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❖ CALCULATION OF NEW PROFIT SHARING RATIO AND GAINING RATIO

1. Ram , Mohan and Sohan are partners sharing profits and losses in ratio of 5:3:2.
Calculate new profit sharing ratio and gaining ratio when –
(i) Mohan retires (ii) Ram dies.

2. X , Y and Z are partners sharing profits and losses in ratio of 5:3:2. Y retries and
his share is taken up by X and Z in the ratio of 3:2. Find out new profit sharing
ratio and gaining ratio.

3. R , S and A are partners sharing profits in ratio of their capitals which is

contributed equally by the them. A dies and his share is taken up by remaining
partners in ratio 5:3. Calculate new profit sharing ratio and gaining ratio.

4. U , V and W are partners in a firm with profit sharing ratio of 1/5, 1/3 and 7/15.
U retries and his share is taken up by V. calculate new profit sharing ratio and
gaining ratio.

5. Sita , Gita and Rita share profits of a firm as 5:2:1 respectively. Sita retires and
surrenders 1/4th from her share to Gita and the remaining in favour of Rita.
Find out new profit sharing ratio and gaining ratio.

6. P , Q and R are partners in a firm with profit sharing ratio 3:4:1. P retires and
surrenders 2/3rd of his share in favour of Q and remaining share in favour of R.
Calculate new profit sharing ratio and gaining ratio.

7. A, B, C and D are partners sharing profits and losses in ratio of 1/3, 1/6, 1/3 and
1/6. C retries and A,B and D decide to share profits and losses equally. Calculate
gaining ratio.

❖ TREATMENT OF GOODWILL
8. Ram, Mohan and Sohan are partners sharing profits in ratio 2:2:1. Mohan retires
and on his retirement goodwill of the firm is valued at Rs.60,000. No goodwill
appears in books of the firm. Journalise.

9. A, B and C were partners sharing profit & loss in the ratio of 6 : 4 : 5. Their
capitals were A – Rs. 1,00,000, B – Rs. 80,000, C – Rs. 60,000. On 1st April, 2022.
B retired from the firm and the new profit sharing ratio between A and C was
decided as 11 : 4. At the time of B’s retirement the goodwill of the firm was valued
at Rs. 1,80,000. Showing your calculations clearly, Pass necessary journal entry
for the treatment of goodwill on B’s retirement.

10. Arjun, Bhim and Nakul are Partners sharing profits and losses in the ratio of 14 : 5
: 6 respectively. Bhim retires and surrenders his 5/25th share in favour of Arjun.
The goodwill of the firm is valued at 2 years Purchase of super profits based on
average Profits of last 3 years. The profits for the last 3 years are Rs. 50,000, Rs.
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55,000 and Rs. 60,000 respectively. The normal profits for the similar firm are Rs.
30,000. Goodwill already appears in the books of the firm at Rs. 75,000. The Profit
for the first year after Bhim’s retirement was Rs. 1,00,000. Give the necessary
Journal Entries to adjustment Goodwill and distribute Profits showing your
working.

11. A, B and C are Partners sharing profits and losses in the ratio of 2 : 3 : 1. B retires
and sells him share of profit to A and C for Rs. 8,100, being purchased by A for Rs
3,600 and by C Rs. 4,500. The Profit for the year after B’s retirement was Rs.
10,500.
You are required to give necessary journal entries to record the sale of B’s share to A
and C and distribution of Profit among partners.
12. X,Y and Z are partners sharing profits in the ratio of 5 : 3 : 2. Y retires selling share
to X and Z for ` 30,000, ` 20,000 being paid by X and 10,000 by Z. The profit for
the year after Y’s retirement is `49,000. X and Z bring necessary amounts in cash
and Y was paid off. Pass journal entries to a) record the sale of Y’s share to X and Z
and b) distribute the profit between X and Z.
COMPREHENSIVE QUESTION
13. J, K and L partners of firm. Share profits and losses in 8 : 7 : 5 ratio. On March 31, 2023
their Balance Sheet was as follows:
Liabilities Amount Assets Amount
` `
Reserve Fund 20,000 Cash 90,000
Outstanding Expenses 25,000 Debtors 60,000
Creditors 40,000 Stock 30,000
Loan 30,000 Furniture 10,000
Workmen Compensation Fund 10,000 Machinery 95,000
Capital A/c Profit & Loss A/c 30,000
J 80,000
K 60,000
L 50,000 1,90,000
3,15,000 3,15,000
On this date J retired from the firm and partners decided as follows:
a) Machinery to be valued at 10% higher.
b) Reduce value of stock by 10%
c) Liability on account of a creditor `2,000 unlikely to arise.
d) Reduce o/s expenses by 4%.
e) In view of accumulated losses, goodwill is not to be valued.
Pass necessary journal entries regarding adjustment of reserve and accumulated
losses and prepare Revaluation Account.
14. Ayodhya, Kashi and Mathura are Partners in a firm sharing profits in 3 : 2 : 1 ratio.
Their Balance Sheet as on December 31, 2023 was as follows:
Liabilities Amount Assets Amount
` `
Capital: Building 70,000
Ayodhya 80,000 Machinery 60,000
Kashi 60,000 Furniture 20,000
Mathura 50,000 1,90,000 Stock 40,000
General Reserve 18,000 Debtors 50,000
Workmen Compensation Fund 8,000 Provident for doubtful debts 4,000 46,000
Profit & Loss A/c 12,000 Cash 32,000
Creditors 40,000
2,68,000 2,68,000

