6. RETIREMENT-OF-PARTNER

Retirement of A
Partner
Retirement of Partner
When one or more partners leaves the firm and the
remaining partners
continue to do the business of the firm,
it is known as retirement of a partner.
A partner retires either
• With the consent of all partners

• As per terms of the agreement
• At his or her own will.
Problems at the time of retirement of new
partner
Distribution Of
Profit Sharing Share Of
Undistributed
Ratio Goodwill Profits
Capital Revaluation Of
Calculation/ Assets And
Adjustments Liabilities
Basis Sacrificing ratio Gaining ratio
Old partners part of Remaining partner acquires

Meaning
their profit in favor retiring partner share
of new partner
When At the time of At the time of retirement

Calculated admission of partner. of partner.
Old Ratio – New Ratio New ratio – Old Ratio

Formula
New partner share of Retiring partner takes his

Purpose goodwill is dividend in share of goodwill in gaining
sacrifice ratio ratio
Change in profit
sharing ratio
Old Ratio
Ratio in which all partners distributed their profits/losses
before the existing partner enters
= 5
Share of A
10
30% 50%
3
Share of B =
20% 10
2
Share of C =
10
NOTE:-
If old ratio is not given it will be assume to equal
Profit sharing ratio
Old Share
A+ B+ C
NEW Share
A&C
30% 50%
40% 60%
20%
Old Share/Ratio New Share/Ratio

When a existing
partner retires, his 20%
share is acquired by
the remaining
partners.
This increases
40% 60%
the existing 40% 60%
partners’ shares
New Ratio
The ratio in which remaining partners share the future
profits and losses
40% 60%
Gain
The part which the existing partners gain from the retiring
partner
20%
10%
10%
Gain of A Gain of B
Share Of
retiring partner 20%
10% 10%
Gain of existing
partner
Two basic problems
A ,B and C are partners sharing profits and losses in the ratio of
3 2 1
, ,
6 6 6
Suppose B retires
First problem
Who will take B share and in what ratio
Second Problem
How to calculate new ratio
Case two Gaining Ratio
Existing partners
takes retiring partners In Equal ratio ( 1:1 )
share in equal ratio
Existing partners
takes retiring partners In the existing ratio of ( 3:1 )
share in existing ratio
Existing partners
takes retiring partners
share in given ratio In the given ratio of ( 3:2 )
Steps to calculate the new ratio
Old Ratio
Gaining Ratio
Gain /Acquired Share
New Ratio
Different situations while calculating
the new profit
1
Nothing is mention about the new ratio or gain
2
Retiring partner share is divided in different
ratio/unequal ratio
3
Retiring partner share is divided in equal ratio
4
Entire gain by one partner
5
New profit sharing ratio is given
Problem
X, Y and Z sharing profits in the ratio of 5:4:3.
X retires. Find out the new profit sharing ratio and gaining
ratio.
NOTE:-
If nothing is mentioned about new ratio or gaining ratio
it will be assumed that
 Remaining ratio will be new ratio
 Remaining ratio will be assumed to be gaining ratio
New Ratio of Y and Z = 4 : 3
Gaining Ratio of Y and Z = 4 : 3

Calculate
The Old profit sharing ratio of A, B and C was 4:3:2.
Calculate the new ratio and the gaining ratio when (i) A
retires (ii) B retires (iii) C retires.
Solution
New ratio Gaining ratio

i. 3:2 i. 3:2
ii. 2:1 ii. 2:1
iii. 4:3 iii. 4:3
Retiring partner share is divided in equal
ratio
Problem
A, B and C are partners sharing profits in the ratio of 5: 4: 3.
B retire and his share was taken up by A and B equally. Find out
the new Profit sharing ratio of A and C.
Solution Given Gaining ratio (1:1)

4 x 1 4
Gain of A = =
12 2 24
4 x 1 4
Gain of C = =
12 2 24
New Ratio = Old Ratio + Gaining Amount
5 4 14
+ =
New Share of A =
12 24 24
3 4 10
+ =
New Share of C =
12 24 24
New Ratio of A & C = 14:10 or 7 :5

Retiring partner share is divided in different
ratio/unequal ratio
Problem
A, B and C are partners sharing profits in the ratio of
1/4 : 2/5 : 7/20. A retires and his share was taken up by
B and C in the ratio of 1: 2. Find out the new profit sharing
ratio of B and C.
Solution Given Gaining ratio 1:2

1 x 1 1
Gain of B = =
4 3 12
1 x 2 2
Gain of C = =
4 3 12
+
2 1 31
+ =
New Ratio of B =
5 12 60
7 2 29
+ =
New Ratio of C =
20 12 60
Retiring partner share is entirely taken by one
partner
Problem
P, Q and R are partners sharing profits in the ratio of 5:
3: 2. R retires and his share was taken up entirely by P.
Find out the new Profit sharing ratio and gaining ratio of
continuing partners.
Solution
Gain of Q = NIL
2
Gain of P =
10
5 2 7
= + =
New Ratio of P 10 10 10
3 0 3
= + =
New Ratio of Q 10 0 10
New profit sharing ratio is given
Problem
X, Y and Z are partners sharing profits in the ratio of
5: 3: 2. Z retires and the ratio between X and Y is 3: 2.
Find out the gaining ratio
Solution Given New ratio (3:2)
Gain = New Ratio - Old ratio
3 5 1
= - =
Gain of X
5 10 10
2 - 3 1
Gain of Y = =
5 10 10
1 1
, =
Gaining Ratio of X ,Y = 1 , 1
10 10
Calculate
A, B and C were partners in a firm sharing profits in the ratio
4:3:2. C retired. What would be their new ratio and gaining ratio
in each of the following cases?
1.If C’s share was taken up by A and B equally.
2.If C’s share was taken up by A and B in the original ratio.
3.If C’s share was take up by A and B in the ratio of 2:1.
4.If C’s share was take up entirely by A
Solution
New ratio – Gaining ratio –
1.5:4; 1. 1:1;
2. 4:3; 2. 4:3;
3.16:11 3. 2:1;
4. 2:1 4. A only
Treatment of goodwill
Goodwill
Value of the reputation of a firm in respect of the profits
expected in future over and above the normal profits.
Share of Goodwill
•The retiring partner is entitled to his/her share of
goodwill at the time of retirement because the goodwill is
the result of the efforts of all partners including the
retiring one in the past.
•The retiring partner’s capital account is credited with.

his/her share of goodwill and remaining partner’s capital
•account is debited in their gaining ratio
Particulars Dr Amount Cr Amount

XXXX
Remaining Partners Capital A/c Dr.
XXXX
To retiring Partner’s Capital A/c
(for retiring partner share of goodwill

transferred from remaining partners
capital in GR )
Note:-
Always first calculate Gaining ratio
Problem
P, Q and R are partners sharing profit equally. R retires and the goodwill
of the firm is valued at Rs 3,60,000. New ratio of P and Q is 3:2 Make
necessary journal entry for goodwill.
Solution
R Share of goodwill = 3,60,000 x 1 = 1,20,000
3
3 1 4
= - =
Gain of P
5 3 15
2 - 1 1
Gain of Q = =
5 3 15
Gaining Ratio of P ,Q = 4 , 1
P capital A/c Dr. 96,000
Q capital A/c Dr. 24,000
1,20,000
To R capital A/c
(for retiring partner share of goodwill transferred
from remaining partners capital in GR )
When the goodwill already appearing in the books.
If there is any goodwill appearing in the books it has to
be write off among all partners in old ratio
Liabilities Rs. Assets Rs.

