[Link].

in

Retirement of Partner
Assignment
Q. Questions and Solutions
No
1. A and B are partners in a business sharing profit and losses as A-3/5th and B-2/5th. Their
balance sheet as on 1st January, 20X0 is given below:
Liabilities ₹ Assets ₹
Capital Accounts Plant and Machinery 20,000
A 20,000 Inventories 16,000
B 15,000 35,000 Trade receivables 15,000
Reserve Account 15,000 Balance at Bank 6,000
Trade payables 7,500 Cash in hand 500
57,500 57,500
B retires from the business owing to illness and A takes it over. The following revaluation
was made:
1) The goodwill of the firm is valued at ₹25,000.
2) Depreciate Plant & Machinery by 7.5% and Inventories by 15%.
3) Doubtful debts provision is raised against trade receivables at 5% and a discount
reserve against trade payables at 2%.
Required:
Journalize the above transactions in the books of the firm and close the Partners’ Accounts
as on 1st January 20X0. Give also the opening Balance Sheet of A.
(ICAI SM)
Sol. Journal Entries
20X0 Particulars Dr. (₹) Cr. (₹)
Jan 1. A’s Capital Account Dr. 10,000
To B’s Capital Account 10,000
(The amount of share of goodwill adjusted on B’s retirement)
Reserve Account Dr. 15,000
To A’s Capital Account 9,000
To B’s Capital Account 6,000
(Transfer of reserve to A’s Capital Account and B’s Capital
Account in the profit-sharing ratio)

Profit and Loss Adjustment Account Dr. 4,650

To Plant and Machinery Account 1,500
To Inventory Account 2,400
To Provision for Doubtful Debts Account 750
(Reduction in the values, assets and creation of provision for
doubtful debts as per agreement with B)
Reserve for Discount on Trade payables A/c Dr. 150
To Profit and Loss Adjustment Account 150
(Creation of reserve for discount on trade payables at 2%)
A’s Capital Account Dr. 2,700
B’s Capital Account Dr. 1,800
To Profit and Loss Adjustment Account
4,500
(Transfer of loss on revaluation of assets and liabilities to
Capital Accounts of A and B in the profit-sharing ratio)
B’s Capital Account Dr. 29,200
To B’s Loan Account 29,200
(Transfer of B’s Capital Account to his Loan A/c)

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Balance Sheet of A as on 1st January, 20X0

Liabilities ₹ ₹ Assets ₹ ₹
A’s Capital Account 16,300 Plant and Machinery 18,500

B’s Loan Account 29,200 Inventories 13,600

Trade payables 7,500 Trade receivables 15,000
Less: Reserve for (150) 7,350 Less: Prov. for Bad Debts (750) 14,250
Discount
Balance at Bank 6,000
Cash 500
52,850 52,850
2. F, G and K were partners sharing profits and losses at the [Link] 1. K wants to retire on 31.12.20X0.
Given below is the Balance Sheet of the partnership as well as other information:
Balance Sheet as on 31.12.20X0
Liabilities ₹ Assets ₹
Capital A/cs Sundry Fixed Assets 1,50,000
F 1,20,000 Inventories 50,000
G 80,000 Trade receivables 70,000
K 60,000 (Including Bills Receivable ₹
20,000)
Reserve 10,000 Bank 50,000
Trade payables 50,000
3,20,000 3,20,000

F and G agree to share profits and losses inthe ratio of 3: 2 in future. Value of Goodwill is taken to be ₹
50,000. Sundry Fixed Assets are revalued upward by ₹30,000 and Inventories by ₹10,000. Bills
Receivable dishonoured ₹5,000 on 31.12.20X0 but not recorded in the books. Dishonour of bill
was due to insolvency of the customer. F and G agree to bring sufficient cash to discharge claim
of K and to make their capital proportionate. Also they wanted to maintain ₹75,000 bank balance
for working capital.
Required:
Pass necessary journal entries and draft the Balance Sheet of M/s F & G. Also prepare capital
accounts of partners and draft the Balance Sheet of Ms/ F & G after K’s retirement.
(ICAI SM)
Sol. Journal Entries
Particulars Dr. (₹) Cr. (₹)
1) F’s Capital A/c Dr. 10,000
To K’s Capital A/c 10,000
(Being the adjustment for goodwill on K’s
retirement) - Refer W.N.
2) Reserve A/c Dr. 10,000
To F’s Capital A/c 4,000
To G’s Capital A/c 4,000
To K’s Capital A/c 2,000
(Transfer of Reserve to Partners’ Capital A/cs on K’s
retirement)
3) Sundry Fixed Assets A/c Dr. 30,000
Inventory A/c Dr. 10,000
To Profit and Loss Adjustment A/c 40,000
(Increase in the value of Sundry Fixed Assets and
inventory recorded)
4) Profit and Loss Adjustment A/c Dr. 5,000
To Trade Receivable A/c 5,000
(Loss arising out of dishonoured bill recorded)

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5) Profit and Loss Adjustment A/c Dr. 35,000

To F’s Capital A/c 14,000
To G’s Capital A/c 14,000
To K’s Capital A/c 7,000
(Profit on revaluation transferred to Partners’
Capital A/cs on K’s retirement)
6) Bank A/c Dr. 1,04,000
To F’s Capital A/c 70,000
To G’s Capital A/c 34,000
(Cash brought in by F and G as per agreement)
7) K’s Capital A/c Dr. 79,000
To Bank A/c 79,000
(Payment made to K on retirement)
Working Note:
Adjusting entry for goodwill
Partner Old New Gain Sacrifice
Share Share
2 3 1
F 5 5 5 –
2 2
G 5 5 – –
1 1
K 5 – – 5

Adjusting entry:
₹ ₹
F’s Capital A/c (₹ 50,000 × 1/5) Dr. 10,000
To K’s Capital A/c 10,000

Balance Sheet
(after K’s retirement)
Liabilities ₹ Assets ₹
Capital A/cs: Sundry Fixed Assets 1,80,000
F 1,98,000 Inventories 60,000
G 1,32,000 Trade receivables 65,000
Trade payables 50,000 Bank 75,000
3,80,000 3,80,000

Partners’ Capital Accounts

Particulars F G K Particulars F G K
₹ ₹ ₹ ₹ ₹ ₹

To K’s Capital 10,000 – – By Balance 1,20,000 80,000 60,000

A/c b/d
To Balance 1,28,000 98,000 79,000 By F’s Capital 10,000
c/d A/c
By P & L Adj 14,000 14,000 7,000
A/c
By Reserve 4,000 4,000 2,000
1,38,000 98,000 79,000 1,38,000 98,000 79,000
To Bank – – 79,000 By Balance 1,28,000 98,000 79,000