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On January 1, 2024 Kashi decided to retire from the firm. On this date, Partners
decided as follows:
a) Goodwill to be valued at ` 1,20,000
b) Building to be valued at 30% higher.
c) Machinery and furniture to be depreciated by 10%.
d) 20% of general reserve is to be maintained as a provision against bad & doubtful
debts.
e) Pending claim for compensation of a worker `10,000 to be admitted.
f) Expenses include `3,000 personal expenses of Kashi.
Pass necessary Journal entries regarding adjustment of reserve and accumulated
Profits and Prepare Revaluation Account.

15. H, J and K are Partners in a firm and share profit & losses in 5 : 4 : 3 ratio.
Balance Sheet of the firm as on March 31, 2024 was as follows:
Liabilities Amount Assets Amount
` `
Capital: Patents 20,000
H 3,00,000 Land & Building 3,00,000
J 2,00,000 Machinery 1,50,000
K 1,50,000 6,50,000 Investments 80,000
General Reserve 72,000 Furniture 40,000
Investment Fluctuation Fund 10,000 Debtors 1,00,000
Workmen Compensation Fund Provision for doubtful debts 10,000 90,000
Employee Provident Fund 12,000 Stock 70,000
Profit & Loss A/c 30,000 Advertisement Expenses 60,000
Creditors 88,000 Goodwill 12,000
Cash at Bank 40,000
Cash in hand 20,000

8,82,000 8,82,000
On April 1, 2024 J retired. The Partners decided as follows:
a) Goodwill to be valued at `2,40,000.
b) Patents to be written off by 20%
c) Land & Building to be valued at 20% higher.
d) Machinery to be depreciated by 10% and furniture by 20%.
e) Advertisement expenditure and Preliminary expenses to be written off.
f) Present market value of investment is `50,000.
g) Claim for compensation `30,000 of an injured worker to be admitted.
h) Amount of a creditor of `15,000 to be settled at `12,000.
i) Provision to be made for claim of damage against the firm `4,880 to be admitted.
j) Amount payable to the retiring partner to be transferred to his loan Account.
Prepare Revaluation A/c, Partner’s Capital A/c & Balance Sheet.

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Your Accountancy Coach
16. Bhavy, Divy, Sabhy are partners in a firm and share profit and losses in 3 : 2 : 1
ratio. Balance Sheet of the firm as on 31st March, 2024 was as follows:
Liabilities Amount ` Assets Amount `
Outstanding Expenses 20,000 Cash 30,000
Creditors 62,000 Stock 40,000
General Reserve 18,000 Debtors 70,000
Capital: Furniture 20,000
Bhavy 1,00,000 Machinery 90,000
Divvy 80,000 Building 1,00,000
Sabhy 70,000 2,50,000
3,50,000 3,50,000
On April 1, 2024. Divy retired from the firm and partners decided as follows:
a) Goodwill to be valued at `1,50,000.
b) Building to be appreciated by 20%.
c) Furniture to be depreciated by 20%.
d) Unrecorded investment of `23,000 to be recorded.
e) Provision for doubtful debts to be made at 10%.
f) Value of stock to be reduced by `3,000.
g) Unrecorded electricity bill `5,000 to be recorded.
h) Amount due to Divy to be paid by raising bank loan of the equal amount.
Prepare Revaluation Account, Partner’s Capital Accounts & Balance Sheet.