Capital A/c Goodwill 6,000
A’s Capital 50,000 Plant & Machinery 65,000
B’s Capital 50,000 Furniture 15,000
C’s capital 10,000 Investment 20,000
Bills payable 10,000 Stock 20,000
Sundry Creditor 50,000 Sundry Debtor 30,000
Cash in hand 15,000
170000 170000
Particulars L.F) Dr Amount Cr Amount
2000
A’s Capital A/c Dr.
2000
B’s capital A/c
2000
C’s capital A/c
To Goodwill A/c 6000
( goodwill already appears written off in
old ratio in all partners)
Calculate
A, B and C are partners’ sharing profit in the ratio of 3: 2: l. B retires
and his share of goodwill is valued at Rs. 60,000. Goodwill already appears
in the books at a value of Rs.24,000. New ratio of A and C will be 3: 2.
Make the necessary journal entries
Solution
Given New ratio (3:2)
3 3 3
Gain of A = =
5 6 30
2 1 7
Gain of C = = 30
5 6
3 7
Gaining Ratio of A ,C
= , = 3 : 7
30 30
Calculate
A, B and C are partners’ sharing profit in the ratio of 3: 2: l. B retires
and his share of goodwill is valued at Rs. 30,000. Goodwill already appears
in the books at a value of Rs.48,000. New ratio of A and C will be 3: 2.
Make the necessary journal entries
Solution Gaining Ratio 3:7
A Capital A/c Dr 12,000

B Capital A/c Dr. 8,000
C Capital A/c Dr 4,000
To Goodwill A/c 24,000
(Old goodwill written off in old ratio All partners)
A capital A/c Dr. 6,000
C capital A/c Dr. 14,000
To B capital A/c 20,000

Calculate
A, B ,C and D are partners’ sharing profit in the ratio of 3: 4: 3:2. C
retires and his share of goodwill is valued at Rs. 60,000. New ratio of A,
B and D will be equal. Make the necessary journal entries
Solution Given New ratio (3:2)
1 3 1
Gain of A = =
3 12 12
1 4 0
Gain of B = = 12
3 12
2
1 2
Gain of D = = 12
3 12
1 0 2
Gaining Ratio of A,B
= , = 1,0,2
and D 12 12 12
Calculate
A, B and C are partners sharing profit in the ratio of 3: 2:1. C retires
and the goodwill of the firm is valued at Rs 54,000.A and B takes C share
in the ratio of 1: 2. Make necessary journal entry for goodwill.
Solution
Gaining Ratio 1:2 (Given)
C’s Share of goodwill = 54000 x 1 = 9000

6

A Capital A/c Dr. 3,000
To C Capital A/c 9,000

Calculate
A, B, C are partners sharing profits and losses in the ratio of 4:3:1. B
retires and selling his share of profit to A and C for Rs 8,100, he takes
3,600 being by A and 4,500 from C. the profit for the year after b
retirement was Rs 10,500. pass necessary journal entries. Calculate new
ratio and distribute the profits between A and C
Solution Given = Gaining Ratio 4:5 i.e. 3,600 : 4,500

3 x 4 12
Gain of A = =
8 9 72
3 x 5 15
Gain of C = =
8 9 72

4 12 48
New Ratio of A = + =
8 72 72
1 15 24
New Ratio of C = + =
8 72 72
New Ratio of A , C = 48 : 24 , i.e. 2:1

Calculate
A, B, C are partners sharing profits and losses in the ratio of 4:3:1. B
retires and selling his share of profit to A and C for Rs 8,100, he takes
3,600 being by A and 4,500 from C. the profit for the year after b
retirement was Rs 10,500. pass necessary journal entries. Calculate new
ratio and distribute the profits between A and C
Solution
Given = Gaining Ratio 4:5 i.e. 3,600 : 4,500

C Capital A/c Dr. 45,00
81,00
To B Capital A/c
Profit and Loss App A/c Dr. 10,500

7,000
To A Capital A/c
To C capital A/c 3,500
When partners retires and some
existing may
Gain ( Addition to Sacrifice (reduction in his

His existing shares His existing shares
Calculate
X , Y and Z are partners sharing profits in the ratio of 5:3:2.
Y retires and the new ratio of X and Z is 2:3. Goodwill of the
firm is 120000.
Solution Given New Ratio (2 : 3)
Gain /Sac = New Ratio - Old Ratio
2 5 -1
= - = Sacrifice
Gain/Sacrifice of X 5 10 10
3 2 4
Gain/Sacrifice of Z = - = Gain
5 10 10
Calculate
R , N and S are partners sharing profits in the ratio of 5:3:2. N
retires and the new ratio of R and N is 2:3. Goodwill of the firm is
120000.
Solution Given New Ratio (2 : 3)
N’s Share of goodwill = 1,20,000 x 3 = 36,000

10
R’s Share of goodwill = 1,20,000 x 1 = 12,000 (For Sacrifice)

10
S’s Share of goodwill = 1,20,000 x 4 = 48,000 (For Gain)

10

S Capital A/c Dr. 48,000
To N Capital A/c Dr. 36,000
To R Capital A/c 12,000

Calculate
A ,B C, and D are partners sharing profits in the ratio of 3:3:2:2. D
retire and A.B and C decides to share the future profits in the ratio
of 3:2:1. goodwill of the firm is valued at Rs 60,000. goodwill already
appears in the books Rs 4,50,000. and the profits after D retirement
amounted to Rs 12,00,000
Solution
Given New Ratio (3 : 2 :1)
Gain /Sac = New Ratio - Old Ratio
3 3 6
= - = Gain
Gain/Sacrifice of A 6 10 30
2 3 Gain
Gain/Sacrifice of B = - = 1
6 10 30
Sacrifice
1 2
Gain/Sacrifice of C = - = -1
6 10 30
Calculate
retire and A.B and C decides to share the future profits in the ratio of
3:2:1. goodwill of the firm is valued at Rs 6,00,000. goodwill already
Solution
D’s Share of goodwill = 6,00,000 x 2 = 1,20,000

10
A’s Share of goodwill = 6,00,000 x 12 = 1,20,000 (For Gain)

60
B’s Share of goodwill = 6,00,000 x 2 = 20,000 (For Gain)

60
C’s Share of goodwill = 6,00,000 x 2 = 20,000 (For sacrifice)

60
Calculate
retire and A.B and C decides to share the future profits in the ratio of
3:2:1. goodwill of the firm is valued at Rs 6,00,000. goodwill already
Solution
A Capital A/c Dr
D Capital A/c Dr. 8000
To Goodwill A/c 48,000
(Old goodwill written off in old ratio All partners)
A Capital A/c Dr. 1,20,000
To D Capital 1,20,000
from remaining partners capital in SR/GR )
Profit and Loss App A/c Dr. 12,00,000
6,00,000
To A Capital A/c
4,00,000
To B Capital A/c 2,00,000
To C capital A/c
Profit divided among partners in new ratio )
Hidden Goodwill
When the amount of capital agree to settle than more than
adjusted capital
The excess amount paid to retiring partner will be
termed as hidden goodwill ( retiring partner share of

goodwill)
Calculate
A, B and C are partners’ sharing profit in the ratio of 1 :2 :3. C retires
and his capital after making all the adjustment for reserves and
revaluation is Rs 1,20,000. A and B agree to paid him Rs 1,50,000 in full
settlement of his claim. Calculate the amount of goodwill and pass
necessary journal entry.
Solution
Amount agree to pay to C 1,50,0000
Less :- C capital after all adjustment 1,20,000
Hidden goodwill 30,000

30,000
To C Capital A/c
from remaining partners capital in GR 1:2 )
Ledger Posting
Problem
A B and C are partners sharing Profit/losses in the ratio 3 : 2:1

C’s Capital 20,000
Bills payable 10,000 Investment 20,000
Sundry Creditor 50,000 Stock 20,000
Sundry Debtor 30,000
Cash in hand 15,000
170000 170000
1. B retires from the firms and the goodwill of the firm is valued at Rs
24000
2. B shares of goodwill will be adjustment from the account of A and C
who will share their new profits in the ratio of 1:1
3. Calculate the gaining ratio; pass necessary journal entries and
partner’s capital account and balance sheet of the new firm.
Solution Given New ratio
1 - 3 0
Gain of A =
2 6 6
1 - 1 2
Gain of C = =
2 6 6
Only C
0 2 Gain
Gaining Ratio of A ,C = ,
6 6
Journal entry
Particulars Dr. Amount Cr. Amount
A Capital A/c Dr 3,000

6,000
To Goodwill A/c
(Old goodwill written off in old ratio old
partners 3 : 2 : 1)
B Capital A/c Dr 8,000
(goodwill transferred to retiring partner in GR)

Ledger Posting
C’s Capital 20,000 Investment 20,000
Bills payable 10,000 Stock 20,000
Sundry Creditor 50,000 Sundry Debtor 30,000
Cash in hand 15,000
170000
Dr. Partners capital A/c Cr.

