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Monday, 19 December 2011
Saturday, 9 July 2011
Thursday, 7 July 2011
Disco Lights Javascript
Color Changing JavaScript Copy The Below JavaScript code in Notepad and save the file with .html extension. And You are Done. Open The file with browser and see the magic.
<!DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Strict//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-strict.dtd">
<html lang="en" xml:lang="en" xmlns="http://www.w3.org/1999/xhtml">
<head>
<title>Animated Transparent PNG Bubbles in JavaScript</title>
<style type="text/css">
html, body {
background: #000;
color: #FFF;
height: 100%;
}
body {
margin: 0;
overflow: hidden;
padding: 0;
position: relative;
}
table {
border-collapse: collapse;
border-spacing: 0;
empty-cells: show;
height: 100%;
width: 100%;
}
p, address {
background: rgba(0, 0, 0, 0.25);
font-family: Georgia;
font-style: normal;
margin: 0;
padding: 5px;
position: absolute;
}
p {
left: 5px;
max-width: 50%;
top: 5px;
}
address {
bottom: 5px;
right: 5px;
text-align: right;
}
td {
/* border: 1px solid #000; */
min-height: 0;
}
td img {
border: 0;
display:block;
height: 100%;
width: 100%;
image-rendering: optimizeSpeed; /* Firefox 3.6 */
-ms-interpolation-mode: nearest-neighbor; /* IE 7+ */
}
a{color:#FFF;}
a:hover{color:#06F;}
</style>
</head>
<body>
<script type="text/javascript">
var gridWidth = 3, gridHeight = 2;
var cellCount = gridWidth * gridHeight;
var w = Math.ceil(100 / gridWidth);
var h = Math.ceil(100 / gridHeight);
document.write('<table border="0" cellpadding="0" cellspacing="0">');
for (var r = 0; r < gridHeight; r++)
{
document.write("<tr>");
for (var c = 0; c < gridWidth; c++)
{
document.write('<td style="width:' + w + '%;height:' + h + '%"><img src="disco-floor.png"></td>');
}
document.write("</tr>");
}
document.write("</table>");
var elements = document.getElementsByTagName("TD");
var cells = new Array(elements.length);
// Copy the element collection into an array because it is faster
for (var i = 0; i < cells.length; i++)
{
cells[i] = elements[i];
}
function colorFromHue(hue)
{
var ramp = [255, 255 - Math.round(hue % 1 * 255), 0, 0, Math.round(hue % 1 * 255), 255];
var i = Math.floor(hue % 6);
return "rgb(" +
ramp[ i ] + "," +
ramp[(i + 4) % 6] + "," +
ramp[(i + 2) % 6] + ")";
}
var discoFloorHue = 0;
function animate()
{
for (var i = cellCount; i--; )
{
//var i = Math.floor(Math.random() * cellCount);
cells[i].style.backgroundColor = colorFromHue(discoFloorHue + Math.random() * 2);
}
discoFloorHue = (discoFloorHue + 0.5) % 6;
window.setTimeout(animate, 1000 / 2);
}
animate();
</script>
<p>The idea was to create a nice full screen animation with very low CPU usage.
Firefox calculates the cell height a bit different.
<a href="#" onclick="this.parentNode.style.display='none';return false">Hide this text</a>.</p>
</body>
</html>
Color Changing On Text On Image JavaScript
Color Changing JavaScript Copy The Below JavaScript code in Notepad and save the file with .html extension. And You are Done. Open The file with browser and see the magic.
<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01
Transitional//EN"
"http://www.w3.org/TR/html4/loose.dtd">
<html lang="de">
<head>
<title>CSS2 Crosshairs Effect - Table Column and
Row Hover for CSS2 Browsers</title>
<style type="text/css">
body{
font-family:Georgia;
}
h1{
margin-top:0;
}
address{
font-style:normal;
text-align:right;
}
td:hover{
background:#F0F;
}
tr:hover{
background:#F00;
}
col:hover{
background:#00F;
}
.col2{
background:#FF0;
}
</style>
</head>
<body>
<h1>CSS 2 Crosshairs Effect</h1>
<p>Table Column and Row Hover for CSS2
Browsers</p>
<p>Uses <code><col></code> and
<code>col:hover</code> to hover
the columns. Although this is CSS2, it
does not work with actual
browsers (but will in the future).</p>
<table border="1" cellspacing="0"
width="100%">
<colgroup>
<col class="col1" />
<col class="col2" />
<col class="col3" />
<col class="col4" />
<col class="col5" />
</colgroup>
<tr>
<td>Some Table Data</td>
<td>Some Table Data</td>
<td>Some Table Data</td>
<td>Some Table Data</td>
<td>Some Table Data</td>
</tr>
<tr>
<td>Some Table Data</td>
<td>Some Table Data</td>
<td>Some Table Data</td>
<td>Some Table Data</td>
<td>Some Table Data</td>
</tr>
<tr>
<td>Some Table Data</td>
<td>Some Table Data</td>
<td>Some Table Data</td>
<td>Some Table Data</td>
<td>Some Table Data</td>
</tr>
<tr>
<td>Some Table Data</td>
<td>Some Table Data</td>
<td>Some Table Data</td>
<td>Some Table Data</td>
<td>Some Table Data</td>
</tr>
<tr>
<td>Some Table Data</td>
<td>Some Table Data</td>
<td>Some Table Data</td>
<td>Some Table Data</td>
<td>Some Table Data</td>
</tr>
</table>
<p>Tested with:</p>
<ul>
<li>Mozilla 1.6, Firefox 0.8 (but does
not hover the column)</li>
<li>Opera 7.5 (but does not hover the
column)</li>
<li>Does <em>not</em> work with
Internet Explorer 5.0, 6.0</li>
</ul>
</body>
</html>
Color Changing JavaScript
Color Changing JavaScript
Copy The Below JavaScript code in Notepad and save the file with .html extension. And You are Done. Open The file with browser and see the magic.
<html>
<head>
<title>Color Changing JavaScript</title>
</head>
<body id="x" onload="i=setInterval('x.bgColor=i++',9)">
</body>
</html>
Wednesday, 6 July 2011
How to Get Paid Writing Articles for the Web
Have you ever thought of spending the whole day or a couple of hours browsing and writing online, and then smiling to the bank afterwards? Well, writing for the web is one of the best ways to work flexibly online and earn payments for the job you do. You can write a couple of articles in your spare time and earn some cool money afterwards. So, my aim in this post is to tell you some of the best ways to make money online, writing articles for the web. After you read this, you should be on your way to getting started.
First, let me allay any fears you may have about writing. Writing articles for the web is great because it does not take much effort, even if you are not an expert. The average word limit used online is hardly more than 500 words. So, even if you are a slow writer, it won't take you more than an hour to get an article written.
Now, you can make money writing articles for the web in two ways - freelance writing and article marketing. Both are great, but you can choose which one works best for you and suits your lifestyle the most.
In freelance writing, you write an article for someone and get paid. There are many websites you can get writing tasks from. For example, Helium, Associated Content, Elance, Scriptlance, Freelancer and others. There are also other sites that pay you based on a revenue sharing method. You can as well make extra money from this site too each month, depending on how significant you write.
Secondly, you can make money through article marketing. Writing articles for the web in this way requires that you get paid for recommending products or services. For example, if you are an affiliate marketer selling phones for a company, you write about phones and post a link to the site where the individual can purchase the phone. If they end up buying the product, then you get paid a commission for the product. There are many websites that can help you make up to 75% in commission depending on the volume of sales made through your referral article.
These are just two great ways to make money writing articles for the web. There are so many other means to make money writing for the web. So, it is up to you to define where your passion lies. So, which of these two ways of writing do you prefer? I want to see your comments.
First, let me allay any fears you may have about writing. Writing articles for the web is great because it does not take much effort, even if you are not an expert. The average word limit used online is hardly more than 500 words. So, even if you are a slow writer, it won't take you more than an hour to get an article written.
Now, you can make money writing articles for the web in two ways - freelance writing and article marketing. Both are great, but you can choose which one works best for you and suits your lifestyle the most.
In freelance writing, you write an article for someone and get paid. There are many websites you can get writing tasks from. For example, Helium, Associated Content, Elance, Scriptlance, Freelancer and others. There are also other sites that pay you based on a revenue sharing method. You can as well make extra money from this site too each month, depending on how significant you write.
Secondly, you can make money through article marketing. Writing articles for the web in this way requires that you get paid for recommending products or services. For example, if you are an affiliate marketer selling phones for a company, you write about phones and post a link to the site where the individual can purchase the phone. If they end up buying the product, then you get paid a commission for the product. There are many websites that can help you make up to 75% in commission depending on the volume of sales made through your referral article.
These are just two great ways to make money writing articles for the web. There are so many other means to make money writing for the web. So, it is up to you to define where your passion lies. So, which of these two ways of writing do you prefer? I want to see your comments.
Wednesday, 29 June 2011
BUSINESS COMMUNICATION
UNIT I BUSINESS COMMUNICATION
UNIT STRUCTURE
1:0 Introduction
1:1 Meaning
1:2 Objectives of communication
1:3 Communication Process
1:4 Channels or Types of Communication.
1:5 Barriers to Communication
1:6 Essentials of Effective Business letter
1:7 The Layout and Design of a Business Letter
1:8 Kinds of Business Letters
SELF- ASSESSMENT QUESTIONS: I
1:9 Summary
Unit Questions
Recommendations for further readings
Answers of Self-Assessment Questions
UNIT - I
BUSINESS COMMUNICATION
1:0 INTRODUCTION
The word “Communication” is derived from the Latin
word “communico” which means “To share”. It is the act of
sharing or imparting a share of anything. In its vital sense, it
means a sharing of ideas and feelings in a mood of mutual
understanding. It is a two-way process in which a speaker
must have a listener to share the experience.
Communication is the tool with which we exercise
influence on others, bring about changes in the attitudes and
views of our associates, motivate them and establish and
maintain relations with them. Without communication there
would not be any interaction between persons. Hence, there
cannot be a Government or society without
communication.
The ability of communication depends upon the
advancement of the society he lives. Among human beings,
the more civilized and advance groups have higher communication
ability than the less advanced groups. It is
found that about 75% of the effective hours of a man is being
spent on communication i.e., speaking, writing, listening, reading
etc.
1:1 Meaning
Communication is the act of influencing and inducing
others to interpret an idea in the manner intended by the
speaker or writer. Communication is an exchange of facts,
ideas, opinions or emotions by two or more persons. It is the
process by which information is transmitted between
individuals and/or organisations so that an understanding
response results. We shall now see some of the important
definitions given by eminent authorities on the subject.
Definition
Definition of W.H.Newman and C.F.Summer Jr
“Communication is a exchange of facts, ideas, opinions or
emotions by two or more persons”.
Definition of Fred G.Meyer.
According to Fred G.Meyer, “Communication is the
intercourse by words, letters or messages, intercourse of
thoughts or opinions. It is the act of making one’s ideas and
opinions known to others.
1:2 Objectives of communication
Communication is a process through which different
persons are connected to each other in such a manner to
achieve a common objective. Without communication, group
activity is impossible. It helps the members to co-ordinate
with each other, exchange their ideas and thereby to make
progress.
1. Information:
One of the important objectives of communication is
passing or receiving information about a particular fact or
circumstance. Every organisation whether a small or large, a
complex or a simple require information which is required to
be communicated. Top-level management personnel require
complete, accurate and precise information to plan and
organise. Employees become very efficient and responsible
if they know well about the various aspects of an
enterprise. It can be done either through spoken or written
language or by using any other system of signs. Information
required for daily work can be given orally. If large groups
have to be informed, a meeting may be called.
Information that are required for the organisation are
normally obtained from the sources like old files, personal
observation, Radio, TV, Cinema, Newspapers, Periodicals,
Pamphlets, Government publications, Chambers of
Commerce, meetings, seminars and conferences, personal
interviews with people, questionnaire and trade fairs and
exhibitions.
2. Advice:
Advice is also a kind of information. It means opinion
given as to the action to be taken. Advice is normally given to
a person either to influence his opinion or his behaviour. It
may prove helpful, but it may also lead to disaster. So to make
advice effective, while offering advice, the adviser should keep
the following points in mind:
1. Advice should be related to aspecific piece of
work.
2. It should meet the needs of the recipient.
3. It should not make the recipient to feel inferior.
4. The adviser should make the recipient to feel that
he is being advised for his own betterment.
