DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : J. Satyanarayana Rao
Designation : Senior Lecturer
Branch : Commercial & Computer Practice
Institute : Govt. Polytechnic for Women, Guntur
Year/Semester : IV Semester
Subject : Accountancy – III
Subject Code : CCP402
Topic : PARTNERSHIP
Duration : 50 Mts
Sub Topic : Preparation of Accounts on
Retirement of a partner
Teaching aids : PPT and Animations
CCP402.56 & 57 1
Objectives :

On completion of the period, you would be

able to solve a problem on Retirement of a
partner:

CCP402.56 & 57 2
Recap :
 Procedure for preparation of account on the
death of partner is like Retirement of Partner
 Calculation of
 Goodwill a/c
 Profit & Loss Adjustment a/c
 New profit share ratio
 Revaluation of Assets

CCP402.56 & 57 3
Recap (Contd..) :

 Interest a/c
 Drawings a/c
 Undistributed Profits and losses
 Calculation of gaining ratio
 Preparation of New Balance Sheet of the
Continuing partners

CCP402.56 & 57 4
 E.g.1 :
Following if the Balance Sheet of G, K and R on 31st
December, 2006. They share profits and losses in the ratio
of 4:2:1

Liabilities Amount Assets Amount

Rs. Rs.
G’s capital 60,000 Goodwill 20,000
K’s capital 40,000 Stock 30,000
R’s capital 30,000 Debtors 22,000
Creditors 30,000 Buildings 40,000
Bills Payable 4,000 Plant 53,000
General Reserve 21,000 Motor Vehicle 20,000

1,85,000 1,85,000
CCP402.56 & 57 5
Eg.1 (Contd..) :

On the above date, G retired and the

following arrangements were agreed
upon:
2. Goodwill of the firm is to be valued at
Rs.48,000
3. The assets and liabillities are to be
revalued as under:Stock Rs.24,000;
Debtors Rs.21,000; Buildings Rs.45,200;
Plant Rs.50,000; Creditors Rs.28,000
CCP402.56 & 57 6
3. K and R were to introduce Rs.40,000 and Rs.10,000
respectively into the business and Rs.32,400 was to be
paid to G. The balance due to G was transferred to his
loan account
4. K and R agreed not to retain Goodwill Account in
books.
Prepare the capital accounts of the partners and the
Balance Sheet of the firm after the retirement of G.

CCP402.56 & 57 7
Solution :
Profit and Loss Adjustment Account
Particulars Amount Particulars Amount

To Stock 6,000 By Buildings 5,200

To Reserve for 1,000 By Creditors 2,000
Doubtful Debts By Capital
To Plant 3,000 Accounts
(loss)
G 1,600
K 800
R 400 2,800
10,000CCP402.56 & 57 10,000 8
G’s Capital Account
Particulars Amount Particulars Amount

To P&L Adj. a/c 1,600 By Bal.b/d 60,000

To Cash a/c 32,400 By Goodwill 16,000
To G’s Loan a/c 54,000 By Reserve 12,000
88,000 88,000

CCP402.56 & 57 9
K’s Capital Account
Particulars Amount Particulars Amount

To P&L Adj. a/c 800 By Bal.b/d 40,000

To Cash a/c 32,000 By Goodwill 8,000
To G’s Loan a/c 61,200 By Reserve 6,000
By Cash 40,000
94,000 94,000
By Bal.b/d 61,200

CCP402.56 & 57 10
R’s Capital Account
Particulars Amount Particulars Amount

To P&L Adj. a/c 400 By Bal.b/d 30,000

To Cash a/c 16,000 By Goodwill 4,000
To G’s Loan a/c 30,600 By Reserve 3,000
By Cash 10,000
47,000 47,000
By Bal.b/d 30,600

CCP402.56 & 57 11
Cash Account
Particulars Amount Particulars Amount

To K’s Capital a/c 40,000 By G’s Capital a/c 32,400

To R’s Capital a/c 10,000 By Bal.c/d 17,600
50,000 50,000
To Bal. b/d 17,600

CCP402.56 & 57 12
Balance Sheet of K and R as on 31.12.2007

Liabilities Amount Assets Amount

K’s capital 61,200 Buildings 45,200

R’s capital 30,600 Plant 50,000
G’s loan a/c 54,000 Motor Vehicle 20,000
Creditors 28,000 Stock 24,000
Bills Payable 4,000 Debtors
22,000 21,000
Less:Reserve 1,000 17,600
Cash
1,77,800 1,77,800
CCP402.56 & 57 13
 Journal Entries
Dr. Cr.

L.f Particulars Amount Amount

No. Rs. Rs.
Interest a/c Dr. 600
To B’s Capital a/c 600
(Being the interest on B’s capital
for 2 months @ 6% P.A.
General Reserve a/c Dr. 10,000
To B’s Capital a/c 10,000
(Being B’s share of General
Reserve transferred to his Capital
a/c
CCP402.56 & 57 14
 Dr. Cr.
L.f. Particulars Amount Amount
No. Rs. Rs.
Profit & Loss suspense a/c Dr. 5,333.33
To B’s Capital a/c 5,333.33
(Being B’s Profit due up to
28th Feb, 2001)
Goodwill a/c Dr. 58,666.7
To B’s Capital a/c 58,666.7
(Being B’s share of Goodwill)

CCP402.56 & 57 15
 Dr. Cr.
L.f Particulars Amount Amount
No. Rs. Rs.
Bank a/c Dr. 1,37,300
To Investment a/c 1,04,300
To Bills receivable a/c 33,000
(Being the sale proceeds of
Investments of bills)
B’s Capital a/c Dr. 1,34,600
To Bank a/c 1,34,600
(Being the payment of
amount due to B’s Executor)

CCP402.56 & 57 16
Preparation of New Balance Sheet :
Eg 2:
A,B, & C are in partnership sharing profits
equally

 C died on March 31st, 2006.