Particulars A B C Particulars A B C
To Goodwill 3,000 2,000 1,000 By Balance b/d 40,000 50,000 20,000

Ledger Posting

C Capital A/c Dr. 8000
B Capital A/c Dr 8000
(Share of goodwill to retiring partner in the

gaining ratio)

To goodwill 3,000 2,000 1,000 By Balance b/d 40,000 50,000 20,000
To B Capital A/c 8,000 By C Capital A/c 8,000
To B Loan A/c 56,000
To Balance c/d 37,000 11,000
40,000 58,000 20,000 40,000 58,000 20,000

Final Balance Sheet After B Retirement

Capital A/c
Furniture 15,000
C’s Capital 11,000
Bills payable 10,000 Investment 20,000
Sundry Creditor 50,000 Stock 20,000
B’s Loan A/c 56,000 Sundry Debtor 30,000
Cash in hand 15,000
164000 164000
Ability Zone
Calculate
A B and C are partners sharing profits and losses in the ratio of 3:2:1. B
retires from the firm. The goodwill of the entire firm is valued at Rs
48000. Pass necessary journal entries in the following cases
a)A and B decides to share in future equally
b)A and B decides to share the profit in the ratio of 7:5
c)C share is taken by A and B in the ratio of 2:1
d)C share is taken by A and C by paying Rs 5000 and Rs 3000

respectively.
Treatment Of
Undistributed
Profits
Treatment Of Accumulated Profits/Losses
•Sometimes the balance sheet of the firm may show
reserves and accumulated profits and losses.
•All partners are entitled to have these accumulated

balances in old ratio.
Accumulated profits
Balance of undistributed profits like
• Reserve fund ,
• General reserves ,
• Profit and loss (Cr balance),
• Reserves for contingencies,
Belong to all partners so they should be credited to their capital A/c
Accumulated losses
Firm may have accumulated losses like
• Profit and loss (debit balance)
• Deferred revenue expenditure
• Advertisement suspense A/c
Belong to all partners so they should be debited to their capital A/c

Balance Sheet
Liability Amount Assets Amount
Reserves fund Profit and Loss A/c
Reserves for Contingencies Deferred Revenue expenditure
Accumulated profits Advertisement Suspense A/C

Profit and loss A/c
Cr.
Dr. Partners capital A/c

Particulars A B Particulars A B
To Profit and losses

xx xx By Balance b/d xx xx
To Deferred revenue
expenditure xx xx By Reserves fund xx xx
To Advertisement Suspense By Reserves for
xx xx contingencies xx xx
A/C
By Accumulated Profits xx
xx
all Partners By Profit/Loss A/c all Partners
xx xx
Old Ratio Old Ratio
Treatment Of Specific funds
•Firm may have specific funds like workmen compensation
fund and investment fluctuating fund.
•If there is no liability against these funds they should

• be distributed among the old partners in old ratio
•The new partner is not entitled to have any share in

such funds
Note:-
Following will not be distributed among old
partners as they are liability for the firm
Provident fund Employee saving fund

Revaluation of the assets and liabilities
1. At the time of retirement of a partner, the assets
and liabilities are revalued so that
2. The profit and loss arising on account of such

revaluation may be adjusted in the all partners’
capital accounts. In their old ratio
3. Revaluation account is opened
4. Revaluation is a nominal account.

For profit items
Increase in the value of assets
Unrecorded assets recorded
Decrease in the amount of liabilities

For Loss Items
Decrease In The Value Of Assets
Unrecorded Liability Recorded
Increase In The Amount Of Liabilities

Dr. Performa of Revaluation A/c Cr.
Particulars Amount Particulars Amount
To Decrease in value of Assets XX XX

By increase in value of assets
To Increase in the value of XX By decrease in value of XX

Liabilities. Liability
To Unrecorded Liabilities. XX By Unrecorded Assets. XX
To Profit transferred to old By Loss transferred to old

XX
partner’s Capital account (in old partner’s Capital account (in XX
ratio) old ratio)
For profit items
XXXX
Concerned Assets A/c Dr.
XXXX
Concerned Liabilities A/c Dr
To Revaluation A/c.
For Loss Items

Revaluation A/c. Dr XXXX

To Concerned Assets A/c XXXX
To Concerned Liabilities A/c
Profit on revaluation
XXXX
Revaluation A/c. Dr
To All Partners’ Capital A/c. XXXX
(For transferring profit on

revaluation in old ratio all partners))
When loss on Revaluation

XXXX
All Partners’ Capital A/c.
To Revaluation A/c. Dr XXXX
(For transferring loss on revaluation

in old ratio all partners)
Revaluation A/c
particulars Amount particulars Amount
a
To partners Capital A/C By Partners Capital Account

Profit On Revaluation (loss on revaluation
Partners capital A/c

Particulars amount Particulars amount
To revaluation A/c By revaluation A/c(profit)

(Loss)
All Partners
All partners
Old Ratio
Old ratio
Problem
Kanu ,Manu and Akansha are partners sharing profit as 2:3:5. kanu
retires and reserves stood at Rs 30,000 at the time of retirment.
Solution
General Reserves A/c Dr 30,000

To Kanu Capital A/c . 6.000
To Manu Capital A/c 9,000
To Akansha Capital A/c 15,000
General reserves distributed among all parents)
Problem
A,B and C are partners in a firm sharing profits in the ratio of 2:3:4.
on that date A retires. On that date there was a debit balance of
Rs. 72,000 in the profit and loss account of the firm. Pass necessary
journal entries regarding adjustment of a accumulate profit or loss
Solution

A Capital A/c . 16,000
B Capital A/c 24,000
C Capital A/c 32,000
To Profit/Loss A/c 72,000
(Loss distributed among all partners in old ratio)

Problem
P, Q and R are partner sharing P/L in the ratio of 2 : 2 :1.
Creditors 5,000 Cash 8,000
Workmen compensation fund 10,000 Debtors 75,000
General reserves 60,000 Stock 90,000
P Capital 100,000 Plant 1,40,000
Q Capital 80,000 Patents 22,000
R Capital 40,000
Profit and loss 15,000
3,35,000 3,35,000
R retires from the firm.
It was agreed that
1. stock is to be brought down to rs 82,000
2. Plant is reduced by rs 20,000.
3. patents were found valueless.
4. there was no liability on account of workmen compensation fund.
Pass necessary journal entries

Journal entries

General reserves A/c Dr. 60,000
Profit and loss A/c Dr. 15,000
Workmen compensation fund Dr. 10,000
To P Capital A/c . 34,000
To Q Capital A/c
34,000
To R Capital A/c
17,000
(Reserves distributed among all parents)
Revaluation A/c Dr. 50,000