3. Order:
Order is an authoritative communication. Orders are
absolutely necessary for any organisation irrespective of its
nature and size. It a directive to somebody, normally a
subordinate, to do something, to alter the course of something
he has already done, or not to do something. An order to be
effective-
1. Should be clear and complete,
2. Should be given in a friendly manner,
3. Its execution should be possible.
4. Suggestion:
The term suggestion means proposing something for
acceptance or rejection. Communication is used to convey
suggestion or ideas. This is being constantly done in all human
groups. Someone or the other is making suggestions and other
react to them . This happens in any social group like a family,
office, factory, State, Nation etc. Effective communication
promotes the acceptance and trial of good suggestions.
Subordinates normally give suggestions. This is because, they
are the one’s who are actually involved in the work and have
a better understanding of the shortcomings and can make
useful suggestions for improvements. That is why, in big
concerns suggestions are collected at regular intervals by
means of a suggestion box. Such suggestions are known as
upward communication.
5. Persuasion:
Including, compelling or promoting a person to act
mostly in a positive way is known as persuasion. Persuasion
is an important objective of communication. Management
try to persuade their workers to put in their best effort; sellers
persuade their customers to buy etc. It takes place through
some kind of communication. Persuasion is more easily done
by a person who-enjoys respect and confidence of those
whom he wishes to persuade. However, if persuasion is to be
effective, they must not be conscious of being persuaded.
6. Education:
Education involves imparting instruction, character
building, enriching mental faculties, giving training to human
beings etc. It aims at widening the knowledge and
improving skills. It is carried on at various levels of
management namely, top level, employees’ level and at the
level of outside public. Employees are trained essentially by
communication. All education takes place by means of
communication.
7. Warning:
Warning is a forceful means of communication. It may
be given orally or in writing. Very often, we come across
notices like “No smoking”, “Beware of dogs’, ‘Danger’ etc.
These are some warnings or cautions. In offices and factories,
higher officials give warnings to their subordinates, by
issue of memos.
8. Motivation:
Inspiring the interest in their job in the minds of the
employees in known as motivation. If the people are
adequately motivated, they will have high morale and this will
be low if the level of motivation is low. Low morale is the
basic cause for indiscipline. Motivation determines the
behaviour of a person to a greater extent. In motivation,
employees are motivated in such a manner to work willingly
and eagerly. A motivated worker does not need much
supervision.
9. Counseling:
Counseling is done by a man of greater skill or
knowledge on some specific subject and he offers his counsel
without any personal interest. Companies, which are interested
in their employees’ welfare, have centres to counsel their
employees. It is very much similar to giving advice. However,
there are some differences between the two also. They arei)
Counseling is objective and impersonal,
whereas advice is personal touch.
ii) Counsel is almost professional, whereas
advice is not so, and
iii). Counsel is eagerly sought, whereas advice
is very often unwelcome.
10. Morale Boosting:
Morale is the term usually applied to armed forces
during war time and to sports and athletic teams. It refers to
team spirit and co-operation of people for a common purpose.
Its importance has been realised by the management only
recently. The management feels that if the morale is high,
production would be higher and on the other hand if it were
low, the production would also be low. It is already stated
that motivation and morale are inter-connected and dependant
on each other. If the workers are highly motivated, morale is
also said to be high. On the other hand, if the degree of
motivation is low, the morale is also said to be low.
11. Appreciation:
Praising of initiative, good effort and work by
employees is known as appreciation. It is very useful for
creating a good attitude. It may be conveyed orally or in
writing. If given publicity, it will have better effect.
1:3 COMMUNICATION PROCESS
Communication is a process whereby one person or one
group conveys some information to another person or to
another social group. Communication is a social process for
exchanging information and establishing understanding
between two or more parties. Conceptually, communication
is seen as a two-way process by which people communicate
with one another. The sender, who creates a message designed
to elicit a specific response from the receiver, initiates
communication. The receiver interprets the message according
to his own understanding and sends a message back to the
sender. If the purpose of the sender and the response of the
receiver are inconsistent, the communication process will fail,
and the sender may wish to initiate the process again with
some modifications to the message. Thus, the nature of
communication is considered as a continuous, inter-personal
process.
As shown in the following figure, the sender of the
communication starts with and idea to be shared with the
receiver. Using a set of encoding skills, the sender translates
the idea into a transmittable message. Employing encoding
skills, the receiver converts the idea into a feedback message
to the sender. The sender now uses decoding skills to translate
the feedback and compares that with the original idea. The
sender determines whether the message was properly received
and understood. Often, understanding is not achieved and the
sender must try again. The communication process often
breaks down because the process is replete with barriers to
communication.
1:4 CHANNELS OR TYPES OF COMMUNICATION.
Types of communication can be discussed under the
following two broad heads.
1. On the basis of organisational structure:
1. Formal Communication, and
2. Informal Communication.
2. On the basis of media used:
1. Written Communication, and
2. Oral Communication
1. Organisational Structure
On the basis of organisational structure,
communication can be further classified into two namely,
1. Formal Communication, and
2. Informal Communication
We shall now describe them briefly.
1. Formal Communication:
Formal communication takes place via formal channels
of the organisational structure established by the management.
These channels are deliberately created for regulating the
communication flow and to link various parts of the
organisation. They are helpful for performing functions like
planning, decision-making, co-ordination and control. In a
formal communication system, matters with regard to who
should communicate, what, when and how to be
communicated and to whom to be communicated are all clearly
defined. The formal organisation chart describes the formal
lines of authority, power, responsibility and accountability
of organisational members. All these relationships involve
communication. Formal communications are in writing. There
are three forms of formal communication namely
1. Downward,
2. Upward, and
3. Horizontal.
1. Downward Communication:
Communication is said to be downward when it moves
from the top to the bottom. Downward channels are used for
passing on managerial decisions, plans, policies and
programmes to subordinates down the line for their
understanding and implementation. Downward
communications are used by the superiors to convey their
orders, instructions and directions to their subordinates.
In the words of D.Katz and R.L.Kahn, the purpose of
downward communication are to-
1. Give job instructions.
2. Create an understanding of the work and
its relations with other tasks.
3. Inform about procedures.
4. I n f o r m s u b o r d i n a t e s a b o u t t h e i r
performance.
5. I n d o c t r i n a t e t h e w o r k e r s t o
organisational goals.
However, downward communication suffers from
certain drawbacks. They are..
1. It develops an authoritative atmosphere
that might be detrimental to morale.
2. As information passes through the
various levels of hierarchy, it might be
distorted, misinterpreted etc.,
2. Upward Communication:
Communication is said to be upward when it flows from
the subordinates to the top management. Upward
communication is used by subordinates for transmitting
information, ideas, views and requests to their superiors on
matters relating to their jobs, responsibilities etc.,. Upward
communications are also used to convey views, suggestions,
grievances and problems of subordinates to their superiors.
It enables the subordinates to communicate to the superiors
the progress of the work and response to the work assigned to
them. Upward communication may be oral or written. It also
enables the management to know he extent to which the subordinates
understand the policies and programmes of the organisation.
3. Horizontal Communication:
Communication is horizontal when it flows between
individuals at the same operational level i.e.,. between two
departmental heads. The purpose of the horizontal
communication is to enable managers and others of the same
rank to interact on important matters, to exchange information
and co-ordinate their activities without referring all
matters to the top level management
2. Informal Communication
Informal Communication is free from all the formalities
of formal communication. It is based on the informal
relationship among the members of the organisation. Informal
communication is usually oral and may be conveyed by a
simple gesture, glance, nod or smile. The informal relationship
that supplements the formal organisational relationship is
referred to as the ‘grapevine’. According to H.Koontz and
O’Donnel,
“the grapevine, of course, thrives on information not
openly available to the entire group, whether because it is
regarded as confidential, or because formal lines of communication
are inadequate to disperse it, or because it is of
the kind that would never be formally disclosed”.
Informal communications are made by members of the
organisation to transfer information both on the matters of
task related and non-task related. These communications are
free from any trappings of authority and status differentials.
Informal communications often serve as supplement to formal
communications. Managers and others may sometimes pass
on information informally which they would not like to
transfer formally for strategic and practical reasons.
II. Media Used:
On the basis of media used, communication can be
classified into four namely
1. Oral communication
2. Written Communication
3. Non-verbal Communication and
4. Audio-Visual Communication
1. Oral Communication
Oral communication refers to face to face
communication. It offers interchange of ideas at the personnel
level. There can be questions and answers . The sender and
receiver of the message are in direct contact. If the listener does
not understand the message, he can ask for a clarification or
raise questions and get the answers. If matters are to be conveyed
within an organisation, oral communication is considered as the
best as well as the cheapest method of communication.
Especially, it is of vital importance in handling difficult or
complicated situations.
Merits of Oral Communication
Merits of oral communication are as follows:
1. It is economical when compared to written
communication.
2. It is more flexible and can be effectively
combined with gesture and other expressions.
3. It is more effective on account of direct
contact between the communicator and
communicatee.
4. It leads to better understanding because
response to the message can be obtained on
the spot, and doubts, clarifications etc. Can
also be removed quickly.
5. It is faster and saves time.
Demerits of Oral Communication
Oral communication has certain demerits. They are:
1. It is not suitable in cases where the message
is long and complicated, when the audience
is large and when there is no need for
interaction.
2. It does not provide any record for future
reference.
3. It is time consuming and costly.
4. It cannot be used as a communication media
where people scattered over a wide area.
5. It can be irritating and wasteful when the
persons involved are poor in talking skills.
2. Written Communication
Written communication, on the other hand, is very wide
in its scope and covers entire paper work relating to all kinds of
transactions, agreements, proposals etc,. Infact, the main work
of any office is written communication. Written communication
though has a place inside the organisation, it is of paramount
importance in conveying messages to the external world. Though
modern devices such as telephone etc. have lessened the
dependence on writing, it still serves as the main channel for all
the business transactions. This is because, a written communication
can carry assurance of transactions, confirm the dealing
and form a reliable record for future reference. Besides, it is
the cheapest method of contacting the external world. Hence,
it saves money as well as time. Moreover, people place more
reliance in pen than in the tongue.
Merits of Written Communication:
There are certain obvious advantages in written
communication.
1. Letters or written communications can be kept
as a legal record.
2. They can be retained for purpose of future
reference.
3. They are formulated more carefully than oral
communication.
4. They can save money and time.
5. The written communication is used for all
practical purposes in every organisation.
Limitations of Written Communication:
A written communication, though has many points to its
credit, is not an unmixed blessing. It too has certain definite
limitations. It is not suitable under all circumstances. The
following are the situations in which a written communication
is unsuitable.
1. Complicated Matters:
Complicated or difficult matters cannot be handled
through written communication.
2. Confidential Matters :
Confidential matters cannot be reduced to writing
3. Instructions and Clarifications:
Instructions to a subordinate cab be best given orally
than in writhing. If the subordinate seeks any clarification,
he can get it at once.
4. Assessing the Reaction:
The reaction of the receiver can be best assessed only in a
face to face communication.
5. For Expressing the Feelings:
When two persons are talking, many matters can be said
expressly. But many matters are left unsaid or said by
implication i.e. understood. This is impossible through a written
communication.
3. Non-verbal Communication
All the communication that occurs in between the people
in an organisation may not be spoken, heard, written or read. In
other words, all the communication is not verbal. Some may be
non-verbal i. e. unwritten and unspoken. The most 5 important
aspect in communication is “to hear what is n’t being said”.
Sometimes , the non-verbal message also helps in carrying a
verbal message. E.g. smiling while greeting your colleague.
Mostly, non-verbal messages are spontaneous. However, it does
not mean that they are less important. Then on-verbal communication
includes the pitch and tone of the voices, body
movement, physical appearance, time, touch, space and territory.
The common types of non-verbal communication in business
are detailed as shown below.
1.Body Movement:
Body movement as a media of communication can be
discussed under three heads namely,
(i) Facial expression,
(ii) Gestures, and
(iii) Body stance.
i) Facial Expression:
Successful communicators use facial expression as a very
effective media of communication. The most expressive part of
human body is face-especially eyes. Eye contact and eye
movements tell a lot about a person. Hence, normally receiver
of oral communication give much attention to facial expression
while receiving the message. This is because it will give a lot
of information about the inner feelings of the communicatee,
which can’t be understood otherwise. However, if a subordinate
committed a serious mistake , executive may show anger on his
face. If this is the case the subordinates may feel very bad and
act indifferently. So most of the executives now -a - days learnt
to scold the subordinate with a feeling of concern for him. This
type of approach motivates the subordinates to improve their
work performance.
ii) Gestures:
Gesture is a motion of the body or limbs. It is an action
intended to express the idea of feeling or to enforce an argument.
