CBSE Class 12 Accountancy sample paper 2023-24: question 24(b)
From the official CBSE sample question paper for 2023-24, section A, question 24(b), for 6 marks. Try it first; the hints and our step-by-step solution are below.
Q24(b) · 6 marks · Long answerReconstitution of a Partnership Firm – Retirement/Death of a Partner
L, M and N were partners in a firm sharing profit & losses in the ratio of 2:2:3. On 31st March 2023, their Balance Sheet was as follows:
| Liabilities | Amount(₹) | Assets | Amount(₹) |
|---|---|---|---|
| Creditors | 80,000 | Land and Building | 5,00,000 |
| Bank overdraft | 22,000 | Machinery | 2,50,000 |
| Long term debts | 2,00,000 | Furniture | 3,50,000 |
| Capital A/Cs: L-6,25,000; M-4,00,000; N-5,25,000 | 15,50,000 | Investments | 1,00,000 |
| Employees provident fund | 38,000 | Stock | 4,00,000 |
| Debtors | 2,00,000 | ||
| Bank | 20,000 | ||
| Deferred Advertisement Expenditure | 70,000 | ||
| 18,90,000 | 18,90,000 |
On 31st March 2023, M retired from the firm and remaining partners decided to carry on business. It was decided to revalue assets and liabilities as under:
a) Land and Building be appreciated by ₹2,40,000 and Machinery be depreciated 10%.
b) 50% of investments were taken by the retiring partner at book value.
c) Provision for doubtful debts was to be made at 5% on debtors.
d) Stock will be valued at market price which is ₹1,00,000 less than the book value.
e) Goodwill of the firm be valued at ₹5,60,000. L and N decided to share future profits and losses in the ratio of 2:3.
f) The total capital of the new firm will be ₹32,00,000 which will be in proportion of profit-sharing ratio of L and N.
g) Gain on revaluation account amounted to ₹1,05,000.
Prepare Partner's Capital accounts and Balance sheet of firm after M's retirement.
Source: official sample paper from cbseacademic.nic.in (PDF). See it in the full Sample paper 2023-24.
Hints
Open one hint at a time and try again before the next.
Hint 1
Deferred advertisement expenditure is written off to all partners in the old ratio.
Hint 2
L and N compensate M for goodwill in their gaining ratio.
Hint 3
New capitals are set by the new ratio; the bank figure balances each account.
Step-by-step solution
Each step shows the marks it earns, as an examiner would award them. Checked by an independent re-solve from the question paper.
- 1 mark
Workings. Revaluation gain ₹ 1,05,000 (L&B +2,40,000, machinery −25,000, provision −10,000, stock −1,00,000) shared 2 : 2 : 3 = ₹ 30,000, ₹ 30,000, ₹ 45,000. Deferred advertisement ₹ 70,000 written off 2 : 2 : 3. M's goodwill share = 5,60,000 × 2/7 = ₹ 1,60,000. Gains: L 2/5 − 2/7 = 4/35, N 3/5 − 3/7 = 6/35 (ratio 2 : 3), so L pays ₹ 64,000 and N ₹ 96,000. New capitals: L 2/5 × 32,00,000 = ₹ 12,80,000; N ₹ 19,20,000.
- 2½ marks
Partners' Capital Accounts
Particulars L (₹) M (₹) N (₹) Particulars L (₹) M (₹) N (₹) To Deferred Advertisement Exp. A/c 20,000 20,000 30,000 By Balance b/d 6,25,000 4,00,000 5,25,000 To Investments A/c 50,000 By Revaluation A/c 30,000 30,000 45,000 To M's Capital A/c 64,000 96,000 By L's Capital A/c 64,000 To M's Loan A/c 5,20,000 By N's Capital A/c 96,000 To Balance c/d 12,80,000 19,20,000 By Bank A/c (balancing figure) 7,09,000 14,76,000 13,64,000 5,90,000 20,46,000 13,64,000 5,90,000 20,46,000 - 2½ marks
Balance Sheet as at 31st March, 2023 (after M's retirement). Bank = 20,000 + 7,09,000 + 14,76,000 = ₹ 22,05,000.
Liabilities ₹ Assets ₹ Creditors 80,000 Land and Building 7,40,000 Bank Overdraft 22,000 Machinery 2,25,000 Long-term Debts 2,00,000 Furniture 3,50,000 Capital: L 12,80,000 Investments 50,000 Capital: N 19,20,000 Stock 3,00,000 Employees' Provident Fund 38,000 Debtors 2,00,000 less provision 10,000 1,90,000 M's Loan 5,20,000 Bank 22,05,000 40,60,000 40,60,000
Answer: M's Loan ₹ 5,20,000; L brings ₹ 7,09,000 and N ₹ 14,76,000; capitals L ₹ 12,80,000, N ₹ 19,20,000; Balance Sheet total ₹ 40,60,000
Where the marks are
- Workings for revaluation, goodwill and new capitals (1 mark)
- Partners' capital accounts (2½ marks)
- Balance Sheet ₹ 40,60,000 (2½ marks)
Revise the chapter
- Chapter: Reconstitution of a Partnership Firm – Retirement/Death of a Partner (notes, formulas, where marks are lost and every past question)
- Topic: Goodwill on Retirement or Death of a Partner
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