NCERT Solutions for Class 12 Accountancy Chapter 3: Download in PDF

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Related:

CBSE Class 12 Accountancy Syllabus 2023-24 (PDF)

CBSE Class 12 Accountancy Sample Paper 2023-24 (PDF)

 

NCERT Solutions for Class 12 Accountancy Chapter 3 are presented below:

 Short Answer Questions:

 1.What are the different ways in which a partner can retire from the firm.

Ans.  Different ways in which a partner can retire from the firm are:

a.By consent of all partners- A partner can retire if all of his/her co-partners give in their consent about his/her retirement. A partner must take consent from his/her co-partners prior to his/her retirement.

b.By signing the express agreement- A partner can retire from the firm if it so mentioned in the partnership deed/agreement by expressing his/her intention of retirement, through a notice to co-partners.

c.By giving a written notice-When partnership among partners is through will, a partner can retire by writing a notice to co-partners and informing them about his/her intentions of retirements.

 

2.Write the various matters that need adjustments at the time of retirement of a partners.

Ans. Retirement of partner brings the need of adjustment in various matters listed below:

a.Treatment of goodwill;

b.Revaluation of assets and liabilities;

c.Adjustment in respect of unrecorded assets and liabilities;

d.Distribution of accumulated profits and losses;

e.Ascertainment of share of profit or loss up to the date of retirement/death;

f.Adjustment of capital, if required;

g.Settlement of the amounts due to retired/deceased partner

h.Ascertainment of new profit sharing ratio and gaining ratio

 

3.Distinguish between sacrificing ratio and gaining tab.

Ans. Gaining ratio can be defined as the ratio of share acquired by co-partners on retirement/death of a partner. On the other hand, sacrificing ratio is the ratio of profit sacrificed/surrendered by existing partner in case of admission of a new partner. In gaining ratio, partner’s share of profit is in surplus while in sacrificing ratio, the partner’s share of profit is in loss. Gaining ratio is calculated by subtracting old share from new share and sacrificing ratio can be calculated by subtracting new profit sharing ratio by old profit sharing ratio. Mathematically, it can be written down as:

 Gaining ratio = New share - old share

Sacrificing ratio= New profit sharing ratio - Old profit sharing ratio

Gaining ratio is calculated when the new profit sharing ratio of the continuing partners is specified and sacrificing ratio is calculated when there is a new admission in the partnership firm and amount of goodwill brought by new partner is transferred among the old partners.

 

4.Why do firm revaluate assets and reassures their liabilities on retirement or on the event of death of a partner .

Ans. After retirement or death of a partner it becomes essential to revaluate assets and liabilities to know about the actual worth of the company. The revaluation is done till the date of retirement/registered date of death of the partner, which means current date has to be taken. During this time period, some assets and liabilities might have gone unrecorded, there might have been an increase or decrease in the value of those assets and liabilities. Since all these changes are important for a firm to keep its book updated, it is essential to revaluate assets and liabilities whenever possible. Revaluation can have either positive or negative impact on a firm. Therefore, it is significant to keep a check on true worth of assets/liabilities of a firm.

 

5.Why a retiring/deceased partner is entitled to a share of goodwill of the firm.

Ans. Goodwill of a company is brought by experience, struggle, connections, efforts of every partner in the firm. Thus, a retiring/deceased partner is entitled to a share of goodwill of the firm to compensate for the merit and reputation brought in by the partner(s) together for the firm. After retirement/ death of a partner all the merits are shared by the existing/old partner’s and to respect the contribution made by the partner who left the partnership, a share from goodwill is entitled to him/her.

Long Answer Questions

 1.Explain the modes of payment to a retiring partner.

Ans. After the retirement of a partner, a sum has to be transferred or given to the retiring partner. The following mode of payments are used:

• When retiring partner is paid cash in full.

Retiring Partners’ Capital A/c                Dr.

To Cash/Bank A/c

 

• When retiring partners’ whole amount is treated as loan.

Retiring Partners’ Capital A/c                   Dr.

To Retiring Partners’ Loan A/c

 

• When retiring partner is partly paid in cash and the remaining amount treated as loan.

Retiring Partners’ Capital A/c                 Dr. (Total Amount due)

To Cash/Bank A/c                                           (Amount Paid)

To Retiring Partners’ Loan A/c                (Amount of Loan)

 

• When Loan account is settled by paying in instalment includes principal and interest.

     a) For interest on loan

         Interest A/c                                                             Dr.

        To Retiring Partner’s Loan A/c

 

     b) For payment of instalment

         Retiring Partner’s Loan A/c                           Dr.