Gesture includes hand and upper body movements. They
provide a lot of important information to face- to - face
conversations. They are used to reinforce your verbal message.
iii) Body stance:
Body stance is another form of non-other communication.
It includes posture of standing, placement of arms and legs,
distribution of weight etc. By seeing the standing position of a
person, one can understand whether he is interested in the talk
or feel very bore etc. For example, leaning slightly towards the
communicator would be taken as a sign of interest and
involvement in the talk, whereas leaning back might be taken as
a sign of boredom.
2. Physical Appearance:
Physical appearance of a person is important for creating
a good impression. This is because attractive people tend to be
seen as more intelligent and more likeable than unattractive
people are. So they can earn more. One can not change all of
his physical features. Some are changeable and others not.
However, understanding the importance of physical appearance
can help any body to emphasise their strong points.
One’s clothing, Jewellery, furnishings at home and office
provide information about their value, taste, status, age etc.
Hence, we should give due weightage to these aspects also to
get a good appearance.
3. Voice Qualities:
No one speaks in single tone i.e. in an unvaried pitch of
the voice. Voice qualities include volume, speed, pitch, tone,
and accent. They carry both intentional as well as unintentional
messages.
Based on the pitch of the voice, the circumstance when it
was conveyed etc., same sentence might carry different meanings.
For e. g. while answering the question who was late? Say you
were late, the emphasis is given to the word “you” i.e. the
answer here is you for the question who was late? Whereas while
responding to the other person’s denial of being late say you
were late, emphasis is given to “were”. However ,while stressing
how late the person was, say you were late emphasis is given
to the word “late”.
4. Space and Territory:
Different types of communication occur at different
distances. Competent communicators determine their own
personal space needs and those of others. They make the
necessary adjustments to facilitate achieving his objective while
communicating with people who prefer more or less space.
Edward T. Hall in his work, “The Hidden Dimension” has
stated that the psychologists have identified four zones within
which people interact.
i) Intimate Zone:
Intimate zone extends from physical contact to about 18
inches where all your body movements occur. This is the area
in which you move throughout the day. It is an area normally
reserved for close, intimate interactions. Business associates
typically enter this space infrequently and only briefly perhaps
to shake hands or pat someone on the back
ii) Personal Zone:
This Zone, extending from 18 inches to about 4 feet, is
where conversation with close friends and colleagues takes place.
Unlike inter action in the intimate zone, normal talking is the
frequent in the personal zone. Some, but not a great deal of,
business interaction occurs here. For example, business launches
typically occur in this zone.
.
iii) Social Zone:
Social zone extends from 4 feet to 12 feet. This is the
zone where most business exchanges occur. Informal business
conferences and staff meetings occur within this space.
iv) Public Zone :
The public zone extends from 12 feet to as far as the eye
can see and the ear can hear. This is the most formal zone, and
the least significant interactions occur here. Because of the great
distance, communication in the public zone is often one way, as
from a speaker to a large audience.
4. Audio- visual communication
Audio-visual communication uses the methods that
are seen and heard. It makes use of short films, slides, video
tapes, telecasts etc. Examples are small advertisement films, or
documentary films related to social issues etc. Screened just
before the main picture.
Audio-visual communication combines both sight and
sound to attract the attention of the communicatee. If it is of
only visual communication, people may just casually look at it
and forget afterwards. But if audio is also combined with visual
aids, the message conveyed will be retained much longer than
through other media. It is most suitable for mass publicity, propaganda
and mass education.
1:5 BARRIERS TO COMMUNICATION
Communications fail due to various reasons.
Sometimes, subordinates may not be receptive. Sometimes,
the superiors lack in their expression. Besides, some other
barriers may also come into operation. The various barriers to
communication can be discussed as below.
1. Perception:
An individual’s view of reality is known as perception.
Two individuals do not see things exactly alike. People differ
greatly in the way they perceive things and events. Even a single
individual has different perceptual styles depending on time and
circumstances.
Hodgetts say that, “the sender’s meaning and the
receiver’s interaction are not always identical, but it is not
necessary that they be so”. This is the basic barrier to
communication.
2. Semantic or Language Barriers:
Language serves as the basis for the communication. It is
the medium through which views are conveyed. Sender should
select the words and construct the sentences carefully. Words
that are used to convey messages have several meanings. The
sender selects the words as per his own frame of reference and
which he thinks will convey the meaning he proposes to
communicate. On the other hand, the receiver reads or listens to
the message and interprets it within his own frame of reference.
As people vary in their experience, knowledge of the language
etc., there is a possibility of semantic distortions. Thus, semantic
difficulties come in the way of clear understanding.
3. Perfunctory Attention:
If receiver pays very little attention to the message,
communication in the sense of transfer of information and
understanding will fail. When the employee is pre-occupied with
a number of problems, sender faces such problem. In this case,
employee should be made to keep away his problems and listen
to the message. If this is not done, he cannot proceed the
communication further.
4. Status:
One of the basic barriers to communication arises due to
status relationship that exits in every organisation. The superior
subordinate relationships in the organisational structure inhabit
free movement of information and understanding, exchange of
ideas, views etc.. Generally those who receive communication
judge the sender and naturally sender’s status has its own weight.
For e.g., any communication received from the management is
viewed as troublesome by trade unions; any message from
workers will be discounted by management etc.
5. Resistance to Change:
Generally, people resist changes. Resistance to changes
will be strong when the proposed change is great. Managers
should take all possible steps to overcome such resistance to
change. One method of overcoming resistance is explaining
the subordinates as to how they will be benefited by such changes.
6. Organisational Structure:
Effective communication depends greatly sound
organisational structure. If the organisational policies, rules and
procedures are not clear, smooth flow of communication cannot
be ensured. If the organisational structure has several layers of
management, it may result in delay and distortion in
communication. Lack of facilities that ensures effective
communication is another barrier that comes in the way of clear
understanding.
7. Premature Evaluation:
Premature evaluation refers to a tendency of forming a
judgement before listening to the message fully. Premature
evaluation misrepresents the message. Thus, it acts as a barrier
to effective communication.
8. Emotional Attitude:
Emotional attitude of the parties involved in the exchange
of information is another barrier to effective communication.
When an individual is emotional, he may not be able to know
the frame of mind of other person.
9. Failure to communicate:
Failure to communicate is a pervasive barrier to
communication. The communicator may be lazy or it may be
assumed that everything is known to all. Sometimes, failure to
communicate may also arise from an intention to embarrass the
receiver or from complexes like superiority, inferiority or due
to status difference, Communication also has no impact on those
who are not willing to listen / read the message.
10. Other Barriers:
Other barriers include faulty translation, badly expressed
messages, loss by transmission, lack of attention, unclarified
assumption, inadequate adjustment period and communication
distrust.
1:6 ESSENTIALS OF EFFECTIVE BUSINESS LETTER
All type of business letter must confirm to certain well
recognised principles and should possess certain essential
qualities. Business letters devoid of universally accepted
requisites will prove ineffective.
The essential of a business letter can be analysed under
the following heads.
(i) The structure of a business letter.
The structure of a business letter refers to the proper
arrangement of the various parts or the different elements of
a business letter. To give the letter the right look and to ensure
clarity and convenience, the letter should consist of the following
components.
1. The Heading.
2. The Date.
3. The Inside Address.
4. The Salutation.
5. The Body of the letter.
6. The complimentary Close.
7. The Signature.
Each of these part has a definite place and position in
all business letters.
1. The Heading
Almost all business firms use printed letterheads for their
correspondence. Generally, the name and the address are
printed on the top of the letterhead but it frequently gives
other particulars such as the description of business, the telephone
number, the telegraphic address, the telex number, Fax
number, E-mail address etc. The letterhead of the large concern
may give the addresses of its branches and that of a branch
may give the address of its head office. To give a balanced
appearance to the letter, nearly one fifth of the total space
should normally be used for the heading .
2. The date
This gives the date of the month and the year. It appears
on the right hand side of the letterhead about five spaces below
the heading. Some letterheads contain a printed line
indicating where the date should be typed. In England, the
usual method of indicating the date is to state it in original
numbers such as Ist March 2000. In U.S.A., it is usual to state
the numbers of month before the date in cardinal numbers
e.g. March 1, 2000. Some people omit the comma after the
date and the full stop after the year, but it is generally
considered correct to use them.
The practice of writing the date as 1-3-2008 or 1/3/2008
should be avoided because it would give rise to errors,
particularly in foreign correspondence. For example, in U.S.A.
1/3/2008 would been January 3rd, 2008 while in England and
in other Common Wealth Countries it would mean as 1st
March 2008.
3. The Inside Address
This gives the name and full address of the person, firm
or company to whom the letter is written. It is one of the
essential ingredients of the physical make up of the business
letter. It is generally typed two lines below the date line and
above the salutation on the left-hand margin of the letterhead.
Importance of Inside Address
The typing of inside address is highly useful in many
ways. They are:
1. This will provide the despatch clerk all the
particulars that are necessary for writing
the address on the envelope.
2. If window type envelops are used, the inside
address is a must.
3. Since it is also imprinted on the office copy
of the letter, it will be easy to identify the
number and the nature of the letters sent out
to specified parties.
4. The Salutation
The salutation is the similar to greeting like ‘good
morning”, “good day”, “good afternoon” etc. used by us in
social life. It is written about three spaces below the inside
address.
The form of salutation depends on the personal relation
between the writer and the address as well as upon the letter’s
rank or position.
The following are the usual forms used in business letters.
Sir, Dear Sir, Dear Sirs, Gentlemen, Dear Mr. Raveen,
Madam, Mesdames etc.
5. The Body of The Letter
This is the most important part of the letter. The ultimate
object of a business letter is to convey a message. The body
of the letter contains the principal message to be conveyed to
the other party. Hence the other parts, though necessary, are
only subordinates to the body of the letter. It is no exaggeration
to say that the whole of this book deals with the writing of the
body of different types of letters. Therefore, the writer should
take utmost care to set out the matter clearly. The matter
should be properly arranged and presented in a logical manner.
In this connection, Mr.L.Gartside suggests the
following points which the reader should always bear in his
mind.
1. Write simply, clearly, politely, grammatically
and to the point.
2. Paragraph correctly confining each
paragraph to one topic.
3. Avoid stereo typed phrases and commercials.
6. The Complementary Close or Subscription
The complementary close is merely a courteous leave
taking. In other words, it is merely a polite way of ending a
letter. It is like the salutation, conventional in form and
meaning. A letter without a close or an appropriate close is
vulgar and ineffective.
The complementary close is written three spaces below
the last line of the body of the letter and just above the
signature.
7. The signature
The signature follows immediately after the
complementary close. It is usually written in black ink.
Facsimiles can be used only in case of circular letters.
Since the letter binds the signatory, the signature has
assumed great importance. A person may sign in different
letters in different capacities. Therefore, the signatory
should clearly indicate the capacity in which he signs. For
instance, if the person signs in his individual capacity, his
signature does not bid the firm.
If he signs as a representative of the firm, he is not
personally liable. Therefore, care should be taken while
signing the letter.
1:7 THE LAY-OUT AND DESIGN OF A BUSINESS
LETTER
The overall arrangement and appearance of the different
parts of a letter is called its lay-out. It refers to the
arrangement of the various parts of a finished letter and to the
neatness and spacing of the written matter.
With the advent of computers in almost all offices, the
computer itself does the job of a suitable format and alignment
proportionate to the matter therein were the conventional layout
refers to-
(i) Arrangement of a letter proper on paper.
The arrangement of the typed area on the sheet of paper
should look good. As a rule, the body of the letter is expected
to start two spaces below the salutation and end two spaces
above complimentary close. The body should be aligned on
the right hand side with the first line of the inside address of
the person to whom the letter is written.
(ii) Margins.
The right hand and left hand margins should be of nearly
equal width, even though the former may be a little wider
than the latter. The margin should not be less than an inch
wide, in any case. However, an inch and a half is generally
preferred. The margins on the sides should be about 2/3rd as
wide as those at the top and the bottom in order to see that the
letter looks well spaced.
(iii) Spacing.
It is better to use single spacing between the lines, with
double spacing between the paragraphs. However, if the letter
is short, double-spacing may be used throughout, with the
first line of each paragraph indented to indicate the necessary
divisions.
(iv) Forms of Indentions.
We come across four ways in which letters are typed
and indented. (a) Block or straight edged form; (b) Indented
or stepped-inform; (c) Semi-blocked or combination form; (d)
Hanging indention form. Of these the first three are more
popular than the last.