17. Vijay, Vivek and Vinay were Partners in a firm sharing profits 2 : 2 : 1 ratio. On
31.3.2024 Vivek retired from the firm. On the date of Vivek’s retirement the Balance
Sheet of the firm was as follows:
Liabilities Amount Assets Amount
` `
Creditors 54,000 Bank 55,200
Bills Payables 24,000 Debtors 12,000
Outstanding Rent 4,400 Provision for debts 800 11,200
Provision for legal claims 12,000 Stock 18,000
Capital: Furniture 8,000
Vijay 92,000 Premises 1,94,000
Vivek 60,000
Vinay 40,000 1,92,000
2,86,400 2,86,400

On Vivek’s retirement it was agreed that:

a) Premises will be appreciated by 5% and furniture will be appreciated by `2,000 Stock
will be depreciated by 10%.
b) Provision for Bad debts was to be made at 5% on debtors and Provision for legal
damages to be made for `14,400.
c) Goodwill of the firm be valued at `48,000.
d) `50,000 from Vivek’s Capital Account will be transferred to his loan account and the
balance will be paid by cheque.
Prepare Revaluation Account, Partner’s Capital Account

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 DEEPAK GUPTA 8800929191
Your Accountancy Coach
18. A, B and C are Partners sharing profits in the ratio of their Capitals. B retired from
the firm on 31.12.2024 the date on which the Balance Sheet of the firm was as
follows:
Balance Sheet as at 31.12.2024
Liabilities Amount Assets Amount
` `
Creditors 24,000 Cash 32,400
Bills Payables 18,000 Debtors 36,000
Capital Provision 2,400 33,600
A `1,80,000 Stock 60,000
B `1,44,000 Fixed Assets 3,48,000
C `1,08,000 4,32,000
4,74,000 4,74,000
The following adjustment were made:
a) Fixed assets appreciated by 20%.
b) Stock depreciated by 10%
c) Goodwill of the firm be valued at `72,000 and B’s share will be adjusted into the
capital accounts of A and C without opening goodwill Account.
d) New Profit sharing ratio of A and C is decided to be 3 : 2.
Give the partner’s Capital Accounts and the Balance Sheet of the firm after B’s
retirement.

❖ (Adjustment of Capital)
19. The Balance Sheet of A, B and C on 31st December 2024 was as under:
Balance Sheet as at 31.12.2024
Liabilities Amount Assets Amount
` `
A’s Capital 40,000 Buildings 20,000
B’s Capital 30,000 Motor Car 18,000
C’s Capital 20,000 Stock 20,000
General Reserve 17,000 Investment 1,20,000
Sundry Creditors 1,23,000 Debtors 40,000
Patents 12,000
2,30,000 2,30,000
The partners share profits in the ratio of 8 : 4 : 5 retries from the firm on the same date,
subject to the following terms and conditions:
a) 20% of the General Reserve is to remain as a reserve for Bad debts.
b) Motor Car is to be decreased by 5%.
c) Stock is to be valued at `17,500.
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d) Goodwill is valued at 2 2 years purchase.
e) C was paid in full. A and B borrowed the necessary amount from the Bank on the
security Motor Car and Stock to pay off C.
Prepare Revaluation A/c, Partners’ capital A/c.

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Your Accountancy Coach
20. Leena, Madan, Naresh were partners in a firm sharing Profits & Losses in the ratio
of 2 : 2 : 3 on 31st March 2024, their Balance Sheet was as follow:
Balance Sheet
As at 31st March, 2024
Liabilities Amount Assets Amount
` `
Trade Creditors 1,60,000 Land & Building 10,00,000
Bank Overdraft 44,000 Machinery 5,00,000
Long term Debts 4,00,000 Furniture 7,00,000
Employee Provident Fund 76,000 Investment 2,00,000
Capital Closing Stock 8,00,000
Leena 12,50,000 Sundry Debtors 4,00,000
Madan 8,00,000 Bank 80,000
Naresh 10,50,000 31,00,000 Deferred Advertisement 1,00,000
37,80,000 37,80,000
On 31st March 2024, Madan retired from the firm and the remaining partners decided to
carry on the business. It was decided to revalue assets and liabilities as under:
a) Land & Building be appreciated by `2,40,000 and Machinery be depreciated by 10%.
b) 50% of Investment were taken over by the retiring partner at book value.
c) An old Customer, Mohit whose account was written off as bad debts had promised to
pay `7,000 in settlement of his full debt of `10,000.
d) Provision for doubtful debt was to be made at 5% on debtor.
e) Closing stock will be valued at market price which is `1,00,000 less than the book
value the accounts of Leena and Naresh. Leena and Naresh. Leena and Naresh
decided to share future profit and losses in the ratio of 3 : 2.
f) Amount due to Madan was settled by a curating a Bill of exchange in his favour
payable after 4 months.
Prepare Revaluation Account, Partner’s Capital Account