To Stock A/c
8,000
To Plant A/c 20,000
To Patents A/c 22,000
(Decrease in assets)
P Capital A/c . 8,000
Q Capital A/c 20,000
R Capital A/c 22,000
To Revaluation A/c 50,000
(transfer of loss on revaluation

to partners capital)
Payment to retiring
partner
Treatment of amount payable to retiring
partners
Case 1st Transfer to retiring partners loan A/c
Case 2nd Partly payment and balance is transferred to his loan Account
Case 3rd Payment to retiring partners in full

Case 1st
Balance of the retiring partner transfer
to retiring partners loan A/c
NOTE:-
Nothing is mentioned in the question about the
payment it will be transferred to his loan A/c
Problem
A , B and C are partner sharing P/L in the ratio of 5 : 3 :2.
Provident fund 5,000 Building 60,000
Creditors 10,000 Cash at bank 2,000
General reserves 6,000 Debtors 8,000
A Capital 50,000 Furniture 13,000
B Capital 35,000 Stock 40,000
C Capital 25,000 Patents 4,000
Workmen compensation fund 2,000 Goodwill 6,000
1,33,000 1,33,000
C retires from the firm.
1. Goodwill of the firm be valued at Rs 20,000
2. The stock is appreciated by 10%
3. Patents are valueless
4. Provision for doubtful debts to be brought up to 5% on debtors
5. Building be appreciated by 20%
6. Sundry creditors are to be paid Rs 2000 more than the book value
Adjustments
1. The stock is appreciated by 10%
2. Patents are valueless
5. Sundry creditors are to be paid Rs 2000 more than the book value
Revaluation A/c
To Patents A/c 4,000 By Stock 4000
To Provision for doubtful debts 400
By Building 12000
To Creditors A/c 2,000
To profit transferred to
A Capital A/c 4800

B Capital A/c 2880
C Capital A/c 1920 9600
16,000 16,000
Ledger Posting
Liabilities Amount Assets Amount

A Capital 50,000 Furniture 13,000
B Capital 35,000 Stock 40,000
C Capital 25,000 Patents 4,000
Workmen compensation fund 2,000 Goodwill 6,000

By Workmen 1,000 600 400

Comp Fund
By Reserves 3,000 18,00 1,200
Ledger Posting

Revaluation A/c Dr. 9600
To X’s Capital A/c 4,800
To Y’s Capital A/c 2,880
To Z’s Capital A/c 1,920
Profit on revaluation transferred to
capital A/c)

By Workmen
Comp Fund 1,000 600 400
By Reserves 3,000 18,00 1,200
By Revaluation 4,800 2,880 1,920
Ledger Posting

A’s Capital A/c Dr. 2,500
B’s Capital A/c Dr. 1,500
To C’s Capital A/c 4,000
Adjustment of goodwill in GR = 5:3

By Workmen 1,000 600 400
To C’s capital 2500 1500 Comp Fund
By Reserves 3,000 18,00 1,200
By A’s capital 2500
By B’s capital 1500
Ledger Posting

C’s Capital A/c Dr. 31,320
To C Loan A/c 31,320
Retiring partners transferred to his

loan A/c

By Workmen
To C’s capital 2500 1500 Comp Fund 1,000 600 400
By Reserves 3,000 18,00 1,200
To C loan A/c 31,320 By A’s capital 2500
By B’s capital 1500
To balance c/d 53,300 36,980
58,800 40,280 35,520 58,800 40,280 35,520
Balance sheet of the new firm ( after C retirement
Creditors 12,000 Cash 2,000
C’s loan 31320 Debtors 8000
A Capital 53,300 Less provisions 400 7600
B Capital 36,980 Furniture 13,000
Stock 44,000
1,38,600 1,38,600
Case 2nd
Partly payment and balance is
transferred to his loan Account

Problem
P , N and S are partner sharing P/L in the ratio of 3:2:1. N retires
Bills payable 12,000 Premises 80,000
Creditors 15,000 Furniture 41,000
P Capital 46,000 Less provision – 400 5600
N Capital 30,000 Stock 9000
S Capital 20,000 Bank 7600
Outstanding salary 2,200
Provision for legal damages 6,000
1,43,200 1,43,200
1. Premises have appreciated by 20%
2. Stock depreciated by 10%, furniture brought up to Rs 45000
3. Provision for doubtful debts at 5% on debtors. Furniture to be brought
upto Rs 45,000
4. Further Provision for legal damages for Rs 1200.
5. Goodwill of the firm is valued at Rs 42000
6. Rs 26000 from N capital to be transferred to his loan account and
balance be paid through bank if required necessary loan may be
obtained from bank. New ratio 5 : 1.
Adjustments
1. Premises have appreciated by 20%
2. Stock depreciated by 10%, Furniture brought up to Rs 45000
3. Provision for Doubtful Debts at 5% on debtors
4. Provision for Legal Damages Rs 1200.
Revaluation A/c
To Provision for legal 1200 By Premises 16000
damages
By Furniture 4000
To Stock A/c 900
To Creditors A/c 2,000 By Provision for doubtful 100
To profit transferred to debts
P A/c 9,000
N A/c 6,000
S A/c 3,000 18000
20,100 20,100
Ledger Posting
Liabilities Amount. Assets Amount
Bills payable 12,000 Premises 80,000
P Capital 46,000 Less provision – 400 5600
N Capital 30,000 Stock 9000
S Capital 20,000 Bank 7600
Outstanding salary 2,200
Dr.
Provision Partners
for legal damages 6,000 capital A/c Cr.
Particulars P N S Particulars P N S
By Balance b/d 46,000 30,000 20,000
By Reserve fund 6,000 40,00 2000

Ledger Posting

capital A/c)

By Balance b/d 46,000 30,000 20,000
By Reserve Fund 6,000 40,00 2000

Ledger Posting

P’s Capital A/c Dr. 14,000
To N’s Capital A/c 14,000
Adjustment of goodwill in GR= new ratio –

old ratio = 2,0

To N’s capital 14,000 By Balance b/d 46,000 30,000 20,000
By Reserve Fund 6,000 40,00 2000

By P’s capital 14000
Ledger Posting

N’s Capital A/c Dr. 54,000
To Bank A/c 28,000
To N’s Loan A/c 26,000
Retiring partners paid in cash

To N’s capital 14,000 By Balance b/d 46,000 30,000 20,000
To N’s Loan A/c 26,000 By Reserve Fund 6,000 40,00 2000
To Bank A/c 28,000 By Revaluation 9,000 5,400 3,600
By P’s capital 14000

To balance b/d 47,000 25,000
61,000 54,000 25,000 61,000 54,000 25,000
Balance sheet of the new firm ( after N retirement

Bank loan 20400 Premises 96,000
Bills payable 12,000 Debtors 6,000
Outstanding salary 2,200 Less provision – 300 5700
Provision for legal damages 72,00 Stock 8100
N’s loan 26,000
P Capital 47,000
S Capital 25,000
1,54,800 1,54,800
Opening bank balance 76,00
Amount required to pay off N 28000
Loan obtained from bank (20,400)
Case 3rd
When the retiring partner share is
paid to retiring partners in full/ lump sum

Problem
X , Y and Z are partner sharing P/L in the ratio of 5 : 3 :2.
Bills payable 3,000 Building 25,000
Creditors 7,000 Plant and machinery 15,000
X Capital 30,000 Stock 5,000
Y Capital 20,000 Investment 10,000
Z Capital 20,000 Bank 25,000
90,000 90,000
1. Y sells his share of goodwill for Rs 8,000 to X and to Z for Rs 4,000
2. Stock to be appreciated by 20% and building by Rs 5,000
3. Investment sold for Rs 22,000
4. Y was to be paid in cash