 Partnership deed provide interalia.
 The deceased partner’s capital account shall be
taken at the balance on his capital account at the
date of the last financial year close, less the
withdrawal, if any, made to the date of death
CCP402.56 & 57 17
 His share of profit to the date of death shall be
calculated on the basis of the average of 3
preceding years
 The goodwill of the firm shall be taken at one
year’s purchase based on the average profits of
the preceding 5 years
 The firm’s freehold property shall be taken at an
independent valuation

CCP402.56 & 57 18
The Firm’s Last Balance Sheet was as
Under :

Balance Sheet of A,B & C as at 31 December 2005

Liabilities Amount Assets Amount

Rs. Rs.
Creditors 1,29,000 Cash at office 5,000
Reserve fund 60,000 Cash at Bank 45,000
Capital a/c’s: Debtors 1,00,000
A - 3,00,000 Stock 1,50,000
B - 2,00,000 Freehold property 4,00,000
C - 2,00,000 7,00,000 Goodwill 1,89,000
8,89,000 8,89,000

CCP402.56 & 57 19
Freehold property was valued at Rs,5,80,000. The
profits for the 5 years ended 31st ended 31st
Dec,2005.
1 1,15,000

2 1,40,000

3 90,000

4 80,000

5 1,00,000
Pass Journal Entries and show C’s capital a/c and the
Balance Sheet of the surviving partners.
CCP402.56 & 57 20
Solution to E.g.2 :
Calculations:
The value of goodwill ascertained as
Profits Rs.
2001 1,15,000
2002 1,40,000
2003 90,000
2004 80,000
2005 1,00,000
Total Rs. 5,25,000

5, 25, 000
Average profits   Rs.1, 05, 000
5CCP402.56 & 57 21
Therefore Goodwill being one year’s purchase of the
average profits.
Rs.1,05,000 X 1 = Rs. 1,05,000

C’s share of profit

Profit for Rs.
2003 90,000
2004 80,000
2005 1,00,000
Total Rs. 2,70,000

CCP402.56 & 57 22
Average Profits = 2,70,000
3
= Rs.90,000
Therefore Profit for 3 months = 90,000 X 3/12
= 22,500
C’s share of profit = 1/3 X 22,500
= Rs.7,500

CCP402.56 & 57 23
 Journal Entries
Dr. Cr.
L.f Particulars Amount Amount
No. Rs. Rs.
Reserve Fund a/c Dr. 60,000
To A’s Capital a/c 20,000
To B’s Capital a/c 20,000
To C’s Capital a/c 20,000
(Being the Reserve Fund transferred
to capital accounts in profit sharing
ratio)
Profit & Loss suspense a/c Dr. 7,500
To C’s Capital a/c 7,500
(Being the Profit due to ‘C’)

CCP402.56 & 57 24
 Dr. Cr.
L.F Particulars Amount Amount
No.
Rs. Rs.
A’s Capital a/c Dr. 28,000
B’s Capital a/c Dr. 28,000
C’s Capital a/c Dr. 28,000
To Goodwill a/c 84,000
(Being the decrease in the value of
goodwill adjusted ‘C’s death)
Freehold Property a/c Dr. 1,80,000
To A’s Capital a/c 60,000
To B’s Capital a/c 60,000
To C’s Capital a/c 60,000
(Being the appreciation in the value of
freehold property credited to partners
capital a/c)
CCP402.56 & 57 25 25
 C’s Capital a/c

Dr. Cr.
Particulars Amount Particulars Amount
Rs. Rs.
To Goodwill a/c 28,000 By Balance b/d 2,00,000
To Executor’s a/c 2,59,500 By Reserve Fund a/c 20,000
By Profit & Loss
suspense a/c 7,500
By Freehold property 60,000
a/c
Total 2,87,500 Total 2,87,500

CCP402.56 & 57 26
 A’s Capital a/c

Dr. Cr.
Particulars Amount Particulars Amount
Rs. Rs.
To Goodwill a/c 28,000 By Balance b/d 3,00,000
“ Reserve Fund 20,000
“ Free hold property 60,000
Balance c/d 3,52,000
3,80,000 3,80,000

CCP402.56 & 57 27
 B’s Capital a/c
Dr. Cr.
Particulars Amount Particulars Amount
Rs. Rs.
To Goodwill a/c 28,000 By Balance b/d 2,00,000
“ Reserve Fund 20,000
“ Free hold property 60,000
Balance c/d 2,52,000
2,80,000 2,80,000

CCP402.56 & 57 28
Executor of “C” (Deceased) Loan a/c

Dr. Cr.
Particulars Amount Particulars Amount
Rs. Rs.
By C’s Capital a/c 2,59,500

2,59,500

CCP402.56 & 57 29
 Balance Sheet Of A & B

Liabilities Amount Assets Amount

Rs. Rs.

Sundry Creditors 1,29,000 Cash at office 5,000

Executor of ‘C’ Cash at Bank 45,000
(deceased) Loan a/c 2,59,500 Sundry Debtors 1,00,000
Capital accounts: Stock 1,50,000
A - 3,52,000 Freehold property 5,80,000
B - 2,52,000 6,04,000 Goodwill 1,05,000
P&L suspense a/c 7,500
9,92,500 9,92,500
CCP402.56 & 57 30