9. X, Y and Z are partners sharing profits in ratio 1:3:4. Their balance sheet on 31st
march 2024 is as follows:
Liabilities Rs Assets Rs
Sundry creditors 17,500 Cash at Bank 70,000
Reserve 16,000 Sundry debtors 45,000
Capitals : Less : provision 2,500 42,500
X 50,000 Goodwill 16,000
Y 1,50,000 Plant and Machinery 75,000
Land and
Z 2,00,000 4,00,000 Building 1,50,000
Deferred advertising expenditure 80,000
4,33,500 4,33,500

Z retires On 1st April 2024 and the following adjustment were made:
(a) Out of insurance premium paid during the year, Rs.9,000 is to be carried
forward as unexpired.
(b) A provision of Rs.20,800 is to be made for a contingent liability for a suit
against the firm.
(c) The fixed assets are to be depreciated by 10%.
(d) The goodwill of the firm is valued at Rs.1,08,000.
(e) The provision for doubtful debts is to be brought up to 5% of debtors.
(f) X and Y decided to share future profits in ratio 3:5.
Prepare Revaluation Account, Partner’s Capital Accounts and prepare Balance
Sheet of the firm after Z’s retirement.
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10. Following is the Balance Sheet of A,B and C who are carrying in a partnership
business and sharing profits and losses in ratio 3:3:2, as on 31st December 2023:
Liabilities Rs Assets Rs
Sundry creditors 8,000 Cash at bank 4,000
Reserve 24,000 Sundry debtors 16,000
Capitals : Stock 20,000
A 40,000 Plant and Machinery 80,000
B 30,000 Patents 8,000
C 20,000 90,000 Building 20,000
Profit and Loss Account 24,000
Employees ‘ Provident Fund 2,000
1,48,000 1,48,000
st
On 1 Jan. 2024, A retired and following terms were agreed upon:
1. Goodwill is to be calculated at two years’ purchase of the average profits in
three years preceding retirement. The profits in year 2021 and 2022 were
Rs.10,000 and 8,000 respectively.
2. Patents are valueless. Plant is to be depreciated by 10%. A provision of 2.5% is
created on debtors.
3. B and C borrow necessary money from the bank to pay off A.
4. The capital of newly constituted firm is fixed at Rs.1,00,000 and capitals of B
and C are to be made proportionate to their new profit sharing ratio.
Pass journal entries in books of the firm on A’s retirement and also show Balance
Sheet of B and C.

11. M,N and P are partners sharing profits and losses in ratio of 3:2:1. Their
Balance Sheet is as follows:
Liabilities Rs Assets Rs
Capitals : Land and Buildings 52,000
M 60,000 Plant and Machinery 60,000
N 40,000 Stock 30,000
P 30,000 1,30,000 Debtors 40,000
Creditors 30,000 Less : provision 1,000 39,000
Bank overdraft 10,000 Cash in hand 1,000
Profit and Loss Account 12,000
1,82,000 1,82,000

N retries on the above Balance Sheet date on the following terms:

a. Land and building are to be revalued at Rs.60,000; provision for bad debts is to
be increased to 5% of debtors.
b. A liability of Rs. 3,000 is to be created for a claim against the firm and plant and
machinery is to be written down to Rs. 50,000.
c. Goodwill of the firm is to be valued at 2 years’ purchase of the average profits of
last 4years, which were Rs.28,000; Rs.32,000; Rs. 26,000 and Rs. 34,000.
d. N is paid Rs. 20,000 immediately (by increasing bank overdraft) and balance is to
be kept in business as loan carrying interest at 9% p.a.
e. The capitals of M and P are to be made proportionate to new profit sharing ratio
and adjustments to be made through current accounts.
Pass necessary ledger accounts to record N’s retirement and also prepare Balance
Sheet of the new firm.

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