and Gain:
Particulars Om Shanti Namo
Old Profit Shre 5/10 3/10 2/10
New Profit Share 2/10 3/10 5/10
Difference (Old profit share- New 3/10 - -3/10
profit share) Sacrifice Gain

7. Give Journal entries to record the following arrangements in the books of the firm:
(a) B and C are partners sharing profits in the ratio of 3:2. D is admitted paying a premium (goodwill)
of ₹ 2,000 for 1/4th share of the profits, shares of B and C remain as before.
(b) B and C are partners sharing profits in the ratio of 3:2. D is admitted paying a premium of ₹ 2,100 for
1/4th share of profits which he acquires 1/6th from B and 1/12th from C. [4]

Date Particulars LF Debit Credit

a Cash A/c 2,000

To Premium for Goodwill A/c 2,000

Premium for Goodwill A/c 2,000

To B's Capital A/c 1,200
To C's Capital A/c 800

b Cash A/c 2,100

To Premium for Goodwill A/c 2,100

Premium for Goodwill A/c 2,100

To B's Capital A/c 1,400
To C's Capital A/c 700

8. X, Y and Z are partners in a firm sharing profits and losses as 5 : 4 : 3. Their Balance Sheet as at 31st
March, 2019 was:
Liabilities Amount (Rs) Assets Amount (Rs)
Sundry Creditors 40,000 Cash at Bank 40,000
Outstanding Expenses 15,000 Sundry Debtors 2,10,000
General Reserve 75,000 Stock 3,00,000
Capital A/cs: Furniture 60,000
X 4,00,000 Plant and Machinery 4,20,000
Y 3,00,000
Z 2,00,000 9,00,000
10,30,000 10,30,000
From 1st April, 2019, they agree to alter their profit-sharing ratio as 4 : 3 : 2. It is also decided that:
(a) Furniture be taken at 80% of its value.
(b) Stock be appreciated by 20%.
(c) Plant and Machinery be valued at Rs.4,00,000.
(d) Outstanding Expenses be increased by Rs.13,000.
(e) Partners agreed that altered values are not to be recorded in the books and they also do not want to distribute
the General Reserve.
You are required to pass a single Journal entry to give effect to the above. Show your workings. [4]
Calculation of Profit or Loss on Revaluation
Loss on Revaluation of Furniture :12,000 (Dr.)
Profit on Revaluation of Stock :60,000 (Cr.)
Loss on Revaluation of Plant & Machinery :20,000 (Dr.)
Loss on Revaluation of O/s Expenses :13,000 (Dr.)
NET PROFIT on Revaluation :15,000 (Cr.)
Add: General Reserve :75,000 (Cr.)
TOTAL 90,000 (Cr.)

Sacrificing Ratio:
X = -1/36
Y=0
Z = 1/36

Single Adjustment Entry

Date Particulars LF Debit Credit
X's Capital A/c 2,500
To Y's Capital A/c 2,500

9. Following is the Balance Sheet of the firm, Ashirvad, owned by A, B and C who share profits and losses
of the business in the ratio of 3:2:1.
Balance Sheet as at 31st March, 2019
Liabilities Amount Assets Amount
Capital A/c’s Furniture 95,000
A 1,20,000 Business Premises 2,05,000
B 1,20,000 Stock – in – trade 40,000
C 1,20,000 3,60,000 Debtors 28,000
Sundry Creditors 20,000 Cash at Bank 15,000
Outstanding Salaries and wages 7,200 Cash in Hand 4,200

3,87,200 3,87,200
st
On 1 April, 2019, they admit D as a partner on the following conditions:
(a) D will bring in ₹ 1,20,000 as his capital and also ₹ 30,000 as goodwill premium for a quarter of the share
in the future profits/losses of the firm.
(b) Values of the fixed assets of the firm will be increased by 10% before the admission of D.
(c) Future profits and losses of the firm will be shared equally by all the partners.
Pass the necessary Journal entries [4]