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b/d
To Balance 1,98,000 1,32,000 – By Bank 70,000 34,000 –
c/d
1,98,000 1,32,000 79,000 1,98,000 1,32,000 79,000

Working Notes:
1) Total Capital ₹
Sundry Fixed Assets (₹ 1,50,000 + ₹30,000) 1,80,000
Inventory (₹50,000 + ₹10,000) 60,000
Trade receivables 65,000
(Including Bill Receivable of ₹15,000)
Bank 75,000
3,80,000
Less: Sundry Creditors (50,000)
3,30,000
F’s share (3,30,000 × 3/5) 1,98,000
G’s share (3,30,000 × 2/5) 1,32,000

2) Bank Account
Particulars ₹ Particulars ₹
To Balance b/d 50,000 By K’s Capital A/c 79,000
To F’s Capital A/c 70,000 By Balance c/d 75,000
To G’s Capital A/c 34,000
1,54,000 1,54,000
3. A, B & C were in partnership sharing profits in the proportions of [Link]. The balance sheet of
the firm as on 31st March, 20X0 was as under:
Liabilities ₹ Assets ₹
Capital accounts: Goodwill 40,000
A 1,35,930 Fixtures 8,200
B 95,120 Inventories 1,57,300
C 61,170 Trade receivables 93,500
Trade payables 41,690 Cash 34,910
3,33,910 3,33,910
A had been suffering from ill-health and gave notice that he wished to retire. An agreement
was, therefore, entered into as on 31st March, 20X0, the terms of which were as follows:
i) The profit and loss account for the year ended 31st March, 20X0 which showed a net
profit of ₹48,000 was to be re-opened. B was to be credited with ₹4,000 as bonus, in
consideration of the extra work which had devolved upon him during the year. The
profit sharing was to be revised from 1st April, 20X0, as [Link].
ii) Goodwill was to be valued at two years’ purchase of the average profits of the
preceding five years. The fixtures were to be valued by an independent valuer. A
provision of 2% was to be made for doubtful debts and the remaining assets were to be
taken at their book values.
The valuations arising out of the above agreement were goodwill ₹56,800 and fixtures ₹10,980.
B and C agreed, as between themselves, to continue the business, sharing profits in the ratio of
3:2 and decided to eliminate goodwill from the balance sheet, to retain the fixtures on the
books at the revised value, and to increase the provision for doubtful debts to 6%.

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Required:
Submit the journal entries necessary to give effect to the above arrangements and to draw up
the capital account of the partners after carrying out all adjusting entries as stated above.
(ICAI SM)
Sol. Journal Entries
Particulars Dr. (₹) Cr. (₹)
A’s Capital Account Dr. 20,000
B’s Capital Account Dr. 16,000
C’s Capital Account Dr. 12,000
To Profit and Loss Adjustment Account 48,000
(Profit written back for making adjustments)
Profit and Loss Adjustment Account Dr. 4,000
To B’s Capital account 4,000
(Bonus Credited to B’s Capital Account)
Profit and Loss Adjustment Account Dr. 44,000
To A’s Capital Account 12,000
To B’s Capital Account 16,000
To C’s Capital Account 16,000
(Distribution of profits in the new ratio)
Fixtures Account Dr. 2,780
To Provision for Doubtful debts Account 1,870
To A’s Capital Account 248
To B’s Capital Account 331
To C’s Capital Account 331
(Revaluation of assets on A’s retirement)
A’s Capital Account Dr. 10,909
B’s Capital Account Dr. 14,545
C’s Capital Account Dr. 14,546
To Goodwill 40,000
(Old goodwill shown in the balance sheet has been
written out)
A’s Capital Account Dr. 1,32,760
To A’s Loan Account 1,32,760
(Transfer of A’s Capital Account to his Loan Account)
B’s Capital Account Dr. 2,244
C’s Capital Account Dr. 1,496
To Provision for Doubtful Debts Account 3,740
(Raising provision for bad debts)
B’s Capital Account Dr. 13,425
C’s Capital Account Dr. 2,066
To A’s Capital Account 15,491
(Adjusting entry of goodwill passed through partners’
capital accounts in gaining/sacrificing ratio)

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Partners’ Capital Accounts

Particulars A B C Particulars A B C
₹ ₹ ₹ ₹ ₹ ₹
To Profit and
Loss
Adjustment A/c 20,000 16,000 12,000 By Balance b/d 1,35,930 95,120 61,170
By Profit and
Loss
To Goodwill 10,909 14,545 14,546 Adjustment – 4,000 –
A/c
To A’s Loan A/c 1,32,760 – –
To Provision for By Profit and
loss
Doubtful Adjustment 12,000 16,000 16,000
A/c
Debts A/c – 2,244 1,496 By Fixtures
Less
To A – 13,425 2,066 provision for
To Balance c/d – 69,237 47,393 DD A/c 248 331 331
By B 13,425
By C 2,066
1,63,669 1,15,451 77,501 1,63,669 1,15,451 77,501

Note: The balance of A’s Capital Account has been transferred to A’s Loan Account.
Working Note:
Calculation for adjustment of Amount of Goodwill
Partner Old Share New Share Gain Sacrifice
A 3 – – 3
11 11

B 4 3 13 –
11 5 55

C 4 2 2
11 5 55 –

4. K, L & M are partners sharing profits and losses in the ratio [Link]. Due to illness, L wanted to retire
from the firm on 31.3.20X0 and admit his son N in his place.
Balance Sheet of K, L and M as on 31.3.20X0
Liabilities ₹ ₹ Assets ₹
Capital: Goodwill 30,000
K 40,000 Furniture 20,000
L 60,000 Trade receivables 50,000
M 30,000 1,30,000 Inventory in Trade 50,000
Reserve 50,000 Cash and Bank Balances 50,000
Trade payables 20,000
2,00,000 2,00,000
On retirement of L assets were revalued: Goodwill ₹50,000, furniture ₹10,000 and Inventory in
trade ₹30,000. 50% of the amount due to L was paid out in cash and the balance was retained in
the firm as capital of N. On admission of the new partner, goodwill has been written out. M is
paid out his extra balance to make capital proportionate.
You are required to give:
i) Necessary journal entries; ii) balance sheet of M/s K, M and N as on 1.4.20X0; iii) capital
accounts of partners. (ICAI SM/Nov.1999)