(a) Block or Straight-Edged Form
It is the most popular form used at present. Indention
is avoided. The introductory address, salutation and body
paragraphs are aligned right from between the paragraphs
which are indented.
This is the most symmetic form. It saves time for the
typist as there is no need to shift the carriage of the typewriter
too often.
(b) Semi-Block or Combination Form
This form of lay-out is combination of the Block and
Indented forms. The heading and the inside address are in
Block form while the initial line of each paragraph of the text
is indented five to ten spaces. This enables to identify clearly
the separated paragraphs of the letter.
Both these forms are usually accompanied by open
punctuation, i.e., no terminal marks punctuate the lines of the
heading and those of the inside address.
(c) Indented or Stepped-in Form
Here the lines of the inside address and the opening
line of each paragraph begin a few spaces away from the
margin. The lines of the inside address are indented five
spaces to the right of the first letter of the preceding line above.
Close punctuation is adopted in this form. There is a mark of
punctuation for each line of the inside address.
The full-stops are marked at the end of the last line of the
letter-head and the inside address. The intervening lines of
both are followed by commas.
(d) Hanging Indention Form
In this form the inside address and the salutation are
typed in BlockForm. The first-line of each paragraph in the
body of the letter commences right at the left-hand margin
but the subsequent lines are indented five or more spaces.
Single spacing is used between the lines with double spacing
between the paragraphs. This form is not much used.
However, it is favoured in sales letters to draw the attention
of the customers. It is suitable for letters of a very informal
character that can stand novelty.
1:8 KINDS OF BUSINESS LETTERS
In every business concern, Letters have to be
drafted and sent to the customers on various occasions.
Therefore, business letters depending on the occasion in which
they are sent can be classified as under;
1. Letters of inquiry seeking information about the
required grades and replies.
2. Offers and acceptance.
3. Orders and their execution
4. Credit and status enquiry
5. Claims and adjustments.
6. Collection letters.
7. Circular letters.
8. Sales letters.
9. Banking correspondence
10. Insurance correspondence
11. Export and import correspondence
12. Agency correspondence
13. Transport correspondence
14. Secretarial correspondence
15. Correspondence with the Government
16. Public relations letters.
The above classification is purely a matter of convenience.
The techniques of drafting these letters will be
discussed in subsequent chapters.
SELF- ASSESSMENT QUESTIONS
Answer the following questions
1. Communication is an exchange of __________ by two
or more persons.
2 Face - to - face Communication becomes more effective
if accompanied with appropriate body language.
True / False
3. Match the following
1.Written communication - a. accurate
2. Oral communication - b. Permanent record
3. Information must be - c. Immediate feed back
1:9 SUMMARY
Communication is a process whereby one person or one
group conveys some information to another person or to
another social group. Formal communication takes place via
formal channels of the organisational structure established
by the management. Informal Communication is free from all
the formalities of formal communication. Communications fail
due to various reasons is called barriers to communication. The
essential of a business letter is to be analyses throughly in the
end portion of this chpater.
UNIT QUESTIONS
1. Define communication.
2. What are the objectives of communication?
3. What are the process of Business Communication?
4. Name the various methods of business communication.
5. What are the advantages and disadvantages of oral,
written communication?
6. State the main barriers to communication.
7. Is communication essential to business?
8. List out the kinds of business letters.
9. Explain the layout of good Business letter.
10. Explain the various essential of a good business letter.
RECOMMENDATION FOR FURTHER READINGS
1. Business communication - M.S. Ramesh,
CC.Palkan shethi,
Madhumati,
2. Business communication
& Customer Relations - Dr. C. B. Gupta
3. Business communication - Kathiresan & P.R. Radha
4. Essentials of Business
communication - Rajendra pal,
J.S.Korcahalli
ANSWERS OF SELF- ASSESSMENTS QUESTIONS:
1. Facts, ideas, opinions, or emotions.
2. True
3. 1-b, 2-c, 3-a
Monday, 20 June 2011
PARTNERSHIP DISSOLUTION
LESSON – 12
PARTNERSHIP DISSOLUTION
OBJECTIVES
After studying this chapter, you should be able to understand:
• Explain the meaning of dissolution.
• Distinguish between dissolution of firm and dissolution of partnership
• Explain the different modes of dissolution
• Understand the procedure for closing the books of the firm
STRUCTURE
12.1 Introduction
12.2 Differences between Dissolution of partnership & Dissolution of a firm
12.3 Settlement of Accounts
12.4 Preparation of Accounts
12.5 Insolvency of Partner and All Partner Insolvent
12.6 Piece-meal Distribution
Unit Questions.
12.1. INTRODUCTION
The term dissolution stands for discontinuation. This may lead to dissolution of partnership or dissolution of firm. In dissolution of partnership, change in partnership relation takes place. The firm continues its business. In the case of dissolution of firm the dissolution of partnership between all the partners of the firm and termination of the firm’s business take place.
12.2. DIFFERENCES BETWEEN DISSOLUTION OF PARTNERSHIP AND DISSOLUTION OF FIRM
Continuation of Business. In the firm dissolution business ceases to exist but in partnership dissolution the business of the firm is continued.
Partnership Relationship. In the dissolution partnership among partners does not exist. Partnership among partners does exist in partnership dissolution.
Scope. Dissolution of firm implies dissolution of partnership whereas the reverse is not so, i.e., dissolution of partnership does not necessarily mean the dissolution of firm.
CIRCUMSTANCES UNDER WHICH A FIRM IS DISSOLVED
Dissolution by mutual agreement.
Dissolution due to the happening of contingencies.
Dissolution by notice in the case of partnership at will.
Dissolution by court.
CIRCUMSTANCES FOR THE DISSOLUTION OF PARTNERSHIP
Admission of a partner
Retirement of a partner
Death of a partner
Insolvency of a partner
On removal of a partner
Change in the profit-sharing ratio.
12.3. SETTLEMENT OF ACCOUNTS
Regarding the settlement of accounts partnership deed may specify explicitly. If it is not specified in the partnership deed then settlement is to be made on the lines specified below in accordance with provisions of Partnership Act. The act specified two important points:
Treatment of losses, and
Application of assets.
Treatment of Losses. Losses including deficiencies of capital are to paid in the following order:
First out of Profit
Then out of capital
Lastly by partners individually in their profit-sharing ratio.
Application of Assets. Assets of the firm shall be applied in the following manner and order.
In paying firm’s debts to third parties
In paying to each partner, what is due to him on account of advances.
In paying to each partner, which is due to him on account of capital.
The residue, if any, shall be divided among the partners in their profit-sharing ratio.
DIFFERENCES BETWEEN REVALUATION AND REALISATION ACCOUNT
Meaning. Revaluation account is prepared to record the revaluation of assets and liabilities but Realisation account is prepared to record the realization of assets and discharge of liabilities.
Purpose. Revaluation account is prepared to know the profit/loss due to revaluation while realization account is prepared to determine the profit/loss due to realization.
Time of Preparation. Revaluation account is prepared at the time of reconstitution of partnership (admission, retirement/death), whereas realization account is prepared at the time of dissolution.
Recording: Only Revaluation Account only revaluation of assets and liabilities are recorded and in Realisation Account both book values and realisation values are recorded to close down the assets and liabilities.
PROCEDURE
Transfer all assets and liabilities other than cash, capital and reserves to the Realisation A/c at book value.
Open cash, capital and Reserve accounts separately.
Post all the adjustments twice.
Transfer the balance in the P&L A/c and Reserve A/c to the Partners’ Capital A/c in the profit-sharing ratio.
Transfer the balance in the Capital A/c to Cash A/c
All accounts will close.
12.4. PREPARATION OF ACCOUNTS
For dissolution, the accounts to be prepared are: (a) Realisation A/c, (b) Partner’s Capital Account, (c) Cash account or Bank account.
Journal Entries
Realisation A/c Dr.
To Sundry Assets A/c
(For closing all assets at book value except cash or bank balance)
Sundry Liabilities A/c Dr.
To Realisation A/c
(For closing all liabilities at book values except cash, capital and reserves)
Cash A/c Dr.
To Realisation A/c
(For the actual amount realised on sale of assets)
Partners’ Capital A/c Dr.
To Realisation A/c
(For the agreed value of assets taken over by partners)
Realisation A/c Dr.
To Cash A/c
(For payment of liabilities)
Realisation A/c Dr.
To Partners Capital A/c
(For payment of liabilities by a partner)
Realisation A/c Dr.
To Cash A/c
(For expenses of realization)
Partners Capital A/c Dr.
To Cash A/c
(For when a partner is to bear the expenses of realisation)
Realisation A/c Dr.
To Partners’ Capital A/c
(For transferring the profit on realisation to Partners’ Capital A/c.
For loss a reverse entry will be passed)
Partners’ Capital A/c Dr.
To Cash A/c
(For paying the amount due to the partner)
Cash A/c Dr.
To Partners’ Capital A/c
(For the amount received from the partner)
Example 1:
A,B and C sharing profits in the proportion of 3:2:1 agreed upon dissolution of their partnership firm on 31.3.1990 and its balance sheet was as under:
BALANCE SHEET
Liabilities Rs. Assets Rs.
Creditors
Joint Life Policy Reserve
Investment Flutuation Reserve
Capital:
A
B
Mrs. A Loan 18,500
14,000
6,000
40,000
20,000
10,000 Cash at Bank
Debtors 9,300
Less: Provision 600
Stock
Investment (Cost)
C’s Current Account
Machinery
Joint Life Policy 5,420
8,700
7,550
20,830
11,500
40,500
14,000
1,08,500 1,08,500
The life policy is surrendered for Rs. 12,000. The investments are taken over by A for Rs.17,500. A agrees to discharges his wife loan. B taken over all the stock at Rs.7,000 and debtors amounting Rs.5,000 at Rs.4,000. Machinery is sold for Rs.55,000. The remaining debtors realize 50% the book value. The expense of realization amount to Rs.600.
It is found that an investment not recorded in the books is worth Rs.3,000. The same is taken over by one of the creditors at this value.
Show the necessary ledger accounts including the Final Accounts of the partners on completion of the dissolution of the firm.
Solution.
Dr REALISATION A/c Cr.
Particulars Rs. Particulars Rs.
To Machinery
To Stock
To Investments
To JLP
To Debtors
To Cash Expenses
To A’s Capital(Wife loan)
To Cash (Drs.18,500-3,000)
To Capital A/c:
A
B
C 40,500
7,550
20,830
14,000
9,300
600
10,000
15,500
14,235
9,490
4,745 By Creditors
By JLP Reserve
By Investment Fluctuation Res.
By RDD
By Mrs. A’s Loan A/c
By Cash (JLP)
By Cash(Machinery+Debtors)
By A’s Capital A/c(Investment)
By B’s Capital A/c(7,000+4,000) 18,500
14,000
6,000
600
10,000
12,000
57,150
17,500
11,000
1,46,750 1,46,750
Dr. PARTNERS’ CAPITAL A/cs Cr.
Particulars A
Rs. B
Rs. C
Rs. Particulars A
Rs. B
Rs. C
Rs.
To Balance
To Realisation
To Cash A/c -
17,500
46,735 -
11,000
18,490 11,500
-
- By Balance
By Realisation
By Realisation
By Cash 40,000
14,235
10,000
- 20,000
9,490
-
- -
4,475
-
6,755
64,235 29,490 11,500 64,235 29,490 11,500
Dr. CASH A/c Cr.
To Balance
To Realisation A/c
To Realisation A/c
To C’s Capital A/c 5,420
12,000
57,150
6,755 By Realisation (Expenses)
By Realisation(Crs.)
By A’s Capital A/c
By B’s Capital A/c 600
15,500
46,735
18,490
81,325 81,325
12.5. INSOLVENCY OF A PARTNER
PROCEDURE
Find out the loss on realization and transfer it to Partners Capital A/cs in the profit-sharing ratio.
Make the solvent partners bring in cash equal to their share of realization loss.
Find out the deficiency in the Insolvent Partner’s Capital A/c to the Solvent Partner’s Capital A/c according to the rule in Garner Vs. Murray.
RULE IN GARNER VS. MURRAY
Partnership arises on the basis of contract between the partners. The Contract Act prescribes the qualification for contract. An insolvent loses his contractual capacity when he is declared insolvent. Prior to 1904 an important decision was given in the case of Garner Vs. Murray on this point. The facts in the case of Garner Vs. Murray were:
There were three equal partners Garner, Murray, Wilkins.