          To Cash/Bank A/

 

2.How will you compute the amount payable to a deceased partner?

Ans. The accounting treatment in this case is similar to that of retirement of a partner. The only difference that arises is that in case of death of a partner his claim is transferred to his executors. The amount payable to the deceased partner is prepared by dividing the amount that is to be credited and debited. In case of a partner, his claim shall also include his share of profit or loss, interest on capital, interest on drawings (if any) from the date of the last Balance Sheet to the date of his death of these.

Following credits are made into the deceased partner account.

(i)credit balance of his capital account;

(ii) credit balance of his current account (if any);

(iii) his share of goodwill;

(iv) his share of accumulated profits (reserves);

(v) his share in the gain of revaluation of assets

and liabilities;

(vi) his share of profits up to the date of death;

(vii) interest on his capital, if involved, up to the date of death; and

(viii) salary/commission, if any, due to him up to the date of death.

And following debits are made from deceased partner’s account, if deductions are necessary:

(i) debit balance of his current account (if any);

(ii) his share of goodwill to be written off, if necessary;

(iii) his share of accumulated losses;

(iv) his share of loss on revaluation of assets and liabilities;

(v) his share of loss up to the date of death;

(vi) his drawings up to the date of death;

(vii) interest on drawings, if involved, up to the date of death

Since, it is considered cumbersome to close the books and prepare final account, for the period between last update and date of death of the person, the deceased partner’s share of profit may be calculated on the basis of last year’s profit (or average of past few years) or on the basis of sales.

 

3.Explain the treatment of goodwill at the time of retirement or on the event of death of a partner?

Ans. A retiring partner or a deceased partner is entitled to goodwill under any of the mentioned situations, because goodwill is brought by efforts of the existing partners and should be compensated by the old partners to the retiring/deceased partner. Therefore, during the incident or occasion as per the case maybe, goodwill is  valued on the basis of agreement or mutual consent. In both of these situations, the accounting treatment depends on whether the goodwill appears in the books of firm or not.

a.When goodwill does not appear in the books:

When goodwill does not appear in the books of the firm, credit is given to the retiring partner for the share in goodwill by debiting the goodwill account to gaining partners capital accounts (individually) in their gaining ratio. Journal entry in this case is passed as:

Gaining Partners Capital A/c                         Dr. (Individually)

To Retiring/Deceased Partners Capital A/c

(Share in goodwill of retiring partner adjusted)

b.When goodwill appears in the books of firm

Step 1:The first step in this case is to write off the goodwill and then distribute the amount in mutually agreed profit sharing ratio. In this case, journal entry would be passed as:

All Partner’s Capital A/c                   Dr

To Goodwill A/c

(Goodwill written off among partners)

Step 2: Adjust goodwill using partner’s capital account with the share of goodwill of the deceased/retiring partner. The journal entry would be stated as:

Remaining Partner’s Capital A/c                  Dr

(partner’s capital account debited and retiring/deceased partners account credited)

 

4.Discuss the various methods of computing the share in profits in the event of death of a partner.

Ans. New profit sharing ratio can be defined as the ratio would be used in future for distribution of profits, post retirement or death of a partner. In this case, the existing partners share a profit ratio which exists already, i.e the profit gained by them on the basis of old sharing ratio and in addition, they get a surplus acquired by the retirement/death of a partner. The partner’s share of profit can be calculated on the basis of two methods: By last year’s profit or by sales.

a.On time basis- In this method of calculation, profit earned till the time of partner’s death is taken on the basis of average profit earned in last few years. It is assumed that profit would remain uniform throughout the year, hence he deceased partner is eligible for share of profit till his date of death. Mathematically, it can be calculated as

Share of deceased partner in profit =

(Previous year / Average profit)x (time period from date of balance till death/12 months/ 52 weeks/ 365 days) x profit share of deceased partner

                                                                       

b.On the basis of sales- In this method calculation is done on the basis of previous year’s sales and it is assumed that net profit margin would remain same as that of last year. Mathematically, it is calculated as:

Share of deceased partner in profit =

(Previous year’s profit/Previous year’s sales) x Sales from beginning of current year till date of death x share of deceased partner

To find NCERT Solutions for Class 12 Accountancy Chapter 3: Reconstitution of a partnership firm- Retirement or death of a partner, click on the link below.

Download NCERT Solutions for Class 12 Accountancy Chapter 3

Also Read:

CBSE Class 12 Syllabus 2023-24 (All Subjects)

CBSE Class 12 Sample Papers 2023-24 (All Subjects)

NCERT Books for Class 12 (All Subjects)

NCERT Solutions for Class 12 (All Subjects)