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Sol.
Journal Entries
Date Particulars Dr. (₹) Cr. (₹)
31.3.20X0 K’s Capital A/c Dr. 15,000
L’s Capital A/c Dr. 9,000
M’s Capital A/c
Dr. 6,000
To Goodwill A/c
30,000
(Being old goodwill of balance sheet written
out)
Profit and Loss Adjustment A/c Dr. 30,000
To Furniture A/c 10,000
To Inventory in Trade A/c 20,000
(Being revaluation of Furniture and
inventory in trade recorded)
K’s Capital A/c Dr. 15,000
L’s Capital A/c Dr. 9,000
M’s Capital A/c
Dr. 6,000
To Profit and Loss Adjustment A/c
30,000
(Being net revaluation loss debited to capital
accounts of K, L and M in the ratio [Link])
Reserve A/c Dr. 50,000
To K’s Capital A/c 25,000
To L’s Capital A/c 15,000
To M’s Capital A/c 10,000
(Being reserve transferred to capital accounts,
K, L and M)
L’s Capital A/c Dr. 72,000
To Cash A/c 36,000
To N’s Capital A/c 36,000
(Being 50% of the amount due to L was paid
out in cash and balance was retained in the
firm as capital of N)
N’s Capital A/c Dr. 15,000
To L’s Capital A/c 15,000
(Being adjusting entry for goodwill passed in
gaining/ sacrificing ratio)
M’s Capital A/c Dr. 14,000
To Bank A/c 14,000
(Being amount paid to M to make his capital
proportionate)

Working Note:
1) Calculation for adjustment of Amount of Goodwill
Partner Old Share New Share Gain Sacrifice
K 5 5 – –
10 10

L 3
– – 3
10 10

M 2 2
10 10
– –

N – 3 3
–
10 10

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2) Calculation of excess capital paid out to M to make capital proportionate

Partner Capital Capital Ratio P/L Excess Capital
Balance (After all Ratio Paid Out
Adjustments)
K 35,000 5 5 –
N 21,000 3 3 –
M 28,000 4 2 28,000
× 2 = 14,000
4

Partners’ Capital Accounts

Particulars K L M N Particulars K L M N
₹ ₹ ₹ ₹ ₹ ₹ ₹ ₹
To Goodwill 15,000 9,000 6,000 - By Balance 40,000 60,000 30,000 -
b/d
To Profit and 15,000 9,000 6,000 By Reserve 25,000 15,000 10,000 -
Loss
Adjustment A/c By L’s - - - 36,000
Capital A/c
By N’s - 15,000 - -
Capital A/c
To Cash A/c - 36,000 - -
To N’s Capital A/c - 36,000 - -
To L’s Capital A/c - - - 15,000
To Bank A/c
(Balancing - - 14,000 -
figure)
To Balance c/d 35,000 - 14,000 21,000
65,000 90,000 40,000 36,000 65,000 90,000 40,000 36,000
By Balance 35,000 – 14,000 21,000
b/d

Balance Sheet of M/s K, M & N

as on 1st April, 20X0
Liabilities ₹ ₹ Assets ₹
Capital Accounts: Furniture 10,000
K 35,000 Trade receivables 50,000
M 14,000 Inventory in Trade 30,000
N 21,000 70,000
Trade payables 20,000

90,000 90,000
5. Dowell & Co. is a partnership firm with partners Mr. A, Mr. B and Mr., C, sharing profits and
losses in the ratio of [Link]. The balance sheet of the firm as at 31st March, 20X0 is as under:
Liabilities ₹ Assets ₹
Capitals: Land 10,000
Mr. A 80,000 Buildings 2,00,000
Mr.B 20,000 Plant and Machinery 1,30,000

Mr. C 30,000 1,30,000 Furniture 43,000

Reserves 20,000 Investments 12,000
(un-appropriated profit)

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Long Term Debt 3,00,000 Inventories 1,30,000

Bank Overdraft 44,000 Trade receivables 1,39,000
Trade payables 1,70,000
6,64,000 6,64,000
It was mutually agreed that Mr. B will retire from partnership and in his place Mr. D will be
admitted as a partner with effect from 1st April, 20X0. For this purpose, the following
adjustments are to be made:

a) Goodwill is to be valued at ₹1 lakh but the same will not appear as an asset in the books
of the reconstituted firm.
b) Buildings and plant and machinery are to be depreciated by 5% and 20% respectively.
Investments are to be taken over by the retiring partner at ₹15,000. Provision of 20%
is to be made on Trade receivables to cover doubtful debts.
c) In the reconstituted firm, the total capital will be ₹2 lakhs which will be contributed by
Mr. A, Mr. C and Mr. D in their new profit-sharing ratio, which is [Link].
i) The surplus funds, if any, will be used for repaying bank overdraft.
ii) The amount due to retiring partner shall be transferred to his loan account.
Required:
Prepare
a) Revaluation account;
b) Partners’ capital accounts;
c) Bank account; and
d) Balance sheet of the reconstituted firm as on 1st April, 20X0.

(ICAI SM/Nov. 2018 RTP/Nov. 2020/May. 2002/ Oct. 2021 RTP)

Sol. Revaluation Account
Particulars ₹ Particulars ₹
To Buildings A/c 10,000 By Investments A/c 3,000
To Plant and Machinery A/c 26,000 By Loss to Partners:

To Provision for Doubtful Debts A/c 27,800

A 30,400
B 18,240
C 12,160 60,800
63,800 63,800

A’s Capital Account

Particulars ₹ Particulars ₹
To Revaluation A/c 30,400 By Balance b/d 80,000
To Balance c/d 80,000 By Reserves A/c 10,000
By C and D’s Capital A/c 10,000
By Bank A/c(Balancing 10,400
figure)
1,10,400 1,10,400

B’s Capital Account

Particulars ₹ Particulars ₹
To Revaluation A/c 18,240 By Balance b/d 20,000
To Investments A/c 15,000 By Reserves A/c 6,000
To B’s Loan A/c 22,760 By C and D’s Capital A/c 30,000

56,000 56,000

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C’s Capital Account

Particulars ₹ Particulars ₹
To Revaluation A/c 12,160 By Balance b/d 30,000
To A and B’s Capital A/c 20,000 By Reserves A/c 4,000
To Balance c/d 80,000 By Bank A/c (balancing 78,160
figure)

1,12,160 1,12,160

D’s Capital Account

Particulars ₹ Particulars ₹
To A and B’s Capital A/cs 20,000 By Bank A/c 60,000
To Balance c/d 40,000
60,000 60,000