Capital of all the partners were not equal
Wilkins became insolvent and the firm was dissolved
He was unable to pay anything
Murray took objection to the point that the loss due to the firm on account of insolvency is capital loss and that it should be shared in capital ratio.
Justice Joyce came out with the following striking decisions. The implications of the decision were:
Solvent partners must bring in cash equal to their share of realization loss
Deficiency in the Insolvent Partner’s Capital account is to be shared by the solvent partners in the ratio of their capitals as stood on the day of the dissolution. i.e., in the ratio of their capitals adjusted for Reserve and P&L A/c given in the opening balance sheet.
When the capitals are fixed, the deficiency in the Insolvent Partner’s Capital A/c will be transferred to the Solvent Partners Capital A/c in the opening capital ratio.
CRITICISMS OF GARNER VS. MURRAY
There are two important criticisms regarding this rule. They are:
a) The solvent partners are to introduce cash first to meet the realization loss and then introduce cash for meeting the loss due to insolvency.
b) Solvent partners with surplus capital alone are to meet the insolvency loss. This will induce the solvent partners to reduce their capital to nil or to make it as negative balances.
Steps in insolvency are:
1. Preparation of Realisation account.
2. Capital accounts of Partners
3. Cash account or Bank account
Applicability of Garner vs. Murray in India
There is nothing which prevents to assume that the decision in Garner vs. Murray will also apply to India on the following grounds:
a) Section 48 of Indian Partership Act is almost a copy of Section 44 of British Partnership Act upon shich the decision in Garner vs. Murray is based.
b) Secondly, there has been no case law in India which has examined this issue.
JOURNAL ENTRIES
a) Realisation A/c Dr.
To Sundry Assets
(For closing all assets at book value except cash or bank balance)
b) Sundry Liabilities A/c Dr.
To Realisation A/c
(For Closing all liabilities at book value except cash, capital and reserves)
c) Cash A/c Dr.
To Realisation A/c
(Actual amount realised on sale of assets)
d) Partners Capital A/c Dr.
To Realisation A/c
(For the agreed value of assets taken over by partners)
e) Realisation A/c Dr.
To Cash A/c
(For payment of liabilities)
f) Realisation A/c Dr.
To Partners Capital A/c
(For payment of liabilities by a partner)
g) Realisation A/c Dr.
To Cash A/c
(For expenses of realisation)
h) Partner’s Capital A/c Dr.
To Cash A/c
(For a partner is to bear the expenses of realisation)
i) Partners Capital A/c Dr.
To Realisation A/c
(For the loss on realization and transfer it to Partners Capital A/c in the profit-sharing ratio)
j) Cash A/c Dr.
To Solvent Partner’s Capital A/c
(For the cash brought in by the solvent partners equal to their share of realization loss)
k) Solvent Partner’s Capital A/c Dr.
To Insolvent Partner’s Capital A/c
(For transferring the deficiency in the Insolvent Partner’s Capital A/c to
solvent partners capital account according to the rule in Garner Vs. Murray)
l) Transfer the Balance in the Solvent Partners Capital A/c Dr.
To Cash A/c
m) All accounts will close.
Example 2:
The positions of A, B and C on June 30, 2002 was as follows:
Liabilities Rs. Assets Rs.
Creditors
A’s Loan
A’s Capital A/c
B’S Capital A/c
P& L A/c 63,000
40,000
64,000
36,000
70,000 Cash
Assets
C’s Capital A/c 25,000
1,70,000
78,000
2,73,000 2,73,000
Profit and losses are shared-A 18/35; B 7/35; and C 10/35. The firm is dissolved on the above date. Sundry assets realize Rs.1,40,000. Sundry creditors are paid Rs.60,000 in full settlement. Expenses amount to Rs.8,000. C is insolvent. Assume the capital are not fixed. Close the books of the firm.
Solution.
Dr. REALISATION A/c Cr.
Rs. Rs.
To Sundry Assets
To Cash (Sundry creditors)
To Cash (Expenses) 1,70,000
60,000
8,000 By Sundry Creditors
By Cash (Sundry assets)
By Loss transferred to Capital A/cs:
A
B
C 63,000
1,40,000
18,000
7,000
10,000
2,38,000 2,38,000
Dr. CASH A/c Cr.
Rs. Rs.
To Balance b/d
To Realisation (Sundry Assets)
To A’s Capital A/c(Loss on realn.)
To B’s Capital A/c(Loss on realn.) 25,000
1,40,000
18,000
7,000 By Realisation A/c (Creditors)
By A’s Loan Account
By Realisation A/c(Expenses)
By A’s Capital A/c(Settlement)
By B’s Capital A/c(Settlement) 60,000
40,000
8,000
54,670
27,330
1,90,000 1,90,000
Dr. CAPITAL A/cs Cr.
Particulars A
Rs. B
Rs. C
Rs. Particulars A
Rs. B
Rs. C
Rs.
To Balance
To Realisation Loss
To C’s Capital Deficiency
To Cash
18,000
45,330
54,670
7,000
22,670
27,330 78,000
10,000 By Balance b/d
By P&L A/c (Profit)
By Cash (Loss)
By A’s Capital A/c
By B’s Capital A/c 64,000
36,000
18,000 36,000
14,000
7,000
20,000
45,330
22,670
1,18,000 57,000 88,000 1,18,000 57,000 88,000
12.6. PIECEMEAL DISTRIBUTION
At the time of dissolution, all the assets are realised and liabilities are paid. Hence, it is assumed that all the assets are realised on the date of dissolution. But, in reality, it is not possible to realize all the assets at the same time. Depending on the type of assets, whether current or fixed, the realisation of the same takes some time, i.e., the assets are realised gradually and not at once. However, the available cash, as and when the assets are realised, is used in the order of paying the realisation expenses, outsiders’ liabilities, partners’ loan and finally the partners capital.
If a liability is having any charge over any assets, then the cash realised through the sale of such asset is first used for paying of the liability. If the asset is not having any charge, then the cash realised through the sale of such asset is used for paying all the liabilities. While setting the accounts, after paying the outsiders’ liabilities, the internal liabilities (i.e., partners capital)are paid as and when any asset is realised, without waiting for realisation of all assets.
Piecemeal distribution literally means distribution of available cash immediately on realisation without waiting for the realisation of entire assets.
PROCEDURE
When assets realise gradually all the liabilities cannot be paid on one day. The procedure is pay the external liabilities:
First in the ratio of amount outstanding.
The balance must be utilised to pay off internal loans in the ratio of amount outstanding.
Finally, if there is any balance that will be distributed among Partners Capital A/c under:
(a) Proportionate capital method, or
(b) Maximum loss method.
PROPORTIONATE CAPITAL METHOD
The capitals of the partners will be compared with their respective profit-sharing ratio. Any partner who has contributed in excess of his profit-sharing proportion will be paid first. So that the capitals are brought in the profit-sharing ratio. Finally, the balance outstanding will be loss of partners which will be in the profit-sharing ratio. This method is suitable when the following conditions are satisfied:
(a) Partners’ profit-sharing ratio is not as per their capital contribution.
(b) All the partners are solvent and are likely to remain so.
The steps involved are:
(1) Adjust the capital by adding up capital, current account and reserve. Divide adjusted capital of each partner by his profit-sharing ratio. The smallest quotient should be taken as base capital.
(2) Multiply base capital and profit-sharing ratio of each partner to calculate relative capital.
(3) Calculate the surplus capital by deducting relative capital(as per step 2) from adjusted capital of each partner.
(4) Divide the surplus capital in step 3 by profit-sharing ratio of each partner. The smallest quotient should be taken as revised base capital.
(5) Calculate relative by multiplying revised base capital and profit-sharing ratio.
(6) Deduct revised base capital from surplus capital to arrive at absolute surplus.
MAXIMUM LOSS METHOD
After paying external liabilities and partner’s loan find the cash available for distribution among the partners capital. Deduct from the total capital the amount available. The balance will be maximum loss (assuming no more realisation) which will be distributed in the profit- sharing ratio. The amount due minus the maximum loss will be the amount paid to the partners. The same procedure will be continued, every time when a realisation is made. The final balance will be maximum loss of partners, which will be in the profit - sharing ratio.
In maximum loss method the points to be considered are:
(1) Cash in hand is to be considered as the first realisation.
(2) For calculating capital ratio adjustment is to be made by adding capital balance share of reserve and profit when capitals are fluctuating. In case of fixed capital no adjustments is required.
Section – C
Example 3:
Following is the Balance Sheet of M/s Amir, Bakshi and Chander who share profits and losses in the ratio of 2:2:1.
Liabilities Rs. Assets Rs.
Sundry creditors
Capitals:
Amir
Bakshi
Chander 30,000
30,000
24,000
8,000 Cash in Hand
Sundry Debtors
Stock
Furniture
4,000
24,000
44,000
20,000
92,000 92,000
The firm was dissolved and the assets were realised gradually; Rs.20,000 was received once, Rs.30,000 another time and Rs.18,000 finally. Show how each instalments is to be distributed under Proportionate Capital Method.
Solution.
DISTRIBUTION OF CASH UNDER PROPORTIONATE CAPITAL METHOD
Creditors
Rs. Amir
Rs. Bakshi
Rs. Chandar
Rs.
Balance
Cash given to Creditors
I Instalment: Rs.20,000 to creditors
II Instalment: Rs.30,000
(Rs.6,000 to Cr. and Rs.6,000 to Amir)
Rs.8,000 TO Amir and Rs.8,000 to Bakshi
(to make their capital in the profit-sharing ratio)
Balance 2,000 to all partners(2:2:1)
III Instalment:18,000 to all partners(2:2:1)
Loss 30,000
4,000
26,000
20,000
6,000
6,000
NIL
30,000
30,000
______
30,000
6,000
24,000
8,000
16,000
800
15,200
7,200
8,000 24,000
24,000
______
24,000
______
24,000
8,000
16,000
800
15,200
7,200
8,000 8,000
8,000
_____
8,000
_____
8,000
_______
8,000
400
7,600
3,600
4,000
Example 4:
Kamala, Vimala and Kokila were sharing profit and losses in the ratio of 3:2:1. They decided to dissolve
the firm on 30th June 1996. Their balance sheet as on that date was as under:
BALANCE SHEET
Liabilities Rs. Assets Rs.
Creditors
Capital Accounts:
Kamala
Vimala
kokila 35,000
25,000
25,000
15,000 Fixed Assets
Current Assets 60,000
40,000
1,00,000 1,00,000
All the assets were realised Rs.85,000. That amount realised in first instalment Rs.35,000, in second instalment Rs.25,000 and in third instalment Rs.25,000. Prepare the statement showing distribution of cash under maximum loss method.
Solution.
Particulars Total
Rs. Creditors
Rs. Kamala
Rs. Vimala
Rs. Kokila
Rs.
Balance Outstanding
I Instalment Rs.35,000
Balance Outstanding
II Instalment Rs.25,000
(65,000-25,000=40,000)(3:2:1)
Cash Paid
Balance Outstanding 1
Cash paid 2
Balance Outstanding (1-2)
III Instalment Rs.25,000
(40,000-25,000=15,000)(3:2:1)
Cash Paid 3
Balance Outstanding
Cash Paid 3
Balance Outstanding* [(1-2)-3] 1,00,000
35,000
65,000
40,000
______
25,000
65,000
25,000
40,000
15,000
25,000
40,000
25,000
15,000 35,000
35,000
0
______
0 25,000
-
25,000
20,000
______
5,000
25,000
5,000
20,000
7,500
12,500
20,000
12,500
7,500 25,000
-
25,000
13,333
______
11,667
25,000
11,667
13,333
5000
8,333
13,333
8,333
5,000 15,000
-
15,000
6,667
_____
8,333
15,000
8,333
6,667
2,500
4,167
6,667
4,167
2,500
Balance unpaid (loss on realisation)
Example
Ram, Shyam and Madan share profits and losses in the ratio of 4:2:1. They decide to dissolve the partnership their balance sheet on the date of dissolution being as follows:
BALANCE SHEET
Liabilities Rs. Assets Rs.
Creditors
Bank Overdraft
General Reserve
Capital Accounts:
Ram
Shyam
Madan 5,700
16,250
9,450
40,000
80,000
65,000 Land and Building
Plant and Machinery
Furniture
Investments
Stock
Debtors
Cash 95,720
16,300
2,460
15,000
64,150
22,700
70
2,16,400 2,16,400
The partners also decide that after the creditors have all been paid and providing a sum of Rs.1,200 to meet probable expenses of realisation, all cash should immediately be divided among them. The assets realised as follows:
Realisation 1-15,360; 2-18,400;3-96,399;4-56,300. Expenses of realisation amounted to Rs.1,132. Prepare a statement showing in detail how cash should be distributed among the partners.