Date Particulars LF Debit Credit

a. Cash A/c 1,50,000

To D's Capital A/c 1,20,000
To Premium for Goodwill A/c 30,000

b. Premium for Goodwill A/c 30,000

C's Capital A/c 10,000
To A's Capital A/c 30,000
To B's Capital A/c 10,000
 c. Furniture A/c 9,500
Business Premises A/c 20,500
To Revaluation A/c 30,000

d. Revaluation A/c 30,000

To A's Capital A/c 15,000
To B's Capital A/c 10,000
To C's Capital A/c 5,000

10. Prepare the revaluation account, partners' capital account and balance of the new firm after B's retirement.
A. B and C are partners. They share profits in capital ratio. Their balance sheet is given below
Balance Sheet
as at 31st December, 2021
Liabilities Amt (Rs.) Assets Amt (Rs.)
Creditors 2,00,000 Cash in Hand 80,000
Bank Overdraft 1,00,000 Debtors 82,000 1,00,000
Reserves 60,000 (-) Provision for
Doubtful Debts (2,000) 80,000
Expenses Due 40,000 Land and Building 4,00,000
Capital A/c: Machinery 40,000
A 80,000
B 80,000
C 40,000 2,00,000
6,00,000 6,00,000
Additional Information
(i) B takes retirement. (ii) New Ratio of A and C is 1:1.
(iii) Goodwill of the firm Rs.1,20,000. (iv) Make 5% provision for debtors.
(v) Building increased by 10% (vi) Make provision for claim for damages of Rs.12,000.
Pass necessary Journal entries. [4]
Date Particulars LF Debit Credit

a. Revaluation A/c 14,100

To Provision for Doubtful Debts 2,100
To Claim for Damages 12,000

b. Building A/c 40,000

To Revaluation A/c 40,000

c. Revaluation A/c 25,900

To A's Capital A/c 10,360
To B's Capital A/c 10,360
To C's Capital A/c 5,180

d. General Reserves A/c 60,000

To A's Capital A/c 24,000
To B's Capital A/c 24,000
To C's Capital A/c 12,000

e. A's Capital A/c 12,000

C's Capital A/c 36,000
To B's Capital A/c 48,000
11. On 31st December, 2004 the balance sheet of A and B, who are partners in a firm sharing profits in the
ratio of 3:2 was as follows:
liabilities Amount Assets Amount
Capital accounts Plant and machinery 10,000
A 10,000 Land and building 8,000
B 8,000 18,000 Debtors 12,000
General reserves 15,000 Provision -1,000 11,000
Workmen’s compensation Fund 5,000 Stock 12,000
creditors 12,000 cash 9,000
50,000 50,000
th
They agreed to admit C into partnership for 1/5 share of profits on the following terms:
(a) Provision for doubtful debts would be increased by Rs.2, 000.
(b) The value of land and building would be increased to Rs.18, 000.
(c) The value of stock would be increased by Rs.4, 000.
(d) The liability against workmen’s compensation fund is determined at Rs.2, 000.
(e) C brought in as his share of goodwill Rs.10, 000 in cash.
(f) C would bring further cash as would make his capital equal to 20% of the total capital of the new
firm, after revaluation and adjustments are carried out.
Prepare revaluation account, partner’s capital account and balance sheet. [6]
12. Karan and Amit were partners sharing profits and losses in the ratio of 3:2.
Liabilities Amount Assets Amount
Capitals: Plant and Machinery 18,000
Karan 40,000 Furniture 40,000
Amit 20,000 Profit and Loss A/c 25,000
Employees Provident Fund 10,000 Sundry Debtors 9,000
Workmen compensation fund 16,000 Cash in hand 1,500
Sundry Creditors 7,500
93,500 93,500
On 1 April, 2002, Kritika was admitted for 1/5 share. Balance Sheet of Karan and Amit on 31 March,
2022 was as under:
On the above date Kritika was admitted with the following terms:
(a) Kritika will bring Rs.20,000 for her capital and Rs.5,000 for her share of goodwill premium.
(b) Provision for doubtful debts is to be created @ 5%.
(c) There was a liability of Rs.6,000 for workmen compensation.
(d) There was a unrecorded furniture for Rs.5,000.
(e) Capitals of Karan and Amit to be adjusted on the basis of Kritika's capital through cash.
Prepare Revaluation A/c, Partners' Capital A/cs and Balance Sheet. [6]

***END OF EXAMINATION***