Bank Account
Particulars ₹ Particulars ₹
To A’s Capital A/c 10,400 By Bank Overdraft A/c 44,000
To C’s Capital A/c 78,160 By Balance c/d 1,04,560
To D’s Capital A/c 60,000

1,48,560 1,48,560

Balance Sheet of Dowell Co.

as at 1st April, 20X0
Liabilities ₹ Assets ₹
Capital Accounts: Land 10,000
A 80,000 Buildings 1,90,000
C 80,000 Plant and 1,04,000
Machinery
D 40,000 2,00,000 Furniture 43,000
Long Term Debts 3,00,000 Inventories 1,30,000

Trade payables 1,70,000 Trade receivables

1,39,000
B’s Loan Account 22,760 Less: Provision for
Doubtful Debts)
(27,800) 1,11,200
Balance at Bank 1,04,560
6,92,760 6,92,760

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6. M/s X is a partnership firm with the partners A, B and C sharing profits and losses in the ratio of
[Link]. The balance sheet of the firm as on 30th June 20X0, was as under:
Balance Sheet of M/s. X
as on 30.06.20X0

Liabilities ₹ Assets ₹
A’s Capital A/c 1,04,000 Land 1,00,000
B’s Capital A/c 76,000 Building 2,00,000
C’s Capital A/c 1,40,000 Plant and Machinery 3,80,000
Long Term Loan 4,00,000 Investments 22,000
Bank Overdraft 44,000 Inventories 1,16,000
Trade payables 1,93,000 Trade receivables 1,39,000
9,57,000 9,57,000
It was mutually agreed that B will retire from partnership and in his place D will be admitted
as a partner with effect from 1st July, 20X0. For this purpose, the following adjustments are
to be made:
a) Goodwill of the firm is to be valued at ₹2 lakhs due to the firm’s locational advantage but
the same will not appear as an asset in the books of the reconstituted firm.
b) Buildings and plant and machinery are to be valued at 90% and 85% of the respective
balance sheet values. Investments are to be taken over by the retiring partner at
₹25,000. Trade receivables are considered good only up to 90% of balance sheet figure.
Balance be considered bad.
c) In the reconstituted firm, the total capital will be ₹3 lakhs, which will be contributed by A,
C and D in their new profit-sharing ratio, which is [Link].
d) The amount due to retiring partner shall be transferred to his loan account.
Required:
Prepare Revaluation Account and Partners’ Capital Accounts.
(ICAI SM)

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Sol. Revaluation Account

20X0 Particulars ₹ 20X0 Particulars ₹
July 1 To Building 20,000 July 1 By Investments (25,000 3,000
To Plant and 57,000 - 22,000)
Machinery
To Bad Debts 13,900 By Partners’ Capital
A/cs (Loss on
revaluation)
A (3/10) 26,370
B (2/10) 17,580
C (5/10) 43,950 87,900
90,900 90,900

Partners’ Capital Accounts

Particulars A B C D Particulars A B C D
₹ ₹ ₹ ₹ ₹ ₹ ₹ ₹
To Revaluation A/c 26,370 17,580 43,950 – By Balance b/d 1,04,000 76,000 1,40,000 -
To B’s and C’s Capital A/cs – – – 60,000 By D’s Capital A/c (W.N.1) – 40,000 20,000 –
To Investments A/c – 25,000 – – By Bank A/c 12,370 – 3,950 1,50,000
To B’s Loan A/c – 73,420 – –
To Balance c/d (W.N. 2) 90,000 - 1,20,000 90,000
1,16,370 1,16,000 1,63,950 1,50,000 1,16,370 1,16,000 1,63,950 1,50,000

Working Notes:
1) Adjustment of goodwill
Goodwill of the firm is valued at ₹ 2 lakhs
Sacrificing ratio:
A 3/10-3/10 =0
B 2/10-0 = 2/10
C 5/10-4/10 = 1/10
Hence, sacrificing ratio of B and C is 2:1. A has not sacrificed any share in profits after
retirement of B and admission of D in his place.
Adjustment of D’s share of goodwill through existing partners’ capital accounts in the profit
sacrificing ratio:
₹
B: ₹60,000 × 2/3 = 40,000
C: ₹60,000 ×1/3 = 20,000 60,000

2) Capital of partners in the reconstituted firm:

₹
Total capital of the reconstituted firm (given) 3,00,000
A (3/10) 90,000
B (4/10) 1,20,000
C (3/10) 90,000

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7. Red, White and Black shared profits and losses in the ratio of [Link]. They took out a joint life
Policy in 20X0 for ₹50,000, a premium of ₹3,000 being paid annually on 10th June. The surrender
value of the policy on 31st December of various years was as follows: 20X0 nil; 20X1 ₹900; 20X2
₹2,000; 20X3 ₹3,600.
Black retires on 15th April, 20X4.
Required:
Prepare ledger accounts assuming no Joint Life Policy Account is maintained.
(ICAI SM)
Sol. Joint Life Policy Premium Account
Date Particulars ₹ Date Particulars ₹
10.6.X0 To Bank Account 3,000 31.12.X0 By Profit and Loss A/c 3,000
10.6.X1 To Bank Account 3,000 31.12.X1 By Profit and Loss A/c 3,000
10.6.X2 To Bank Account 3,000 31.12.X2 By Profit and Loss A/c 3,000
10.6.X3 To Bank Account 3,000 31.12.X3 By Profit and Loss A/c 3,000

Profit and Loss Account

Date Particulars ₹ Particulars ₹
31.12.20X0 To Joint Life Policy Premium
Account 3,000
31.12.20X1 To Joint Life Policy Premium
Account 3,000
31.12.20X2
To Joint Life Policy Premium
Account 3,000
31.12.20X3
To Joint Life Policy Premium 3,000
Account

Joint Life Policy Account

Date Particulars ₹ Date Particulars ₹
15.04.20X4 To Capital A/cs: 15.04.20X4 By Bank Account 3,600
(Transfer)
Red 5/10 1,800
White 3/10 1,080
Black 2/10 720
3,600 3,600
8. Red, White and Black shared profits and losses in the ratio of 5: 3: 2. They took out a Joint
Life Policy in 20X0 for ₹50,000, a premium of ₹3,000 being paid annually on 10th June. The
surrender value of the policy on 31st December of various years was as follows: 20X4 Nil;
20X5 ₹900: 20X6 ₹2,000; 20X7 ₹3,600.
Black retires on 15th April, 20X8.
Required:
Prepare ledger accounts assuming Joint Life Policy Account is maintained on surrender
value basis.
(ICAI SM)