Solution:
Particulars Creditors
Rs. Bank loan
Rs. Ram
Rs. Shyam
Rs. Madan
Rs.
Amount due
I Realisation 15,360+70-1,200=14,230
(ratio 5,700:16,250)
Balance Due
II Realisation Rs.18,400
Balance in II Realisation
(18,400-7,720)Rs.10,680
Max. loss=1,94,450-10,680=1,83,770
(in the ratio of 4:2:1)
Deficiency of Ram tfr to others in the ratio of 82,700:66,350
Deficiency of Shyam tfr to Madan
Cash Paid
Balance outstanding
III Realisation Rs.96,366(ratio 4:2:1)
Max. loss=1,83,770-96,399=87,371
Deficiency tfr to other partners-4,526 in
capital ratio
Cash paid
Balance outstanding
IV Realisation 56,300+62=56,362
Max. loss=87,371-56,362=31,003
(ratio 4:2:1)
Cash paid
Unpaid amount 5,700
3,695
2,005
2,005
0 16,250
10,535
5,715
5,715
0 45,100*
45,400
1,05,011
-59,611
+59,611
0
0
0
45,400
-49,926
-4,526
+4,526
0
45,400
-17,716
27,684
17,716 82,700
82,700
52,506
30,194
-33,075
-2,881
+2,881
0
82,700
-24,963
57,737
-2,511
55,226
27,474
-8,858
18,616
8,858 66,350
66,350
26,253
40,097
-26,536
13,561
-2,881
10,680
55,670
-12,482
43,188
-2,015
41,173
14,497
-4,429
10,068
4,429
Unit Questions:
1. What is dissolution of a firm? Distinguish between dissolution of partnership and dissolution of a firm.
2. Discuss the circumstances in which partnership is dissolved and a firm is dissolved.
3. The following was the balance sheet of A and B as at Dec. 31st 2001:
Liabilities Rs. Assets Rs.
Creditors
A’s Loan
General Reserve
Capitals:
A 30,000
B 25,000 20,000
10,000
10,000
55,000 Plant
Patent
Stock
Debtors 19,000
Less: Provision for Bad Debts 1,000
Cash 40,000
6,000
25,000
18,000
6,000
95,000 95,000
A and B shared profits in the ratio of 3:2. On 1st January, 2002, the firm was dissolved. A took over the patents at a valuation of Rs.5,000. The other assets realised as under:
Goodwill – Rs.15,000; Plant – Rs.30,000; Stock – Rs.22,000; Debtors – Rs.18,500.
The sundry creditors were paid off at a discount of 5%. The expenses of realisation came to Rs,3,500. Prepare the necessary Ledger Accounts to close the books of the firm.
4. Aki, Bki and Cki were partners in a firm. They shared profits and losses: Aki 40% Bki 30% and Cki 30%. The firm was dissolved and Bki was appointed to realise the assets and distribute the proceeds. Bki is to receive 5% commission on the amounts realised from sale of assets and to bear all expenses of realisation.
The balance sheet on the date of dissolution was as under:
Liabilities Rs. Assets Rs.
Creditors
Aki’s Capital A/c
Bki’s Capital A/c 59,000
30,000
20,000 Cash
Debtors 45,000
Less: Provision 2,500
Stock
Cki’s Capital o/d 1,500
43,000
60,000
4,500
1,09,000 1,09,000
Debtors realised Rs.35,000. Stock Rs. 45,000. Goodwill Rs.2,000. Creditors were paid Rs.57,500 in full settlement. In addition, outstanding creditors, Rs.500 were also paid. The expenses amounted to Rs.600. Aki and Bki agreed to receive Rs.3,000 in full settlement from Cki.
Show the Realisation A/c, Cash A/c and Capital A/cs of the partners.
5. Mani, Ramu and Sethu are partners sharing profits and losses in the ratio of 3:4:5. They decided to dissolve the firm on 1-7-1989. They decided to realise the assets gradually. Payments to be made as and when assets are realised.
The Balance sheet of the firm on 1-7-1989 is given below:
Liabilities Rs. Assets Rs.
Creditors
Ramu’s Loan A/c
Capitals:
Ramu
Mani
Sethu 10,000
2,000
8,000
12,000
4,000 Sundry Assets 36,000
36,000 36,000
The realisation of assets was as follows:
I instalment Rs.5,000, II instalment Rs.10,000, III instalment Rs,5,100, IV instalment Rs.6,300, V instalment Rs.5,700.
Prepare a detailed statement showing distribution of cash.
[Ans. II instalment Mani gets Rs.3,000; III instalment mani gets Rs.3,450, Ramu gets Rs. 1,650; IV instalment both Mani and Ramu gets Rs.3150 each; V instalment Mani gets Rs.1,425; Ramu gets Rs.1,900, Sethu gets Rs.2,375]
SUGGESTED READINGS:
1. FINANCIAL ACCOUNTING – R.L. GUPTA & V.K. GUPTA
2. FINANCIAL ACCOUNTING – T.S. REDDY & A. MURTHY
3. FINANCIAL ACCOUNTING – S. SANTHANA GOPALAN & P. PARTHASARATHY
4. FINANCIAL ACCOUNTING – Dr. S. GANESAN & S.R. KALAVATHI
RETIREMENT AND DEATH OF A PARTNER
LESSON - 11
RETIREMENT AND DEATH OF A PARTNER
OBJECTIVES
After studying this chapter, you should be able to understand:
• New and gaining ratio at the time of retirement and death of a partner.
• Value and goodwill at the time of retirement and death of a partner.
• Amount payable to the retiring of the deceased partner.
• Modalities of setting the amount due to the deceased partner.
STRUCTURE
11.1 Introduction
11.2 Adjustment
11.2.1 Revaluation of Assets and Liabilities
11.2.2 Treatment of Goodwill
11.2.3 Readjustment of Capital
Examples
11.3 Death of Partner
Unit Questions
11.1 INTRODUCTION
In partnership business, like admission of a partner, retirement or death of a partner may also take place. If a partner is retired or died, then the firm is to be reconstituted. Through reconstitution, the old partnership comes to an end and a new partnership between continuing partners (excluding the retiring or deceased partner) comes into existence. However, the firm continues its business. Further , the profit sharing ratio of remaining partners, who continue to stay in the business, changes.
According to the Indian Partnership Act 1932, Sec 32(1) a partner may retire (a) With the consent of all other partners (Whether implied or expressed ) or (b) in accordance with an express agreement by the partners: or (c) by conveying his intention to retire (in case of partnership at will) by a written notice. The retiring or deceased partner gets back his share of interest in the business which normally includes his share of capital , goodwill, revaluation profit or loss, profit earned or sustained by the business till the date of retirement or death, accumulated reserves, profits and losses.
DIFFERENCE BETWEEN RETIREMENT AND DEATH
If a partner wants to leave the business of the firm, then he may retire from the firm at any time. By this, he loses his right as a partner from the date of retirement. Death of a partner is a sudden natural event, over which no partner is having control. In both the cases, a reduction in the number of partners is resulted into. The basic differences between retirement and death of a partner are as follows:
The retirement of a partner can be planned and effected from a specified date. Whereas the death of a partner may occur at any time during the year.
In case of retirement, the payment of amount due (i.e., his share of interest in the business) is paid to the retiring partner himself. Whereas, in case of death of partner, the payment of amount due to the deceased partner is paid to his legal representive through an executor. The accounting steps involved and treatment to be given incase of retirement or death of a partner are one and the same.
STEPS IN ACCOUNTING
When a partner is retired or died various accounting adjustments are to be made. As all the partners are responsible for the state of affairs of business till the time or retirement or death of any partner, they have to share the undistributed reserved, profits or losses, profit or loss on the change in the value of assets and liabilities. Thus , the following accounting steps are followed while solving problems, when a partner is retired or died:
Calculation of New Profit Sharing Ratio or continuing partners excluding the retiring or deceased partner.
Calculation of Gaining Ratio of continuing partners.
Revaluation of Assets and Liabilities
Adjustment of accumulated reserves, profits or losses.
Treatment of Goodwell.
Adjustment of Capital Accounts of partners.
CALCULATION OF NEW PROFIT SHARING RATIO
When a partner is retired or died, the profit sharing ratio of continuing partners , changes and hence , a new profit sharing ratio of continuing partners(excluding retiring or deceased partner) is to be found Thus, new profit and losses of the firm. With the given information, the new profit sharing ratio is to be calculated. Following are the different types of examples:
When old ratio of partners alone is given : in this case, future profits of the firms are to be shared by the continuing partners in the old ratio.
When the continuing partners purchase specific share from the retiring partner : In this cas, the continuing partners’ old shares of profit are to be raised by the specific share gained from the retiring partner.
Example : Bansilal, Gujral and Devilai are partners in a firm sharing profits and losses in the ratio of 5:3:2 Calculate the new profit sharing ratio, if (a) Devilal retires: (b) Bansilal retires: and (c) Gujral retires.
Solution :
As the old profit sharing ratio of partners alone is given, it is assumed that the continuing partners share the future profits and losses in their old ratio.
If devilal retires, the new profit sharing ratio between Bansilal and Gujral is 5:3
If Bansilal retires, the new profit sharing ratio between Gujral and Devilal is 3:2
If Gujral retires, the new profit sharing ratio between Bansilal and Devilal is 5:2.
CALCULATION OF GAINING RATIO
When a partner is retired or died, the continuing partners’ profit sharing ratio is raised to the extent they gain from outgoing partner. Thus, Gaining ratio is the ratio in which the continuing partners gain their share of profit from a retiring or deceased partner. After retirement or death, the share of continuing parners increases than what they had before retirement or death. It helps to calculate the amount of compensation to be paid by each of the continuing partners to the outgoing partner. It is calculated by using the following formula:
Gaining Ratio = New Ratio – Old Ratio
Given below are the examples of different situations
1. When old ratio of partners alone is given : In this case the continuing partners gain in their old ratio.
2.When old ratio continuing partners purchase specific share from the retiring partner : In this case, the continuing partners gain their share in the specific ratio given.
When new ratio of containing partners and old ratio of all partners are given: In this case, the gaining ratio is calculated by applying the formula.
Gaining Ratio = New Ratio – Old Ratio
Example:
A,B and R are partners in a firm sharing profits and losses in the ratio of 5:3:2 Calculate the gaining ratio if (a) A is retired (b) b is retired : and (c) if R is retired.
Solution:
As only old ratio of partners is given without any details about what the continuing partners take from the outgoing partner, it is assumed that the continuing partners gain in their old profit sharing ratio .Thus.
If A retires, the gaining ratio B and R is 3:2
If B retires, the gaining ratio A and R is 5:2
If R retires, the gaining ratio A and B is 5:3
Example :
Indira , sonia and Rajiv are partners sharing profits in the ratio of 5:4:3 .Rajiv is retired and his share was taken up by Indira and Sonia in the ratio of 3:2 Calculate the gaining ratio.
Solution:
In this case, the continuing partner gain their share in the specific ratio given., i.e Indira and Sonia gain the Rajiv’s share in the ratio of 3:2
Share of Rajiv = 3:2
Share gained by Indira = 3/12 of 3/5 = 9/60
Share gained by Sonia = 3/12 of 2/5 = 6/60
Gaining Ratio of continuing partners Indira and Sonia is
9/60:6/60 or 9 : 6 or 3:2
Example
Ragul, priya and Lakshmi ae partners sharing profits in the ratio of 5:4:3 lakshmi retires and surrender 1/12th to Ragul and the remaining in favour of Priya Calculate the gaining ratio.
Solutions :
The continuing partners gains from the retiring partner.
Retiring partner, Lakshmi’s share = 3/12
Surrender to Ragul = 1/12
Remaining surrender to Priya = 3/12 – 1/12 = 2/12
Thus, Gaining ratio of Ragul and Priya is 1/12 : 2/12 or 1:2.
Example:
Subash, Stalin and Sarath are partners sharing profits and losses in the ratio of 3:2:1 . Sarath retires and the new profit sharing ratio of remaining Subash and Stalin is agreed at 7:5 respectively. Calculated the gaining ratio.
