DEPARTMENT OF TECHNICAL

EDUCATION ANDHRA PRADESH

Name : J.SATYANARAYANA RAO
Designation : Sr.Lecturer
Branch : Commercial & Computer Practice
Institute : Govt polytechnic for Women Guntur
Year/Semester : IV Semester
Subject : Accountancy –III
Subject Code : CCP-402
Topic : Retirement of Partner
Duration : 50 minutes
Sub Topic : Revaluation of Assets
Teaching Aids : PPT Animation
CCP402.54 1
Objectives

On Completion of this period , you would be

able to know
 Revaluation of Assets and Liabilities
 Adjustments in books of accounts

CCP402.54 2
Revaluation of Assets & Liabilities
 In the course of time, the value of Assets may
increase or decrease
 The Retired Partner held Responsible to share
increase value of Assets if any arising, sharing
loss
by decreasing the value of Assets
 Necessary adjustments in the value of assets and
liabilities should be made through Revaluation
account
 The Result and profit or Loss should be distributed,
including retiring partner,CCP402.54
to their Capital Accounts 3
Example 1:- R&L are partners in a firm sharing profits and
losses as R 3/5th and L 2/5th their Balance
Sheet as on 31ST December, 1984 as given
below
Liabilities Assets

Capitals: Machinery 19,500

R : 20,000 Stock 16,000
L : 15,000 35,000 Debtors 15,000
Reserve 15,000 Cash at Bank 6,000
Sundry Creditors 7,500 Cash in Hand 1,000
57,500 57,500

‘ L’ Decides to retire from the business owing to illness

and ‘R’ takes over the business
CCP402.54 4
The following Revaluations are made:

 Good will of the firm valued at Rs.15,000

 Depreciation machinery by 7-1/2% and stock by
15%
 Bad Debts provision is raised against at 5%

Journalize the above transactions in the books and

give the balance sheet of ‘R’

CCP402.54 5
Solution of Example 1:- Journal

Goodwill A/c Dr 15,000

To R’s Capital A/c 9,000
To L’s Capital A/c 6,000
( Being the goodwill credited to
partner’s Capital account in the
Ratio of 3:2)

Reserve A/c Dr
To L’s Capital A/c 6,000
(Being 2/5th of the reserve credited 6,000
to out going partner l’s Profit & Loss
account)

CCP402.54 6
Profit &Loss Adjustment A/c Dr 4,613
To Machinery A/c 1,463
To Stock A/c 2,400
To Reserve for doubtful debts 750
(Being the loss on revaluation of
assets debited to partners in 3:2
ratio)
R’s Capital A/c Dr 2,768
L’s Capital A/c Dr 1,845
To Profit & loss Adjustment A/c 4,613
( Being the Loss on Revaluation of
Assets Debited to Partners in 3:2
ratio)

CCP402.54 7
L’s Capital A/c Dr. 25,155
To L’s Loans A/c. 25,155
(Being the amount payable to L’s transferred to loan
A/c)

CCP402.54 8
 Profit & Loss Adjustment Account
Dr
Cr
Rs Rs
To Machinery 1,463 By loss
To stock 2,400 (transferred to
To reserve for capital a/c)
bad and doubtful R(4,613*3/5) 2,768
debts 750 C (4,613*2/5) 1,845
4,613 4,613

CCP402.54 9
R’s Capital Account
Dr Cr
Rs. Rs.
To profit & loss By balance b/d 20,000
adjustment a/c By good will 9,000
2,768
To balance c/d 26,232

29,000 29,000

CCP402.54 10
L’s Capital Account

Dr Cr
Rs Rs
To Profit & Loss By balance b/d
Adjustment a/c 1,845 15,000
To L’s By Reserve 6,000
capital a/c 25,155 By Good will 6,000

Total 27,000 Total 27,000

CCP402.54 11
Balance sheet of R
LIABILITIES Rs ASSETS Rs
R’s capital 26,232 Good will 15,000
Reserve Machinery 19,500
(15,000- 6,000) 9,000 Less: Depreciation 1,463 18,037
L’s loan 25,155 Stock 16,000
Sundry 7,500 Less: Depreciation 2,400 13,600
creditors Sundry Debtors 15,000
Less: Reserve for
Doubtful Debts 750 14,250
Cash at Bank 6,000
Cash in hand 1,000

Total: 67,887 Total: 67,887

CCP402.54 12
Example 2:-

Venkat, Raja & Koti are partners of M/S. Venkat

Ramana firm sharing profits and losses in
proportion to their capital amounts. Balance sheet
of their firm as follows:

CCP402.54 13
 Balance Sheet of M/S. Venkata Ramana
firm, as on 31-12-07
Amount Amount
Liabilities Rs. Assets Rs.
Sundry Creditors 2,37,600 Cash at Bank 1,76,000
Capital Account Sundry Debtors
Venkat-9,90,000 2,20,000
Raja -6,60,000 Less: Reserve 4,400 2,15,600
Koti -3,30,000 19,80,000
Stock 1,98,000
Machinery 5,28,000
Land & Buildings 11,00,000
22,17,600 22,17,600