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Sol. Joint Life Policy Account

Date Particulars ₹ Date Particulars ₹
10.06.20X4 To Bank Account 3,000 31.12.20X4 By Profit and Loss A/c 3,000

10.06.20X5 To Bank Account 3,000 31.12.20X5 By Profit and Loss A/c 2,100
By Balance c/d 900
3,000 3,000
01.01.20X6 To Balance b/d 900 31.12.20X6 By Profit and Loss A/c 1,900
10.06.20X6 To Bank Account 3,000 By Balance c/d 2,000
3,900 3,900
2,000 1,400
01.01.20X7 To Balance b/d 3,000 31.12.20X7 By Profit and Loss A/c 3,600
10.06.20X7 To Bank Account By Balance c/d
5,000 5,000
3,600 3,600
01.01.20X8 To Balance b/d 15.04.20X8 By Bank
3,600 3,600

Profit and Loss Account

Date Particulars ₹ Date Particulars ₹

31.12.20X4 To Joint Life Policy Account

3,000
31.12.20X5 To Joint Life Policy Account
2,100
To Joint Life Policy Account
31.12.20X6
1,900
31.12.20X7 To Joint Life Policy Account
1,400
9. A, B and C are in partnership sharing profits and losses at the ratio of [Link] 2. The balance
sheet of the firm on 31.12.20X5 was as follows:
Balance Sheet
Liabilities ₹ Assets ₹
Capital A/cs: Sundry Fixed Assets 80,000
A 50,000 Inventories 50,000
B 40,000 Trade receivables 30,000
C 30,000 Joint Life Policy 20,000
Bank Loan 40,000 Bank 10,000
Trade payables 30,000
1,90,000 1,90,000
On 1.1.20X6, A wants to retire, B and C agreed to continue at 2:1. Joint Life Policy was taken
on 1.1.20X0 for ₹ 1,00,000 and its surrender value as on 31.12.20X5 was ₹ 25,000. For the
purpose of A’s retirement goodwill was raised for ₹ 1,00,000. Sundry Fixed Assets was
revalued for ₹ 1,10,000. But B and C did not prefer to show such increase in assets in the
Balance Sheet. Also, they agreed to bring necessary cash to discharge 50% of the A’s claim, to
make the bank balance ₹25,000 and to make their capital proportionate.
Required:
Prepare necessary journal entries.
(ICAI SM)

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Sol. Journal Entries

[Link]. Particulars Dr. (₹) Cr. (₹)
1. B’s Capital A/c Dr. 49,500
C’s Capital A/c Dr. 18,000
To A’s Capital A/c 67,500
(Share of revaluation profit ₹ 67,500 including good
will due to A borne by B and C at the gaining ratio 11: 4)
2. A’s Capital A/c Dr. 1,17,500
To A’s Loan A/c 58,750
To Bank A/c 58,750
(Settlement of A’s claim on his retirement by payment
of 50% in case and transferring the balance to his Loan
A/c).
3. Bank A/c Dr. 73,750
To B’s Capital A/c 60,333
To C’s Capital A/c 13,417
(Cash brought in by the continuing partners).

Working Notes:
1) Revaluation Profit ₹
Goodwill 1,00,000
Sundry Fixed Assets 30,000
Joint Life Policy 5,000
1,35,000
A’s Share ₹1,35,000 × 5/10 = ₹67,500

2) Gaining Ratio
B: 2/3 – 3/10 = 11/30
C: 1/3 – 2/10 = 4/30
Gaining Ratio: B: C
11: 4

3) Total Capital ₹
Assets as per Balance Sheet 1,90,000
Additional Bank Balance 15,000
2,05,000
Less: Bank Loan 40,000
Sundry Creditors 30,000
A’s Loan 58,750 (1,28,750)
76,250
B’s Share 80,833
C’s Share 25,417

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10 On 31st March, 20X0, the balance sheet of M/s Ram, Rahul and Rohit sharing profits and
losses in proportion to their capital, stood as follows:
Liabilities ₹ ₹ Assets ₹
Capital accounts: Land & building 2,00,000
Ram 3,00,000 Machinery 2,00,000
Rahul 2,00,000 Closing stock 1,00,000
Rohit 1,00,000 6,00,000 Sundry debtors 2,00,000
Sundry creditors 2,00,000 Cash and bank balances 1,00,000
8,00,000 8,00,000
On 31st March, 20X0, Ram desired to retire from the firm and the remaining partners
decided to carry on. It was agreed to revalue the assets and liabilities on that date on the
following basis: -
1) Land and buildings be appreciated by 30%.
2) Machinery be depreciated by 20%.
3) Closing stock to be valued at ₹80,000.
4) Provision for bad debts be made at 5%.
5) Old credit balances of sundry creditors ₹10,000 be written back.
6) Joint life policy of the partners surrendered and cash obtained ₹60,000.
7) Goodwill of the entire firm be valued at ₹1,80,000 and Ram’s share of the goodwill be
adjusted in the accounts of Rahul and Rohit who share the future profits equally. No
goodwill account being raised.
8) The total capital of the firm is to be the same as before retirement. Individual capital
be in their profit-sharing ratio.
9) Amount due to Ram is to be settled on the following basis: - 50% on retirement and
the balance 50% within one year.
Prepare revaluation account, capital account of partners: Rahul & Rohit, loan account of
Ram, cash account and balance sheet as on 1.4.20X0 of M/s Rahul and Rohit.

[ICAI SM/ May 2018 RTP / Nov. 2020(M)/Nov. 2020 RTP/May 1995/May 1997/Nov.
2006]
Sol Revaluation Account
Particulars ₹ Particulars ₹
To Machinery A/c 40,000 By Land and 60,000
Building A/c
To Closing Stock A/c 20,000
By Sundry Creditors 10,000
A/c
To Provision for Bad Debts 10,000
A/c By Cash and bank A/c 60,000
– joint life policy
surrendered

To Partners’ Capital A/cs:

Ram 30,000
Rahul 20,000
Rohit 10,000 60,000
1,30,000 1,30,000

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Partners’ Capital Accounts

Date Particulars Rahul Rohit Date Particulars Rahul Rohit
₹ ₹ ₹ ₹
31.3.20X0 To Ram’s Capital 30,000 60,000 31.3.20X0 By Balance b/d 2,00,000 1,00,000
A/c
To Balance c/d 3,00,000 3,00,000 By Revaluation A/c 20,000 10,000