Adjustments
1. Stock to be appreciated by 20% and building by Rs 5,000
2. Investment sold for Rs 22,000
Revaluation A/c
To profit transferred to By Building 5000
X Capital A/c By Stock 1000

9000
Y Capital A/c 5400 By investment 12,000
Z Capital A/c 3600 18000
18,000 18,000
Ledger Posting

X Capital 30,000 Stock 5,000
Y Capital 20,000 Investment 10,000
Z Capital 20,000 Bank 25,000
90,000 90,000

Particulars X Y Z Particulars X Y Z
By Balance b/d 30,000 20,000 20,000
By Reserve fund 5,000 3,000 2,000

Ledger Posting

capital A/c)

By Balance b/d 30,000 20,000 20,000
By Reserve fund 5,000 3,000 2,000

Ledger Posting

X’s Capital A/c Dr. 8,000
Z’s Capital A/c 4,000
Adjustment of goodwill in GR= 2:1

To Y’s capital 8000 4000 By Balance b/d 30,000 20,000 20,000
By Reserve fund 5,000 3,000 2,000

By X’s capital 8000
By Z’s capital 4000
Ledger Posting

Y’s Capital A/c Dr. 40,400
To Bank A/c 40,400

To Y’s capital 8000 4000 By Balance b/d 30,000 20,000 20,000
To Bank A/c 40,400 By Reserve fund 5,000 3,000 2,000

By X’s capital 8000
To balance c/d 36,000 21,600 By Z’s capital 4000
44,000 40,400 25,600 44,000 40,400 25,600
Balance sheet of the new firm ( after Y retirement

X Capital 36,000 Debtors 10,000
Z Capital 21,600 Stock 6,000
Bank 6600
67,600 67,600

Add:- Sale of investment 22,000
Less:- Paid to Y 40,400
Closing bank balance 6,600
Adjustment of capital cases
1 Retiring partner’s capital transferred to his loan account

and the capital of the new firm is fixed among existing
partners by cash or by opening current Account
Retiring partner’s capital is transferred to loan Account

and the remaining partners adjust their capital in their
new profit sharing ratio.
3
Retiring partners is paid by cash brought in by remaining
partner so as to adjust their capital in the new ratio
4
Retiring partners is paid by cash brought in by
remaining partner so as to adjust their capital in the new
ratio and leaving minimum cash balance as working capital
Adjustment of Capital
Retiring partner’s capital is transferred in his
loan account and
the capital of the new firm is fixed or given

among existing partners adjustment is
done either by cash
or by opening current Account.

Problem
A, B and C are partners sharing Profit and losses in the ratio of 3:2:1.
Y retires .A and C agree that the capital of the new firm shall be fixed
at Rs 2, 10,000 in the new profit sharing ratio. The capital account of X
and B after all adjustment on the date of retirement showed a balance
of Rs 1, 45,000 and Rs 63,000. Adjustment is made through cash.
Total capital of the new firm = 2,10,000 ( given)
Share Of A ‘s Capital 3
= 2,10,000 X = 157,500
4
Share Of C ‘s Capital 1
= 2,10,000 X = 52,500
4
A ‘s required Capital A ‘s adjusted Capital Deficit
157,500 1,45,000 12,500
C ‘s required Capital C ‘s adjusted Capital Surplus
52,500 63,000 10,500
To Bank A/c 10,500 By Balance b/d 1,45,000 63,000
By Bank A/c 12,500
To balance c/d 157,500 52,500
19,650 10,500 19,650 9,150

Problem
A , B and C are partner sharing P/L in the ratio to their capital
Creditors 6900 Land and Building 25,000
A’s capital 18,000 Investment 11,500
B’s capital 13,500 Stock 8,000
C’s capital 9,000 Debtors 5,000
Investment fluctuating 7500 Less provision – 1,00 4900
fund
Cash in bank 5,500
54,900 54,900
B retires from the firm
1. Stock is depreciated by 6%. Land and building be appreciated by 20%
3. Provision of Rs 770 be made in respect of outstanding legal charges
4. Investment are brought down to Rs 8500
5. Goodwill of the firm- 10800 and retiring partners share of goodwill is
adjusted through the capital A/c of old partners.
6. Capital of the new firm- 28,000 and adjustment be made though cash.
Prepare partners capital and balance sheet the new firm
Adjustments
1. Stock is depreciated by 6%. Land and building be appreciated by 20%
3. Provision of Rs 770 be made in respect of outstanding legal charges
4. Investment are brought down to Rs 8500
Revaluation A/c
To Provision for doubtful 150 By land and building 5000
debts
To Stock/c 480
To outstanding legal charges 770
A Capital A/c 1600

B Capital A/c 1200
5,000 5,000
Ledger Posting

Investment fluctuating fund 7500 Less provision – 1,00 4900
Cash in bank 5,500
54,900 54,900

By Balance b/d 18,000 13,500 9,000
By investment 2,000 15,00 1,000

fluctuating fund
Ledger Posting

To A’s Capital A/c 1600
To B’s Capital A/c 12,00
To C’s Capital A/c 800
capital A/c)

By Balance b/d 18,000 13,500 9,000
By Investment 2,000 15,00 1,000
Fluctuating Fund
Ledger Posting

C’s Capital A/c 6,000
Adjustment of goodwill in GR= new ratio –
old ratio = 13:11

To B’s capital 1,950 1,650 By Balance b/d 18,000 13,500 9,000

By investment 2,000 15,00 1,000
fluctuating fund
By A’s capital 1,950
By C’s capital 1,650
Ledger Posting

To B’s loan A/c 19,800
Retiring partners capital transferred to

his loan account

To B’s Capital 1,950 1,650 By Balance b/d 18,000 13,500 9,000

By investment 2,000 15,00 1,000
To B loan A/c 19,800 fluctuating fund
To balance c/d 19,650 9,150 By C’s capital 1,650
21,600 19800 10,800 21,600 19800 10,800
By Balance b/d 19,650 9,150

Total capital of the new firms = 28,000 ( given)
= 28,000 X = 17,500
3
= 28,000 X = 10,500
8
A ‘s required Capital A ‘s adjusted Capital Surplus
17,500 19,650 2,150
C ‘s required Capital C ‘s adjusted Capital Deficit
10,500 9,150 1,350


By investment 2,000 15,00 1,000
To B loan A/c 19,800 fluctuating fund
21,600 19800 10,800 21,600 19800 10,800
To Bank A/c 2,150 By Balance b/d 19,650 9,150

To balance c/d 17,500 10,500 By Bank A/c 1,350
19,650 10,500 19,650 9,150
Balance sheet (after B’s retirement
C’s capital 10500 Stock 7,520
Debtors 5,000
B’s loan 19800 Less provision – 250 4750
Outstanding legal charges 770 Cash at bank 4,700
54,900 54,900

Returned to A 2,150
Brought by C 1,350 -
Closing bank balance 4700
Problem
A , B and C are partner sharing P/L in the ratio to their capital

Creditors 21,000 Building 1,00,000
A’s capital 80,000 Machinery 50,000
General reserves 20,000 Less provision – 1,000 19000
Cash in hand 14,000
201000 201000
B retires and was paid for his share in the firm
2. Provision for doubtful debts to be 15% on debtors
3. Machinery be depreciated by 20%
4. Goodwill of the firm- 72,000 and retiring partners share of goodwill

is adjusted through the capital A/c of old partners capital
5. Capital of the new firm- 12,0,000 and adjustment be made though

cash. Prepare partners capital and balance sheet the new firm
Adjustments
2. Provision for doubtful debts to be 15% on debtors
3. Machinery be depreciated by 20%
Revaluation A/c
To Provision for doubtful 2,000 By Building 20000
debts
To machinery A/c 10,000
A Capital A/c 4000