Solution:
When the old and new profit sharing ratios are given, the gaining ratio is found by applying the following formula:
Gaining Ratio = New Ratio – Old Ratio
Gaining Ratio of Subash - 7/12 – 3/6 = 6/12 = 1/12
Gaining Ratio of Stalin - 5/12 – 2/6 = 4/12 = 1/12
Thus, Gaining Ratio of Subash and Stalin is 1:1
11.2.1 REVALUATION OF ASSETS AND LIABILITIES
When a partner is retired or died, one of the accounting adjustments to be made is revaluation of assets and liabilities. The profit or loss on the revaluation is to be shared between al the partners in the old ratio. By this process,. Share of profit or loss on the revaluation is to be shared between all the partners in the old ratio. By this process, share of profit or loss on any increase or decrease in the value of assets and liabilities is given to the retiring or deceased partner. The effect of revaluation (profit or loss on revaluation) is known with the help of opening an account called “Revaluation Account”. It is also called as “Profit and Loss Adjustments Account” It is nominal in nature. For any profit ,i.e any increase in asset or decrease in liability, the revaluation account is to be credited. For any loss, i.e any decrease in asset or increase in liability, the revaluation account is to be debited.
If any unrecorded assets and liabilities are found in the business, it is to be treated as increase in assets and liabilities and the revaluation account is credited and debited respectively.
There are two methods of maintaining revaluation account:
Revaluation Account Method to record the revised valued of assets and liabilities.
Memorandum Revaluation Account Method to record the original values of assets and liabilities.
REVALUATION ACCOUNT METTHOD
Following are the accounting entries to be passed to record the revised values of assets and liabilities:
1. For any increase in the value of asset:
Asset A/c Dr (With the increased amount)
To Revaluation
2. For any decrease in the value of asset:
To Revaluation A/c Dr.
To Asset A/c (With the decreased amount)
3. For any increase in the value of liability
Revaluation A/c Dr. (With the increased amount)
To liability A/c
4. For any decrease in the value of liability
Liability A/c Dr. (With the decreased amount)
To Revaluation A/c
5. For any unrecorded asset:
Unrecorded Asset A/c Dr. (With the value of asset)
To Revaluation
6.For any unrecorded liability:
Revaluation A/c Dr. (With the value of liability)
To Unrecorded Liability A/c
7.For any decrease in the existing provision for doubtful debts:
It results in increase of existing debtors (assets)and hence the
revaluation account is to be credited.
Provision for Doubtful Debt A/c Dr. (With the decreased amount)
To Revaluation A/c
8.For any decrease in the existing provision for doubtful debts:
It results in increase of new liability and hence the revaluation account is to be debited
Revaluation A/c Dr. (With the amount of new provision)
To Provision for Doubtful Debts A/c
9. For closing the revaluation account:
If Profit:
Revaluation A/c Dr.
To All partner’s Capital A/c (in the old ratio)
If Loss:
All Partners’ Capital A/c Dr. ( in the old ratio)
To Revaluation A/c
The specimen of a Revaluation Account is given below.
Revaluation A/c
Dr. Cr.
To Decrease in the value of assets
To Increase in the value of liabilities
To Unrecorded Liabilities
To New provision for doubtful debts
To Profit transferred to old partners Capital account (in old ratio)
Rs.
xxx
xxx
xxx
xxx
xxx*
xxx
By Increase in the value of assets
By Decrease in the value of liabilities
By Unrecorded Assets
By Decrease in the existing provision for doubtful debts
By loss transferred to old partners
Capital accounts (in old ratio)
Rs.
xxx
xxx
xxx
xxx
xxx*
xxx
* Only one figure shall appear.
Example:-
Venkat,nagu and Selvam are partners sharing profits and losses in the ratio of 5:3:2 . Their Balance Sheet as on 31st March 2000 was as under.
Liabilites Rs. Rs. Assets Rs. Rs.
Creditors
Outstanding expenses
Capitals:
Venkat
Nagu
Selvam
6,52,500
3,37,500
3,60,000
8,66,250
90,000
13,50,000
23,06,250 Cash
Stock
Prepaid Insurance
Debtors
Less. Provision
Machinery
BuildingsFurniture
2,11,500
9,000
4,05,000
3,37,500
33,750
2,02,500
4,27,500
7,87,500
1,12,500
23,06,250
Selvam retires. The new profit sharing ratio of continuing partners Venkat and nagu is 5:3 .Following are the changes taken place in the assets and liabilities:
Stock to be depreciated at 5%
Provision for doubtful debts is to be Rs.11,250
Funiture to be depreciated at 10%.
Building is valued at Rs. 9,00,000
You are required to pass necessary journal entries and prepare Revaluation Account.
Journal Entries
Date Particulars L.F Rs. Rs.
2000
Mar.31
,,
,,
,,
Revaluation A/c
To Stock A/c
(Depreciation on stock is recorded)
Revaluation A/c
To Provision for Doubtful Debts A/c
(Increase in the provision for doubtful debts is recorded)
Revaluation A/c
To Furniture A/c
(Depreciation on furniture at 10% on Rs.1,12,500 is recorded)
Buildings A/c
Revaluation A/c
(increase in the value of building is recorded)
Revaluation A/c
To Venkat’s Capital A/c
To Nagu’s Capital A/c
To Selvam’s Capital
(Profit on revaluation of assets and liabilities transferred to all partners in the old ratio 5:3/;2)
Dr.
Dr.
Dr.
Dr.
Dr.
16,875
2,250
11,250
1,12,500
82,125
16,875
2,250
11,250
1,12,500
41,062.50
24,637.50
16,425.00
Revaluation A/c
To Stock A/c
To Provision for doubtful debts A/c
To Furniture A/c
To Profit transferred to
Venkat(5/10)
Nagu (3/10)
Selvam (2/10) Rs.
41,062.50
24,637.50
16,425.00
Rs.
16,875
2,250
11,250
82,125
1,12,500
By Building A/c
Rs.
1,12,500
1,12,500
MENORANDUM REVALUATION ACCOUNT METHOD.
The Memorandum Revaluation A/c
Dr. Cr.
To Decrease in the value of assets
To Increase in the value of liabilities
To Unrecorded Liabilities
To New provision for doubtful debts
To Profit transferred to old partners’
Capital accounts (in old ratio)
To Increase in the value of assets
To Decrease in the value of liabilities
To Unrecorded Assets
To Decrease in the existing
Provision for doubtful debts
To Profit transferred to all partners
Capital accounts (in new ratio)
Rs.
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx*
xxx
By Increase in the value of assets
By Decrease in the value of liabilities
By Unrecorded Asserts
By Decrease in the existing provision
for doubtful debts.
By loss transferred to old partners’
Capital accounts (in old ratio)
By Decrease in the value of assets
By Increase in the value of liabilities
By Unrecorded Liabilities
By New provision for doubtful debts
By Loss transferred to all partners’
Capital accounts (in new ratio)
Rs.
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx*
xxx
• Only one figure shall appear.
ADJUSTMENT OF ACCUMULATED RESERVES, PROFITS AND LOSSES
When a partner is retied or died, one of the accounting adjustment to be made is transfer of accumulated reserves, profits and losses This adjustment is done because the retiring or deceased partner is also eligible for his share in the accumulated reserves, profits and losses. Therefore , the past reserves, profits and losses, etc. (for which all the partners are responsible) are transferred to all partners ; (including the retiring or deceased partner) capital accounts in the old profit sharing ratio. In case of fluctuating capitals, they are transferred to capital accounts of partners and in case of fixed capitals, they are transferred to current account of partners, For transfer, the accumulated reserves and profits are credited and the accumulated losses are debited to partners’ capital or current accounts. The accounting entries to be passed in this regard are as follows:
For tranfer of acumualated reserves, profits:
General Reserve A/c Dr.
Profit and Loss A/c Dr.
Workmen Compensation Fund A/c Dr.
Any Other reserve A/c Dr.
To all Partner’s Capital or Current A/c (in old ratio)
For transfer of accumulated losses:
All partner’s Capital or Current A/c Dr. (in old ratio)
To Profit and Loss A/c
To Defered Revenue Expenditure A/c.
11.2.2 TREATMENT OF GOODWILL
When a partner is retied or died, goodwill of the firm is tob e adjusted and treated according to the terms and conditions agreed previously. There are three methods of treating the goodwill of the firm at the time of retirement of death of partner , They are.
When Goodwill is raised.
When Goodwill is written of.
When Goodwill account is not maintained.
When Goodwill is raised:
Under this method, the following are the steps involved.
First, the present value of goodwill of the firm is to b taken . Normally, the present value will be given in the problem. If it is not given , it is to be calculated based on the information given in the problem. Calculation of goodwill may be based on the average profits or super profits or capitalization of profit method
The present value of the goodwill of the firm is compared with the existing book value of goodwill and the diference between them is found. When the book value of the goodwill is equal to the present value of goodwill, then there is no need for any adjustment.
When no goodwill appears in the Balance Sheet, then the book value of goodwill is to be taken as zero. Hence to raise the goodwill to its present value, all the partners’ (including the outgoing partner) capital accounts are to be credited in the old profit sharing ratio. Following is the journal entry to be passed.
Goodwill A/c Dr. (with the present value)
To All Partner’s Capital A/c ( in old ratio)
If the present value of goodwill of the firm is more than the book value of goodwill , then the difference amount of goodwill is to be raised and all the partners’ (including the outgoing partner) capital accounts are to be credited in the old profit sharing ratio, Following is the journal entry to be passed:
Goodwill A/c Dr. (With the difference between
Present value and Book value)
To All Partner’s Capital A/c ( in old ratio)
In the present value of goodwill fo the firm is less than the book value of goodwill , then the difference amount of goodwill is to be reduced and all the partners’ capital accounts are to be debited in the old profit sharing ratio. Following is the journal entry to be passed:
All Partner’s Capital A/c Dr. ( in old ratio)
Goodwill A/c Dr. (With the difference between
Present value and Book value)
Sometimes , the retiring or deceased partner’s goodwill alone may be
raised and recorded . In that case, the journal entry to be passed is:
Goodwill A/c Dr. (With his share of goodwill)
To Retiring or Deceased partner’ Capital A/c
Example:
Patil, Saxena and Dave are partiers in a firm sharing profits and losses in the ratio of 5:3:2 . Dave retired. The goodwill of the firm was valued at Rs.50,000 . Their new profit sharing ratio is 5:3 . Pass the necessary journal entries to record the goodwill under each of the following cases:
If no goodwill appears in the books of the firm and the present value of
goodwill is to be raised.
If the goodwill account appears in the books of the firm at Rs.50,000
If the goodwill account appears in the books of the firm at Rs.35,000
If the goodwill account appears in the books of the firm at Rs.67,000
If no goodwill account appears in the books of the firms and Dave’s share
of goodwill alone is raised.
Solution:
The present value of goodwill = Rs.50,000
Comparing the present value of goodwill of firm with the book value of goodwill : Following are the goodwill amount to be raised for each case:
(a) If no goodwill appears in the books of the firm: In this case, the book
value of goodwill is taken as zero. Hence, the goodwill to be raised is as
follows:
Goodwill = Present value of Goodwill - Book value of Goodwill
= Rs. 50,000 - 0 = Rs.50,000
(b)If the goodwill account appears in the books of the firm at Rs.50,000: In
this case, the goodwill to be raised is as follows:
Goodwill = Present value of Goodwill - Book value of Goodwill
= Rs. 50,000 - Rs. 50,0000 = 0
(c) If the goodwill account appears in the books of the firm at Rs,35,000:
In this case, the goodwill to be raised is as follows:
Goodwill = Present value of Goodwill - Book value of Goodwill
= Rs. 50,000 - 35,0000 = Rs.15,000
(d) If the goodwill account appears in the books of the firm at Rs.67,000: In
this case, the goodwill to be raised is as follows:
Goodwill = Present value of Goodwill - Book value of Goodwill
= Rs. 50,000 - 67,000 = Rs.17,000
If Dave’s share of goodwill alone is raised:
Dave’s share o good will = Rs.50,000 x2/10 = Rs. 10,000
Following are the journal entries to be passed for each case:
Journal Entries
Particulars L.F Rs. Rs.
Good will A/c
To Patil’s Capital A/c
To Saxena’s Capital A/c
To Dave’s Capital A/c
(The value of goodwill raised to its present value.i.e. 50,000 and is credited to all partners’ capital account in the old ratio 5:3:2)
No Entry is required because the book value of goodwill is equivalent to its present value.
Good will A/c..
To Patil’s Capital A/c
To Sazena’s Capital A/c
To Dave’s Capital A/c
(The Value of goodwill is brought up to value ie. 50,000 and is credited all partner’s capital accounts in old ratio 5:3:2)
Patil’s CapitalA/c
Saxena’s Capital A/c
Dave’s Capital A/c
To Goodwill A/c
(The value of goodwill is brought down to its present value ie. 50,000 by reducing the difference of Rs.17,000 and is debited to all partner’s capital accounts in old ratio 5:3:2)
Good will A/c
To Dave’s Capital A/c
9Dave share of good will alone is raised
Dr.