By Cash & bank A/c 1,10,000 2,50,000

–cash brought in by
Rahul and Rohit

3,30,000 3,60,000 3,30,000 3,60,000

1.4.2020 By Balance b/d 3,00,000 3,00,000

Ram’s Loan Account

Date Particulars ₹ Date Particulars ₹
31.3.20X0 To Balance c/d 2,10,000 31.3.20X0 By Ram’s Capital A/c 2,10,000

2,10,000 2,10,000
By Balance b/d 2,10,000
1.4.20X0

Cash and Bank Account

Date Particulars ₹ Date Particulars ₹
31.3. 20X0 To Balance b/d 1,00,000 31.3.20X0 By Ram’s capital 2,10,000
A/c
To Revaluation A/c- 60,000 By Balance c/d 3,10,000
joint life policy
surrendered
To Rahul’s Capital A/c 1,10,000
To Rohit’s Capital A/c 2,50,000
5,20,000 5,20,000
1.4.20X0 To Balance b/d 3,10,000

M/s Rahul & Rohit

Balance Sheet as on 1-4-20X0
Liabilities ₹ ₹ Assets ₹ ₹
Capital accounts: Land and buildings 2,60,000
Rahul 3,00,000 Machinery 1,60,000
Rohit 3,00,000 6,00,000 Closing stock 80,000
Ram’s loan account 2,10,000 Sundry debtors 2,00,000
Sundry creditors 1,90,000 Less: Provision for bad debts (10,000) 1,90,000
Cash and bank balances 3,10,000
10,00,000 10,00,000

Working Notes:
1. Gaining ratio of existing partners:
Rahul 1/2-1/3=1/6
Rohit 1/2-1/6=2/6

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2. Total goodwill of firm is ₹1,80,000

Ram’s share (1/2 × ₹1,80,000) =₹90,000
Ram’s share of goodwill is to be borne by Rahul and Rohit in their gaining ratios i.e.
Rahul=1/3 × ₹90,000= ₹30,000
Rohit = 2/3 × ₹90,000=₹60,000
3. Ram’s Capital Account
Date Particulars ₹ Date Particulars ₹
31.3.20X0 To Cash and Bank A/c 2,10,000 31.3.20X0 By Balance b/d 3,00,000
To Ram’s Loan A/c
-Transfer 2,10,000 By Revaluation A/c 30,000
By Rahul’s Capital A/c - 30,000
Goodwill
By Rohit’s Capital 60,000
A/c - Goodwill

4,20,000 4,20,000
11 A, B, C were in partnership sharing profits and losses in the ratio of [Link]. The balance sheet
of the firm as on 31.3.20X4 was as under:
Liabilities ₹ Assets ₹
Capital accounts: Goodwill 40,000
A 1,50,000 Fixtures 30,000
B 1,00,000 Stock 1,70,000
C 50,000 3,00,000 Sundry debtors 90,000
Sundry creditors 40,000 Cash 10,000

3,40,000 3,40,000
A, on account of ill-health, gave notice that he wished to retire from the firm. A retirement agreement
was, therefore, entered as on 31.3.20X4, the terms of which were as follows:
a) The profit and loss account for the year ended 31.3.20X4, which showed a net profit of ₹ 42,000
was to be re-opened. B was to be credited with ₹6,000 as bonus, in consideration of the extra
work, which had devolved upon him during the year. The profit-sharing basis was to be revised
and the revised ratio is to be [Link] as and from 1st April 20X3.
b) Goodwill was to be valued at two years’ purchase of the average profits of five years. Profits for
these five years ending on 31st March were as under:
₹
31.3.20X0 15,000
31.3.20X1 23,000
31.3.20X2 25,000
31.3.20X3 35,000
31.3.20X4 42,000
c) Fixtures are to be valued at ₹ 39,800 and a provision of 2% was to be made for
doubtful debts and the remaining assets were to be taken at their book value.
d) That the amount payable to A shall be paid by B.
B and C agreed, as between themselves, to continue the business, sharing profits and losses
in the ratio of 3:1 and decided to eliminate goodwill from balance sheet, to retain fixtures in
the books at the revised value and increase the provision for doubtful debts to 6 %. Total
capital of the firm will be ₹3 lakhs as before to be maintained in the new ratio as between B
and C.
You are required to give the necessary entries to give effect to the above arrangements.
Prepare capital accounts of partners, cash account and balance sheet of B and C after giving
effect to the above arrangements on the retirement of A.
(ICAI SM/May 1998/ Nov. 2002)

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Sol Journal Entries

S. No. Particulars Dr. Cr.
₹ ₹
1) A’s Capital Account Dr. 21,000
B’s Capital Account Dr. 14,000
C’s Capital Account Dr. 7,000
To Profit and loss adjustment Account 42,000
(Profit written back for making adjustments)

2) Profit and loss adjustment Account Dr. 6,000

To B’s Capital Account 6,000
(Bonus credited to B’s capital Account)
3) Profit and loss adjustment Account Dr. 36,000
To A’s Capital Account 12,000
To B’s Capital Account
To C’s Capital Account
(Distribution of profits in the new ratio)
4) Goodwill Account (56,000 - 40,000) Dr. 16,000
Fixtures Account Dr. 9,800
To Provision for bad debts Account 1,800
To A’s Capital Account 8,000
To B’s Capital Account 12,000
To C’s Capital Account 4,000
(Revaluation of assets on A’s retirement)
5) B’s capital Account Dr. 44,700
C’s capital Account Dr. 14,900
To Goodwill Account 56,000
To Provision for bad debts Account
(Written out goodwill and raising provision for
bad debts)
6) A’s capital Account Dr. 1,49,000
To B’s Capital Account 1,49,000
(Amount payable to A paid by B)

Partners’ Capital Accounts

Particulars A B C Particulars A B C
₹ ₹ ₹ ₹ ₹ ₹
To P & L adjustment A/c 21,000 14,000 7,000 By Balance b/d 1,50,000 1,00,000 50,000
To Goodwill and provision for - 44,700 14,900 By P & L adjustment Account - 6,000 -
bad debts A/c

To B’s Capital A/c 1,49,000 - - By P & L adjustment Account 12,000 18,000 6,000

To Cash A/c - 1,300 - By Goodwill and fixture A/c 8,000 12,000 4,000
To Balance c/d - 2,25,000 75,000 By A’s capital A/c - 1,49,000 -
By Cash A/c 36,900
1,70,000 2,85,000 96,900 1,70,000 2,85,000 96,900

Cash Account

Particulars ₹ Particulars ₹
To Balance b/d 10,000 By B’s capital A/c 1,300
To C’s capital A/c 36,900 By Balance b/d 45,600
46,900 46,900