B Capital A/c 2000
20,000 20,000
Ledger Posting

A’s capital 80,000 Machinery 50,000
General reserves 20,000 Less provision – 1,000 19000
Cash in hand 14,000
201000 201000

By Balance b/d 80,000 40,000 40,000
By Reserve fund 10,000 5,000 5,000

Ledger Posting

To A’s Capital A/c 4,000
capital A/c)

By Balance b/d 80,000 40,000 40,000

By Reserve fund 10,000 5,000 5,000
Ledger Posting

Adjustment of goodwill in GR

By Reserve fund 10,000 5,000 5,000

Ledger Posting

To Bank A/c 65,000


To balance b/d 82,000 41,000 By C’s capital 6,000
94,000 65000 47,000 94,000 65000 47,000
By Balance b/d 82,000 41,000

Total capital of the new firms = 1,20,000 ( given)
= 1,20,000 X = 80,000
3
= 1,20,000 X = 40,000
3
A ‘s required Capital A ‘s adjusted Capital Surplus
80,000 82,000 2,000
40,000 41,000 1,000


94,000 65000 47,000 94,000 65000 47,000
To Bank A/c 2,000 1,000 By Balance b/d 82,000 41,000

To balance c/d 80,000 40,000
82,000 41,000 82,000 41,000
Balance sheet (after B’s retirement
Bank overdraft 54,000 Machinery 40,000
A’s capital 80,000 Stock 18,000
Less provision – 3,000 17000
195000 195000

Paid to B 65000
Returned to A 2,000
Return to C 1,000 -68000
Closing bank balance ( bank overdraft) 54000
Payment in installments/partners loan A/c
 Usually, some amount is paid immediately on retirement
and the balance is transferred to his loan account.
 Loan is paid in one or more installments loan amount

carries some interest. An installment consists of two parts
1. Principal amount of installment due to retiring partner.
2. Interest at an agreed rate.

Problem
A ,B and C are partners in a firm. A retires on 1st January
1993. On that date of retirement Rs 80,000 is due to him in all.
It is agreed to pay him this amount in 2 yearly installments plus
interest @ 10% p.a.
A’s Loan A/c
Date Particulars Amount Date Particulars Amount
31st Dec To bank 48,000

1st Jan By A’s capital 80,000
1993 1993
( 40,000 + 8000)
31st Dec By interest on 8,000
31st Dec To balance c/d 40,000 10% of Rs 80000
1993 1993
88,000 88,000
31st Dec To bank 44,000

1st Jan By balance b/d 40,000
1994 1994
( 40000 + 4000 )
31st Dec By interest on 4000
1994 10 % of 40,000
44,000 44,000
Problem
Pawan , Qatir And Ram share P/L in the ratio to their capital
Bills payable 8,000 Land and building 50,000
Pawan capital 30,000 Less provision – 200 9800
Qatir capital 30,000 Stock 14000
Ram capital 15,000 Machinery 8,200
Provident fund 17,000 Profit and loss 6,000
1,18000 1,18000
Qatir retires
1. Profit on revaluation 4,000
2. Capital of the new firm- 60,000 and adjustment be made though
opening current A/c among Pawan and Ram in their new ratio 3:1
3. Qatir to be paid Rs 5,000 in cash balance to be transferred to his
loan account payable in two annual installments along with interest
of 8% p.a.
Ledger Posting

Bills payable 8,000 Land and building 50,000
Pawan capital 30,000 Less provision – 200 9800
Qatir capital 30,000 Stock 14000
Ram capital 15,000 Machinery 8,200
Provident fund 17,000 Profit and loss 6,000

Particulars Pawan Qatir Ram Particulars Pawan Qatir Ram
To profit/loss 24,00 24,00 12,00 By Balance b/d 30,000 30,000 15,000
By Reserve fund 24,00 24,00 12,00

Ledger Posting

To Pawan’s Capital A/c 16,00
To Qatir Capital A/c 16,00
To Ram’s Capital A/c 800
capital A/c)

By Reserve fund 24,00 24,00 12,00
By Revaluation 16,00 16,00 800

Ledger Posting

Pawan’s Capital A/c Dr. 4800
Ram’s Capital A/c 2400
To Qatir Capital A/c 7200


To Qatir’s capital 4800 2400 By Reserve fund 24,00 24,00 12,00
By Revaluation 16,00 16,00 800
By Pawan Capital 4800
By Ram Capital 2400
Ledger Posting

Qatir’s Capital A/c Dr. 5,000
To Bank A/c 5,000
Retiring partners paid in cash and balance

to be transferred to his loan account


To Bank A/c 5,000 By Revaluation 16,00 16,00 800
To Qatir’s loan 33,800 By Pawan capital 4800
To balance c/d 26,800 13,400 By Ram capital 2400
34,000 41200 17,000 34,000 41200 17,000
By Balance b/d 26,800 13,400

Total capital of the new firms = 60,000 ( given)
Share Of Pawan ‘s Capital 3

= 60,000 X = 45,000
4
Share Of Ram ‘s Capital 1
= 60,000 X = 15,000
4
Pawan required Capital Pawan adjusted Capital deficit
45,000 26,800 18,200
Ram s required Capital Ram s adjusted Capital Surplus
15,000 13,400 1,600

Particulars
Particulars Pawan
A Qatir
B Ram
C Particulars
Particulars Pawan
A Qatir
B Ram
C

To Bank A/c 5,000 By Revaluation 16,00 16,00 800
To Qatir’s loan 33,800 By Pawan capital 4800
To balance c/d 26,800 13,400 By Ram capital 2400
34,000 41200 17,000 34,000 41200 17,000
By Balance b/d 26,800 13,400

To balance c/d 45,000 15,000 By current A/c 18,200 1,600
45,000 15,000 45,000 15,000
Qatir Loan A/c
Date Particulars Amount Date Particulars Amount
31st March To bank 19,604

1st April By Qaitr capital 30,000
2005 ( 16900 + 2704) 2004
By interest on
31st March 16900
31st March 2704
To balance c/d 2005 8% of 33,800
2005
36,504 36,504
31st March To bank 19,604

1st April By balance b/d 16900
2006 ( 16900 + 1352) 2005
By interest on
31st March 1352
2006 8% of 16,900
18,252 18,252
Retiring partner’s capital is transferred to loan Account
and the
remaining partners adjust their capital in their new profit

sharing ratio.
Problem
A,B and C sharing P/L in the ratio 2:2:1. A retires and after all
adjustment relating to revaluation, goodwill of B showed a credit
balance of Rs 1,40,000 and that of C Rs 1,00,000 . it was
decided to adjust the capital of B and C in their P/L ratio.
Calculate the new capital of the partners and record entry.
Total required capital of the new firms =
Add :- Existing balance in B capital account 1,40,000
Add :- Existing balance in C capital account 1,00,000
Total required capital 2,40,000

2
Share Of B ‘s Capital = 2,40,000 X = 1,60,000
3
= 2,40,000 X = 80,000
3
B ‘s required Capital B ‘s adjusted Capital Deficit

1,60,000 1,40,000 20,000
80,000 1,00,000 20,000
Problem
A,B and C sharing P/L in the ratio 2:2:1. A retires and after all
adjustment relating to revaluation, goodwill of B showed a credit
balance of Rs 1,40,000 and that of C Rs 1,00,000 . it was
decided to adjust the capital of B and C in their P/L ratio.
Calculate the new capital of the partners and record entry.