CCP402.54 14
Example 3:-
Raja retires as on the above date and partners
agree that the following adjustments should be
made before ascertaining the amount payable to
the retiring partner
 Out of the amount of insurance charged to the
profit and loss a/c Rs.22,000/- be carried
forward as unexpired insurance
 Land and Building should be depreciated by 10%
 Reserve for doubtful debts should be equal to 5%
on sundry debtors

CCP402.54 15
 Machinery should be depreciated by 10%
 A provision of Rs.11,000 be made in respect
of an outstanding bill for repairs
 Goodwill of the firm be fixed at Rs.3,96,000
and Raja’s share in it be adjusted in to capital
a/c ’s of Venkat, & Koti who are the continuing
partners, to share profits in the proportion of
¾ and ¼ respectively
 Prepare Revaluation of A/c

CCP402.54 16
Solution to Example 3
(Revaluation A/C)
Dr Cr
Particulars Amount Particulars Amount
Rs. Rs.
Land & Buildings 1,10,000 By unexpired 22,000
Reserve for bad debts 6,600 insurance a/c 79,200
Machinery a/c 52,800 By Venkat Capital
a/c
Outstanding Repairs 11,000
a/c By Raja Capital
a/c 52,800
1,80,400
1,80,400 By Koti Capital a/c 26,400

CCP402.54 17
Example 4:-
 Ramananda sharing ½ Profit gave necessary notice
on 31st March,2007 informing his intention to retire
on 30th Sept,2007. His capital account showed a
balance of Rs.2,52,000 and his current account
showed a debit balance of Rs. 21,000 on the date of
retirement. Their firm earned a profit of Rs.1,17,600
in the year ended 31st march,2007.Rs.92,400 in the
year 2004-2005 and Rs.67,200 in the year 2005-2006
 Good Will is 1 times of Avg of last 3 years
1
2

CCP402.54 18
Show the ledger account of Ramananda and
ascertain the amount payable on the date of
retirement as per the partnership deed. Show when
the amount is immediately paid by cash and when
transferred to a loan A/C with recurring interest @
9%P.A.

CCP402.54 19
Solution to E.g.4:

Average Profit of the firm for the 3 completed

proceeding years.
Profit for the year 2004-2005 = 1,17,600
Profit for the year 2005-2006 = 92,400
Profit for the year 2006-2007 = 67,200
Total profit earned in 3 years 2,77,200

Average profit 2,77,200 /3 = 92,400

CCP402.54 20
Profit to the date of retirement:
Period = 1st April,2007 to 30th Sept,2007
6 months = 6/12 = ½
Profit for the six months = Average Profit
2
Rs.92,400 = Rs.46,200
2
Retiring Partner’s share = 46,200 = Rs.23,100
2
Goodwill = 1 ½ times of the average profit of
3 completed years = 3/2 * 92,400 = Rs.1,38,600.
Retiring Partner’s Share = 1,38,600 = Rs.69,300.
2

CCP402.54 21
Ramanand’s Capital A/c
Dr. Cr.
Particulars Amount Particulars Amount
Rs. Rs.

To Ramanand’s By Balance b/d 2,52,000

Current A/C 21,000 By Goodwill A/C 69,300
To Cash (if paid off) 3,23,400 By P&L A/C 23,100
or 9%
Ramananda’s
loan A/C
(It is transferred to
a Loan A/C) Total
3,44,400 3,44,400
Total By Balance b/d
3,23,400
CCP402.54 22
Ramananda’s Current A/C
Dr. Cr.
Particulars Amount Particulars Amount
Rs. Rs.
To Balance b/d 21,000 By Ramananda’s
Capital A/C 21,000
21,000 21,000

CCP402.54 23
Summary
Calculations should be made on
 Retiring partner’s capital on the date of last
balance sheet of the firm
 His share in the profit or loss on revolution of
assets and liabilities
 His share in the accumulated profits of
reserves
 His share in the accumulated losses (if
appeared on the assets side of Balance Sheet)
 His share in profit or loss of the firm from the
date of last Balance Sheet to the date of
retirement
CCP402.54 24
 Interest on capital of the retiring partner from
the date of last Balance Sheet to the date of
retirement
 Treatment of Goodwill
 Adjustment of undistributed profit or losses
 Calculation of gaining ratio

CCP402.54 25
Quiz
(1) Why separate calculations are made at the time
of retirement of a partner

(a) To know the Share of Goodwill

(b) To know the share of undistributed profits
(c) To know the shares of undistributed losses
(d) All of the above

CCP402.54 26
(1) How accumulated Profits or loss Adjusted on the
retirement of a partner?

(a) Entire Profits and Losses Adjusted to

remaining partners
(b) Profits and Losses Adjusted to new Partner

(c) By preparing a Revaluation Account.

a) None of the above

CCP402.54 27
Frequently Asked Questions

(1) What is the mode of payment to a retired partner?

(1) Why assets and Liabilities are valued, when a

partner retires from the business?
(1) How accumulated profits one adjusted on the
retirement of a partner

CCP402.54 28
(1) How accumulated Losses are adjusted among
the Partners?
(1) What are the methods adopted for
distribution of goodwill of a partnership firm
when one of the partner retires?

CCP402.54 29