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Balance Sheet of B and C

as on 31st March, 20X4 (after retirement of A)

Liabilities ₹ ₹ Assets ₹ ₹
Capital Accounts: Fixtures 39,800
B 2,25,000 Stock 1,70,000
C 75,000 3,00,000 Sundry debtors 90,000
Sundry creditors 40,000 Less: Provision for (5,400) 84,600
bad debts
Cash 45,600
3,40,000 3,40,000

Working Notes:
Calculation of goodwill:
1) Average of last five year’s profit
Year ended on Profit
₹
31.3.20X0 15,000
31.3.20X1 23,000
31.3.20X2 25,000
31.3.20X3 35,000
31.3.20X4 42,000
1,40,000
Average Profit (₹1,40,000÷5) 28,000

2) Goodwill at two years’ purchase

₹28,000 × 2=₹56,000
12.
A, B and C are partners sharing profits in the ratio of [Link]. Their Balance Sheet as at 31 st
March, 20X4 stood as:
Liabilities ₹ Assets ₹
Capital Accounts Building 10,00,000
A 8,00,000 Furniture 2,40,000
B 4,20,000 Office Equipment 2,80,000
C 4,00,000 16,20,000 Stock 2,50,000
Sundry Creditors 3,70,000 Sundry debtors 3,00,000
General Reserves 3,60,000 Less: Provision for
Doubtful debts (30,000) 2,70,000
Joint life policy 1,60,000
Cash at Bank 1,50,000
23,50,000 23,50,000
B retired on 1st April 20X4 subject to the following conditions:
i) Office Equipment revalued at ₹ 3,27,000.
ii) Building revalued at ₹ 15,00,000. Furniture is written down by ₹ 40,000 and
Stock is reduced to ₹ 2,00,000.
iii) Provision for Doubtful Debts is to be created @ 5% on Debtors.
iv) Joint Life Policy will appear in the Balance Sheet at surrender value after B's

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retirement. The surrender value is ₹ 1,50,000.

v) Goodwill was to be valued at 3 years purchase of average 4 years profit
which were:

Year ₹
20X0 90,000
20X1 1,40,000
20X2 1,20,000
20X3 1,30,000
vi) Amount due to B is to be transferred to his Loan Account.
Prepare the Revaluation Account, Partners' Capital Accounts and the Balance Sheet
immediately after B's retirement.
(May 2018)
Sol a)
Revaluation Account
Particulars ₹ Particulars ₹
To Furniture A/c 40,000 By Office equipment A/c 47,000
To Stock A/c 50,000 By Building A/c 5,00,000
To Joint life policy 10,000 By Provision for
To Partners’ capital A/cs: doubtful debts 15,000
A 2,31,000

B 1,54,000
C 77,000 4,62,000 _______
5,62,000 5,62,000
Partners’ Capital Accounts
Particulars A B C Particulars A B C
₹ ₹ ₹ ₹ ₹ ₹

To B’s 90,000 – 30,000 By Balance b/d 8,00,000 4,20,000 4,00,000

capital A/c

To B’s 8,14,000 By General Reserve 1,80,000 1,20,000 60,000

loan A/c

To Balance 11,21,000 5,07,000 By Revaluation 2,31,000 1,54,000 77,000

c/d reserve

By A’s capital 90,000

A/c

By C’s capital 30,000

A/c

12,11,000 8,14,000 5,37,000 12,11,000 8,14,000 5,37,000

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Balance Sheet as on 1.4.20X4 (After B’s retirement)

Liabilities ₹ ₹ Assets ₹ ₹
Capital accounts: Building 15,00,000
A 11,21,000 Furniture 2,00,000
C 5,07,000 16,28,000 Office equipment 3,27,000
B’s loan account 8,14,000 Stock 2,00,000
Sundry creditors 3,70,000 Sundry debtors 3,00,000
Less: Provision for
doubtful debts (15,000) 2,85,000
JLP 1,50,000
Cash at bank 1,50,000

28,12,000 28,12,000

Working Notes:
Calculation of goodwill
1. Average of last 4 year’s profit
= (90,000+1,40,000+1,20,000+1,30,000)/4
= ₹ 1,20,000
2. Goodwill at three years’ purchase
= ₹ 1,20,000 x 3 = ₹ 3,60,000
Goodwill adjustment
Share of goodwill Share of goodwill Adjustment
(Old ratio) (New ratio)
A 1,80,000 2,70,000 90,000 (Dr.)
B 1,20,000 - 1,20,000 (Cr.)
C 60,000 90,000 30,000 (Dr.)
13. Antoo, Bantoo and Chintoo were in partnership sharing profits and losses [Link] respectively.
The accounts of the firm are made up to 31st March every year. The Partnership provided,
that: On the retirement of a partner the goodwill was to be valued at three years’ purchase
of average profits of the past four years up to the date of the retirement after deducting
interest @ 12% p.a. on capital employed and remuneration of ₹ 2,000 p.m. to each partner.
On 1st April 20X4, Antoo retired and it was agreed on his retirement to adjust goodwill in the
capital accounts without showing any amount of goodwill in the balance sheet. It was agreed
that the capital employed would be ₹ 6,50,000. Bantoo and Chintoo were to Continue the
partnership, sharing profits and losses equally after the retirement of Antoo. The following
were the amounts of profits of earlier years before charging salary to partners and interest
on capital employed.

Year Profit
20X0-X1 2,60,000
20X1-X2 2,75,000
20X2-X3 2,65,000
20X3-X4 2,80,000

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You are required to compute the value of goodwill and show the adjustment there of in the
books of the firm. (ICAI SM)
Sol.. Valuation of Goodwill;

Average Profit;

20X0-X1 − 2,60,000
20X1-X2 − 2,75,000
20X2-X3 − 2,65,000
20X3-X4 − 2,80,000
Total − 10,80,00
0

− Average Profit = 10,80,000/4 = 270,000

− Less: Interest on capitals @ 12% p.a.(6,50,000*12%) = 78000
− Less: Salaries of partners’ 3 × 12 × 2,000 = 72,000
− Adjusted Average Profit = 1,20,000
− Goodwill = 3 years purchase = 3 × 1,20,000 = 3,60,000
− Antoo’s Share of Goodwill 3/10 i.e., = 1,08,000

Adjustment Journal Entry for Goodwill

Particulars L.F. Dr. (₹) Cr. (₹)

Bantoo’s Capital Account Dr. 36,000
Chintoo’s Capital Account Dr. 72,000
To Antoo’s Capital Account 1,08,000
(Adjusting entry passed for share of goodwill of Antoo
through remaining partners’ capital accounts in gaining
ratio)

Working Notes: -

Partners New Share Old Share Difference

Antoo 0 − 3/10 = −3/10
Bantoo ½ − 4/10 = 1/10
Chintoo 1/2 − 3/10 = 2/10

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14. Satyam, Shivam & Sundaram are partners of M/s. Great Stationers sharing profits and
losses in the ratio of [Link].