Bank Dr. 20,000
To B Capital A/c 20,000
(Cash brought in by A)

To Bank A/c 20,000
(Cash withdrawn by partner B)

Problem
1. Mishra Puri and Khurana are partners sharing profit and losses in the
ratio of 3:1:2
Bills payable 12,000 Freehold premises 40,000
Mishra Capital 30,000 Less provision – 1000 19000
Puri Capital 30,000 Stock 22000
Khurana Capital 28,000 Machinery 30,000
Cash 7,000
1,30,000 1,30,000
Khurana retires
1. Freehold premises and stock are to appreciated by 20% and 15%
respectively
2. Machinery and furniture are to be depreciated by 10% and 7%
respectively. Bad debts reserve are to be increased to 1,500
3. Goodwill of the firm is valued at Rs 21000.
4. Continuing partners have decided to adjust their capital in their new
profit share ratio after retirement of Khurana. Surplus /deficit in
any in their capital accounts will be adjusted through current account.
Ledger Posting

Mishra Capital 30,000 Less provision – 1000 19000
Puri Capital 30,000 Stock 22000
Khurana Capital 28,000 Machinery 30,000
Cash 7,000

Particulars Mishra Puri Khurana Particulars Mishra Puri Khurana
By Balance b/d 30,000 30,000 28,000
By Reserve fund 6,000 2,000 4,000

Adjustments
1. Freehold premises and stock are to appreciated by 20% and 15%
respectively
2. Machinery and furniture are to be depreciated by 10% and 7%
respectively
3. Bad debts reserve are to be increased to 1,500
Revaluation A/c
To Provision for doubtful 5,00 By Freehold Premises 8,000
debts
To Furniture A/c By Stock 3,300
840
To Machinery A/c 3,000
A Capital A/c 3480

B Capital A/c 1160
11,300 11,300
Ledger Posting

Revaluation A/c Dr. 6960
To Mishra’s Capital A/c 3,480
To Puri Capital A/c 1,160
To Khurana Capital A/c 2,320
capital A/c)

By Balance b/d 30,000 30,000 28,000
By Reserve fund 6,000 2,000 4,000

Ledger Posting

Mishra Capital A/c Dr. 5250
Puri Capital A/c 1750
To Khurana Capital A/c 7000

To Khurana 5250 1750 By Balance b/d 30,000 30,000 28,000
By Reserve fund 6,000 2,000 4,000
By Mishra capital 5250

By Puri capital 1750
Ledger Posting

Khurana Capital A/c Dr. 41320
To Khurana loan A/c 41320
Retiring partners paid in cash and balance

to be transferred to his loan account

By Reserve fund 6,000 2,000 4,000
To khurana loan 41320 By Mishra capital 5250

To balance c/d 34230 31,410 By Puri capital 1750
39,480 33160 41320 39,480 33160 41320

By Balance b/d 34230 31,410
Total capital of the new firms = 34230 + 31410 = 65640
Share Of Pawan ‘s Capital 3

= 65640 X = 49230
4
Share Of Ram ‘s Capital 1
= 65640 X = 16410
4
Mishra Required Capital Mishra Adjusted Capital Deficit
49230 34230 15,000
Puri Required Capital Puri Adjusted Capital Surplus
16410 31,410 15,000

Particulars
Particulars Mishra
A PuriB Khurana
C Particulars
Particulars Mishra
A Puri
B Khurana
C
By Reserve fund 6,000 2,000 4,000
To khurana loan 41320 By Mishra capital 5250

To balance c/d 34230 31,410 By Puri capital 1750
39,480 33160 41320 39,480 33160 41320

To current A/c 15,000 By Balance b/d 34230 31,410
To balance c/d 49230 16410 By current A/c 15,000
45,000 31,410 45,000 31,410

Balance sheet (After Khurana’s retirement)
Khurana Loan 28,000 Debtors 20,000
Puri Current A/c 15,000 Less provision – 1500 18500
Stock 25300
Mishra Capital 49,230 Machinery 27,000
Puri Capital 16,410 Cash 7,000
Mishra’s current A/c 15,000
1,51,960 1,51,960
When the retiring partners is paid by cash
brought in by remaining partner so
as to adjust their capital in the new ratio

Problem
X ,Y and Z are partners sharing p/l in the ratio of 4:3:1. Their
adjusted capital stood at Rs 2, 20,000, Rs 2,00,000 and Rs
1,00,000. It was decided that amount payable to X will be
brought in by Y and Z in such a way so as to make their capital
proportionate to their new profit sharing ratio. Calculate the
amount to be brought in by X and Y and record journal entries
Amount requires to pay to X 2,20,000

Add :- Existing balance in Y capital account 2,00,000
Add :- Existing balance in Z capital account 1,00,000

3
Share Of Y ‘s Capital = 5,20,000 X = 3,90,000
4
1
Share Of Z ‘s Capital = 5,20,000 X = 1,30,000
4
Y ‘s required Capital Y ‘s adjusted Capital Deficit
3,90,000 2,00,000 1,90,000
Z ‘s required Capital Z ‘s adjusted Capital Deficit
1,30,000 1,00,000 30,000

Problem
X ,Y and Z are partners sharing p/l in the ratio of 4:3:1. Their
adjusted capital stood at Rs 2, 20,000, Rs 2,00,000 and Rs
1,00,000. It was decided that amount payable to X will be
brought in by Y and Z in such a way so as to make their capital
proportionate to their new profit sharing ratio. Calculate the
amount to be brought in by X and Y and record journal entries

Bank Dr. 2,20,000
To Y Capital A/c 1,90,000
To Z Capital A/c 30,000
X Capital A/c Dr. 2,20,000

To Bank A/c 2,20,000

Problem
A , B and C are partner sharing P/L in the ratio 5 : 3 :2

Outstanding expenses 5,000 Fixed Assets 1,25,000
Creditors 40,000 Debtors 60,000
A Capital 1,00,000 Cash 10,000
B Capital 50,000
C Capital 40,000
2,50,000 2,50,000
B retires
1. Fixed assets were valued at Rs 1,70,000
2. Stock was valued at Rs 50,000
3. Goodwill of the firm is valued at Rs 75000
4. B be paid in full to be contributed by A and C as to make their

capital proportionate in their new ratio . New ratio of A and C 3:2
Ledger Posting

A Capital 1,00,000 Cash 10,000
B Capital 50,000
C Capital 40,000
2,50,000 2,50,000

By Balance b/d 100,000 50,000 40,000
By Reserve fund 75,00 45,00 3,000

Adjustments
1. Fixed assets were valued at Rs 1,70,000
2. Stock was valued at Rs 50,000
Revaluation A/c
To Stock 5,000 By Fixed Assets 45000
To Profit Transferred to
A Capital A/c 20,00

B Capital A/c 0
12,00
C Capital A/c 8.000
0 40,000
45,000 45,000
Ledger Posting

To A’s Capital A/c 20,000
capital A/c)

By Balance b/d 100,000 50,000 40,000
By Reserve fund 75,00 45,00 3,000

By Revaluation 20,000 12,000 8,000
Ledger Posting

Adjustment of goodwill in GR =
New – Old= 1:2

By Reserve fund 75,00 45,00 3,000

By Revaluation 20,000 12,000 8,000
Ledger Posting

By Reserve fund 75,00 45,00 3,000

By Revaluation 20,000 12,000 8,000
To balance c/d 1,20,000 89,000 36,000 By C’s capital 15,000
1,27,500 89,000 51,000 1,27,500 89,000 51,000
By Balance b/d 1,20,000 89,000 36,000

Amount requires to pay to B 89,000
Add :- Existing balance in A capital account 1,20,000
Add :- Existing balance in C capital account 36,000
= 2,45,000 X = 1,47,000
5
= 2,45,000 X = 98,000
5
A ‘s Required Capital A ‘s Adjusted Capital Deficit

1,47,000 1,20,000 27,000
C ‘s Required Capital C ‘s Adjusted Capital Deficit

98,000 36,000 62,000
Cash Dr. 89,000
To A Capital A/c 27,000

To Cash A/c 89,000

By Reserve fund 75,00 45,00 3,000

By Revaluation 20,000 12,000 8,000
To balance c/d 1,20,000 89,000 36,000 By C’s capital 15,000
1,27,500 89,000 51,000 1,27,500 89,000 51,000
To Cash A/c 89,000 By Balance b/d 1,20,000 89,000 36,000

To balance c/d 1,47,000 98,000 By Cash A/c 27,000 62,000
1,47,000 98,000 1,47,000 98,000
Balance sheet (After B’s retirement)
A Capital 1,47,000 Stock 60,000
C Capital 98000 Cash 10,000
2,90,000 2,90,000
When the retiring partners is paid by cash
brought in
by remaining partner so as to
adjust their capital in the new ratio
and
leaving minimum cash balance
as working capital
Problem
X , Y and Z are partner sharing P/L in the ratio of 5 : 3 :2.
Creditors 50,000 Fixed assets 60,000
Provident fund 10,000 Stock 80,000
X Capital 40,000 Debtors 1,00,000
Y Capital 62,000 Cash at bank 4,0000
Z Capital 33000
Profit and loss A/c 85,000
2,80,000 2,80,000
On this date X retires and Y and Z agreed in the new ratio 2:3
1. Goodwill of the firm is valued at Rs 80,000
2. Fixed assets are to be depreciated to Rs 57500
3. Make a provision for doubtful debts at 5% on debtors
4. Liability for claim included in creditors for Rs 10,000 is settled at rs
8000
5. X will be paid in cash brought in by Y and Z is such a way so as to
make their capital proportionate to their new profit sharing ratio and
maintain a balance of 15000 in bank
Adjustments
1. Fixed assets are to be depreciated to Rs 57500
2. Make a provision for doubtful debts at 5% on debtors
3. Liability for claim included in creditors for Rs 10,000 is settled at rs
8000
Revaluation A/c
To Fixed Assets 2,500 By Creditors 2000
To Provision for doubtful 5,000

debts
By Loss transferred to
X Capital A/c 2750

Y Capital A/c 1650
Z Capital A/c 1100 5500
7500 7500
Ledger Posting

X Capital 40,000 Debtors 1,00,000
Y Capital 62,000 Cash at bank 4,0000
Z Capital 33000
Profit and loss A/c 85,000
2,80,000 2,80,000

By Balance b/d 40,000 62,000 33,000
By profit & loss 42,500 25,500 17,000

Ledger Posting

X’s Capital A/c 2,750
Y’s Capital A/c 1,650
To Revaluation A/c 55,00
Loss on revaluation transferred to capital
A/c)

To Revaluation 2,750 1,650 11,00 By Balance b/d 40,000 62,000 33,000
By profit & loss 42,500 25,500 17,000

Ledger Posting

Y’s Capital A/c Dr. 8,000
Adjustment of goodwill in GR= 2:1

To X’s capital 8000 32,000 By profit & loss 42,500 25,500 17,000
By Y’s Capital 8000
By Z’s Capital 32,000
Ledger Posting

To balance c/d 1,19,750 77,850 16,900
1,22,500 87,500 50,000 1,22,500 87,500 50,000
By Balance b/d 1,19,750 77,850 16,900

Amount requires to pay to X 1,19,750
Add :- Existing balance in Y capital account 77,850
Add :- Existing balance in Z capital account 16,900
Add :- Required cash Balance

15,000
Less :- Existing cash Balance
40,000
Total required capital 189,500
2
Share Of A ‘s Capital = 189,500 X = 75,800
5
= 189,500 X = 1,13,700
5
Y ‘s required Capital Y ‘s adjusted Capital Surplus

75,800 77850 2050
Z ‘s required Capital Z ‘s adjusted Capital Deficit
1,13,700 16,900 96800
Bank Dr. 96,800
To Z Capital A/c 96,800
X Capital A/c Dr. 1,19750

Y Capital A/c Dr. 2,050
To Bank A/c 1,21,800

Particulars A
X B
Y Z
C Particulars A
X B
Y Z
C
To balance c/d 1,19,750 77,850 16,900
1,22,500 87,500 50,000 1,22,500 87,500 50,000
To Bank A/c 119,750 2050 By Balance b/d 1,19,750 77,850 16,900

To balance c/d 75,800 113,700 By Bash A/c 96,800
119,750 77,850 113,700 1,47,000 77,850 113,700
Balance sheet of the new firm ( after X retirement

Debtors 1,00,000
Y Capital 75,800 Less provision 5000 95,000
Z Capital 1,33,700 Cash at bank 15,000
2,47,500 2,47,500

6. RETIREMENT-OF-PARTNER

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6. RETIREMENT-OF-PARTNER

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Retirement of A

continue to do the business of the firm,

it is known as retirement of a partner.

A partner retires either

• With the consent of all partners

Old partners part of Remaining partner acquires

When At the time of At the time of retirement

Old Ratio – New Ratio New ratio – Old Ratio

New partner share of Retiring partner takes his

Old Share/Ratio New Share/Ratio

Gain /Acquired Share

 Remaining ratio will be new ratio

 Remaining ratio will be assumed to be gaining ratio

New Ratio of Y and Z = 4 : 3

Gaining Ratio of Y and Z = 4 : 3

New ratio Gaining ratio

Solution Given Gaining ratio (1:1)

New Ratio = Old Ratio + Gaining Amount

New Ratio of A & C = 14:10 or 7 :5

Solution Given Gaining ratio 1:2

New Ratio = Old Ratio + Gaining Amount

Solution Given New ratio (3:2)

Gain = New Ratio - Old ratio

•The retiring partner’s capital account is credited with.

Particulars Dr Amount Cr Amount

(for retiring partner share of goodwill

Liabilities Rs. Assets Rs.

Particulars L.F) Dr Amount Cr Amount

Gain = New Ratio - Old ratio

Solution Gaining Ratio 3:7

Particulars Dr Amount Cr Amount

A Capital A/c Dr 12,000

(for retiring partner share of goodwill transferred

Solution Given New ratio (3:2)

Gain = New Ratio - Old ratio

Gaining Ratio 1:2 (Given)

C’s Share of goodwill = 54000 x 1 = 9000

Particulars Dr Amount Cr Amount

(for retiring partner share of goodwill transferred

Solution Given = Gaining Ratio 4:5 i.e. 3,600 : 4,500

New Ratio = Old Ratio + Gaining Amount

New Ratio of A , C = 48 : 24 , i.e. 2:1

Given = Gaining Ratio 4:5 i.e. 3,600 : 4,500

Particulars Dr Amount Cr Amount

Profit and Loss App A/c Dr. 10,500

Gain ( Addition to Sacrifice (reduction in his

Solution Given New Ratio (2 : 3)

Gain /Sac = New Ratio - Old Ratio

Solution Given New Ratio (2 : 3)

N’s Share of goodwill = 1,20,000 x 3 = 36,000

R’s Share of goodwill = 1,20,000 x 1 = 12,000 (For Sacrifice)

S’s Share of goodwill = 1,20,000 x 4 = 48,000 (For Gain)

Particulars Dr Amount Cr Amount

(for retiring partner share of goodwill transferred

Gain /Sac = New Ratio - Old Ratio

D’s Share of goodwill = 6,00,000 x 2 = 1,20,000

A’s Share of goodwill = 6,00,000 x 12 = 1,20,000 (For Gain)

B’s Share of goodwill = 6,00,000 x 2 = 20,000 (For Gain)

C’s Share of goodwill = 6,00,000 x 2 = 20,000 (For sacrifice)