On 31st March 20X0 their Balance Sheet was as under;

Liabilities (₹) Assets (₹)

Capitals; Goodwill 60,000

− Satyam 1,95,000 Building 2,50,000
− Shivam 1,48,000 Plant 1,60,000
− Sundaram 1,12,000 4,55,000 Investments 85,000
General Reserve 80,000 Stock 45,280
Loan from Satyam 94,000 Trade Receivables 68,000
Sundry Creditors 75,000 Bank 35,720
7,04,000 7,04,000

On 1st April 20X0 Shivam retired on the following terms: -

1) Goodwill appearing in the Balance Sheet on 31st March, 20X0 as it was purchased
goodwill is to be revalued at ₹ 1,20,000 but the same will not appear as an asset in the
books of the reconstituted firm.
2) Building is to be appreciated by 20% and Plant is to be depreciate by 10%.
3) Investments are to be taken over by the Satyam in full settlement of his loan.
4) Provision of 5% is to be made on Trade receivables to cover doubtful debts.
5) In the reconstituted firm, the total capital will be ₹ 3,00,000/- which will be
contributed by Satyam and Sundaram in their new profit-sharing ratio, which is 3:2.
6) The amount due to retiring partner shall be transferred to his loan account.

You are required to given Journal entries to record above adjustments and also prepare
Balance Sheet thereafter.
Sol. In the books of Satyam Shivam & Sundaram
Journal Entries

Particulars L.F. Dr. (₹) Cr. (₹)

Dr. 80,000
General Reserve A/c
To Satyam Capital A/c 20,000
To Shivam Capital A/c 20,000
To Sundaram Capital A/c 40,000

(Being General reserve distributed among old

partners.)
Satyam Capital A/c Dr. 15,000

Shivam Capital A/c Dr. 15,000

Sundaram Capital A/c Dr. 30,000

To Goodwill A/c 60,000

(Being old goodwill written off)

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Dr. 42,000
Satyam Capital A/c
To Sundaram Capital A/c 12,000
To Shivam Capital A/c 30,000

(Being adjustment entry for goodwill passed)

Dr. 50,000
Building A/c
To Revaluation A/c 50,000

(Being Building appreciated)

Dr. 94,000
Satyam loan A/c
To Revaluation A/c 9,000
To Investment A/c 85,000

(Being investment taken over by Satyam)

Dr. 19,400
Revaluation A/c
To Plant 16,000
To RDD 3,400

(Being Assets revalued)

Revaluation A/c Dr. 39,600

To Satyam Capital A/c 9,900

To Shivam Capital A/c 9,900
To Sundaram Capital A/c 19,800

(Being profit on Revaluation distributed)

Dr. 1,92,900
Shivam Capital A/c
To Shivam loan A/c 1,92,900

(Being amount payable to Shivam transferred

to his loan A/c)
Dr. 33,800
Sundaram Capital A/c
To Bank A/c 33,800
(Being Capital accounts adjusted in PSR)

Bank A/c Dr. 12,100

To Satyam Capital A/c 12,100
(Being capital accounts adjusted in PSR)

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Balance Sheet as on 1st April 20X0

Liabilities (₹) Assets (₹)

Capitals; Building 3,00,000
− Satyam 1,80,000 Plant 1,44,000
− Sundaram 1,20,000 3,00,000 Stock 45,280
Shivam loan A/c 1,92,900 Trade Receivable 68,000
Sundry Creditors 75,000 Less RDD 3,400 64,600
Bank 14,020
5,67,900 5,67,900

Working Notes: -

Revaluation A/c

Particulars (₹) Particulars (₹)

RDD 3,400 Building 50,000
Plant 16,000 Investments 9,000
Revaluation profit
− Satyam 9,900
− Shivam 9,900
− Sundaram 19,800 39,600
59,000 59,000

Bank A/c

Particulars (₹) Particulars (₹)

Balance b/d 35,720
Satyam capital 12,100 Sundaram Capital 33,800
Balance c/d 14,020
47,820 47,820

Partners’ Capital A/c

Particulars Satyam Shivam Sundaram Particular Satyam Shivam Sundaram

s
Goodwill 15,000 15,000 30,000 Balance b/d 1,95,000 1,48,000 1,12,000

Shivam and 42,000 Satyam 30,000 12,000

Sundaram
General 20,000 20,000 40,000
Reserve
Shivam 1,92,900 Revaluation 9,900 9,900 19,800
loan A/c
bank 33,800 Bank 12,100

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balance c/d 1,80,000 1,20,000

2,37,000 2,07,900 1,71,800 2,37,000 2,07,900 1,83,800

Partner Old Share New Share Sacrifice Share

Satyam ¼ − 3/5 = (7/20)
Shivam 1/4 − ---- = 5/20
Sundaram 2/4 − 3/5 = 2/20
15. Rama, Krishna and Raghu shared profits and losses in the ratio of [Link]. They took out a Joint
Life Policy in 20X0 for ₹50,000, a premium of ₹3,000 being paid annually on 10th June. The
surrender value of the policy on 31st December of various years was as follows:
20X0 Nil
-
20X1 ₹900
-
20X2 ₹2,000
-
20X3 ₹3,600
-

Rama retired on 15th April 20X4 and the policy was surrendered.
You are required to prepare Joint Life Policy Account from 20X0 to 20X3 (assuming the
Policy Account is maintained at surrendered value basis).
(July 2021)
Sol. Joint Life Policy Account
Date Particulars ₹ Date Particulars ₹
To Bank A/c 3,000 By Profit and 3,000
Loss A/c

To Bank A/c 3,000 By Profit and 2,100

Loss A/c
By Balance c/d 900
3,000 3,000
To Balance c/d 900 By Profit and 1,900
Loss A/c
To Bank A/c 3,000 By Balance c/d 2,000
3,900 3,900
To Balance c/d 2,000 By Profit and 1,400
To Bank A/c 3,000 Loss A/c
By Balance c/d 3,600

5,000 5,000
To Balance c/d 3,600 By Bank A/c 3,600

3,600 3,600

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