Dr.
Dr
Dr.
Dr.
Dr.
50,000
15,000
8,500
5,100
3,400
10,000
25,000
15,000
10,000
7,500
4,500
3,000
17,000
10,000
When Goodwill is written off:
In this method , the present value of goodwill is determined and raised by following the same procedure given in the first method” Full value of good will is raised” The journal entries to be passed are also the same as given in the first method.
Then, the raised goodwill is written off by debiting the continuing partners’ capital accounts excluding the retiring or deceased partner in the new profit sharing ratio. The amount of goodwill to be written off may be full or part. The accounting entry for writing off goodwill is
Continuing partner’s Capital A/c Dr. (in new ratio)
To Good will A/c (With the value of goodwill written off)
Sometimes, if the retiring or deceased partner’s goodwill alone is raised and recorded. For writing of the same, the journal entry to be passed is
Continuing partner’s Capital A/c Dr. (in gaining ratio)
To Good will A/c (With the Outgoing partner’s share of goodwill )
Example:
For the illustration 9, Pass the required additional journal entry if it is decided that the good will account should not appear in the books of the new firm.
Solution:
As the goodwill account should not appear in the books of the new firm, the goodwill is to be written off among the continuing partners excluding the retiring or deceased partner in the new ratio.
The new profit sharing ratio of continuing partners is 5:3
The gaining Ratio = New Ration – Old Ratio
For patil = 5/8 – 5/10 = 50-40/80=10/80
For Saxena = 3/8 – 3/10 =30-24/80 = 6/80
Thus, the gaining ratio is 10:6 or 5:3
The following additional journal entries are to be passed:
Date Particulars Rs. Rs.
a,c,&d
(b)
( c) Patil’s Capital A/c Dr
Sasena’s Capital A/c Dr
To Goodwill A/c
(The present value of raised goodwill is written off among the continuing partners excluding retiring partner in the new ratio 5:3)
No entry is required
Patil’s Capital A/c Dr.
Saxena’s Capital A/c Dr.
To Goodwill A/c
(Dave’s share of goodwill is written off among the continuing partners in the gaining ratio 5:3)
31,250
18,750
9,375
5,625
50,000
10,000
3. When Goodwill account is not maintained:
This method is followed when the retiring or deceased partner’s share of goodwill alone is raised and written off through the capital accounts of partners. I.e. goodwill account is not raised. The retiring or deceased partner’s share of goodwill is borne by the continuing partners in their gaining ratio. Hence , the outgoing partner’s share of goodwill is credited to his capital account and debited to the continuing partners’ capital accounts in the gaining ratio. Following is the journal entry to be passed.
Continuing partner’s Capital A/c Cr. (in gaining ratio)
To Retiring or Deceased partner’s Capital A/c (with his share of goodwill)
Example:
Prasad, Prakash and Praveen are partners shareing profits and losses in the ratio of 2:1:1 Praveen retires and it is decided to raise his share of goodwill alone without raising a goodwill account. The goodwill of the firm is valued at Rs.12,000 . The new ratio of continuing partner is 2:1 Pass necessary journal entry.
Solution:
Gaining Ratio = New Ratio – Old Ratio.
Gaining Ratio or Prasad = 2/3 –2/4= 8-61/12 = 2/12
Gaining Ratio or Prakash = 1/3-1/4 = 4-3/12 = 1/12
Gaining Ratio of Prasad and prakash is 2/12: 1/12 or 2:1
Prasad’s Capital A/c Dr. 8,000
Prakash’s Capital A/c Dr. 4,000
To praveen’s Capital A/c 12,000
(Praveen’s share of goodwill is raised and written off among the continuing partners in the gaining ratio 2:1.
ADJUSTMENT OF CAPITAL ACCOUNTS
(a) On the basis of availability of total capital of the new firm: Under this method , the total capital of the new firm will be given in the problem and following are the steps followed to adjust the capital accounts of partners:
The old capital of the continuing partners are adjusted with profit or loss on revaluation, goodwill and accumulated reserves, profits or losses, etc.
The new capital of continuing partners is found by dividing the total capital of the firm in their new profit sharing ratio.
The continuing partner’s new capitals are compared with their adjusted old capitals.
If the new capital is more than the adjusted capital, shortage is the result. For the shortage amount of capital, the continuing partners have to bring cash or it will be debited to their current accounts.
If the new capital is less than the adjusted capital, surplus is the result. For the surplus amount, the continuing partners have to withdraw the excess capital or it will be credited to their current accounts.
Example:
Bina, Ganguly and Susan are partner sharing profits and losses in the ration of 5:3:2 . Susan retired . On the date of retirement, the adjusted capitals of Bina, Ganguly and Susan were Rs.50,000 , Rs.40,000 and Rs.20,000 respectively. The total capital of the new firm is agreed at Rs.90,000 between Bina and Ganguly in the ratio of 5:3 .Calculate the actual cash to be paid off or to be brought in by the continuing partners.
Solution:
It is asked to adjust the capitals of the partners on the basis of availability of total capital of the new fire. i.e the total capital of the new firm is given as Rs.90,000 . The following steps are followed:
Adjusted old capital of partners are
Bina = Rs.50,000
Ganguly = Rs.40,000
Susan = Rs.20,000
2.Total Capital of the new firm is given as Rs. 90,000
New capitals of the continuing partners, Bina and Ganguly in new ratio is
Bina = Rs.90,000 x5/8 = Rs.56,250
Ganguly = Rs.90,000 x3/8 = RS.33,750
Comparing new capitals with the adjusted old capital :
Excess or shortage of Capital = New Capital – Adjusted Old Capital
For Bina = Rs.56,250 – Rs.50,000 = Rs.6,250 (Shortage)
For Ganguly = Rs.33,750 – Rs.40,000 = Rs.6,250 (Excess)
Thus, , Birth has to bring cash to the extent of Rs.6,250 for the shortage of capital and Ganguly has to be paid off cash to the extent of Rs. 6,250 for the excess of capital.
b) On the basis of adjusted capitals of continuing partners: Under this method, the total capital of the new firm will not be given in the problem and following are the steps followed to adjust the capital accounts of partner:
The old capitals of the continuing partners are adjusted with profit or loss on revaluation, goodwill and accumulated reserves, profits or losses, etc.
As new firm’s capital is not available , the total of adjusted old capitals of continuing partners is to be assumed as total capital of the new firm.
The continuing partners new capitals are compared with their adjusted old capitals.
If the new capital is more than the adjusted capital, shortage will be the result. For the shortage amount of capital , the continuing partners have to bring cash or it will be debited to their current accounts.
If the new capital is less than the adjusted capital, surplus will be the result. For the surplus amount, the continuing partners have to withdraw the excess capital or it will be credited to their current accounts.
Example:
Magesh, Videsh and Naresh are partners sharing profits and losses equally, Naresh retired. On the date of retirement, the adjusted capitals of Magnesh , Videsh and Naresh were Rs.50,000 , Rs.40,000 paying off cash so that the future capital of Mangesh and Videsh will be in their future profit sharing ratio. Calculate the actual cash to be paid off or to be brought in by the continuing partners.
Solutions:
Iit is asked to adust the capitals of the aprtenrs on the basis of adjusted capitals of continuing partners. The following steps are followed:
Adjusted old capitals of partner are
Magesh = Rs,50,000
Videsh = Rs.40,000
Naresh = Rs,20,000
Total capital of the new firm = Adjusted Old Capitals of continuing partners.
Total capital of the new firm = Adjusted Old Capitals of Magesh + Videsh
= Rs.50,000 + Rs.40,000
= Rs.90,000
As only old ratio of partners alone is given, the continuing partners share future profits and losses in their old ratio ,i.e 1:1
New capitals of the continuing partners, Magesh and Videsh in new ratio is
Magesh = Rs.90,000 x1/2 = Rs.45,000
Videsh = Rs.90,000 x1/2 = Rs.45,000
Comparing new capitals with eh adjusted old capitals:
Excess or shortage of capital = New Capital – Adjusted Old Capital
For Magesh = Rs.45,000 – Rs.50,000 = Rs.5,000 (Excess)
For Videsh = Rs.45,000 – Rs. 40,000= Rs.5,000 (Shortage)
Thus, Videsh has to bring cash to the extent of Rs.5,000 for the shortage of capital and Magesh has to be paid off cash to the extent of Rs.5,000 for the excess of capital.
11.3 CALCULATION AND DISPOSAL OF RETIRING OR DECEASED PARTNER’S INTEREST
When a partner is retired or died, the retiring or the deceased partner gets back his share of interest in the business. Normaly, the calculations of outgoing partner’s share of interest includes the following:
Balance in the capital and current accounts.
His share of goodwill
His share of profit or loss on revaluation of assets and liabilities.
His share of accumulated reserves, profits and losses.
His share of profit earned or loss sustained by the business till date of retirement or death.
Regarding the disposal of retiring or deceased partner’s interest in the business, the following procedure is adopted. In case of retiring partner. The amount due to him from the business is paid to him immediately or transferred to his loan account. In the absence of any agreement, the retiring partner is entitled to receive interest at the rate of 6% on the loan amount, till it is paid out. In case, the firm encounters any financial crisis, the consent of the outgoing partner can be obtained to pay the loan amount in equal instalments.
In case of deceased partner, the amount due to him from the business is paid to his legal representative (or executor) or transferred to the loan account is repaid. In case, the firm encounters any fiancial crisis, the consent of the legal representative (executor) of the deceased partner can be obtained to pay the loan amount in equal instalments.
Example
Shastri, Patil and Prabu are partner sharing profits and losses in the ratio of 2:1:1 .Following is their Balance Sheet as on 31st December 2000.
Liabilities Rs. Assets Rs. Rs.
Sundry Creditors
Bills Payable
General Reserve
Capital Accounts
Shatri
Patil
Prabu 18,000
2,000
5,000
30,000
25,000
10,000
90,000 Cash in hand and at bank
Sundry Debtors
Less: Provision
Stock in trade
Furniture
45,000
1,000
20,000
44,000
20,000
6,000
90,000
Prabu retired and the partners agree to the following revaluation.
The provision for doubtful debts is to be increased to Rs.1,800
Unrecorded investments amounting to Rs.4,000 are to be recorded
in the books of accounts.
Goodwill account is to be raised at Rs.25,000
The new profit sharing ratio of Shastri and Patil shall be 2:1
respectively.
You are required to give the journal entries to carry out the above arrangements and prepare the Balance Sheet of the new firm if it is decided to (a) show the assets and liabilities at their revised values.
Journal Entries
Date Particulars L.F Rs. Rs.
2000
Mar.31
,,
,,
,,
,,
,,
1994
Jan.1
Revaluation A/c
To Provision for doubtful debts
(Increase in the provision for doubtful debts recorded)
Investment A/c
To Revaluation A/c
(Unrecorded investment recorded
Revaluation A/c
To Shastri’s Capital A/c
T0 Patil’s Capital A/c
To Prabu’s Capital A/c
(Profit on revaluation of assets transferred to all partner ‘s capital accounts in the old ratio 2:1:1
General Reserve A/c
To Shastri’s Capital A/c
T0 Patil’s Capital A/c
To Prabu’s Capital A/c
(General Reserve transferred to all partners, Capital account in old ratio 2:1:1
Goodwill A/c
To Shastri’s Capital A/c
T0 Patil’s Capital A/c
To Prabu’s Capital A/c
(Goodwill of the firm is raised at Rs.25,000 and is credited to all Partners’capital accounts in old Ratio)
Prabu’s Capital A/c
To Cash A/c
(Amount due to Prabu is paid)
Cash A/c
To Shastri’s Capital A/c
To Patil’s Capital A/c
(Cash brought in by continuing partners)
Dr.
Dr.
Dr.
Dr.
Dr.
Dr
800
4,000
3,200
5,000
25,000
18,300
18,300
800
4,000
1,600
800
800
2,500
1,250
1,250
12,500
6,250
6,250
18,300
12,200
6,100
Revaluation A/c
Dr. Cr.
2000
Dec.31
,,
To Provision for doubtful debts
To Profit on Revaluation
Transferred to
Shastri’s Capital A/c (2/4) 1,600
Patil’s Capital A/c (1/4) 800
Prabu’s Capital A/c (1/4) 800
Rs.
800
3,200
4,000 1993
Dec.31
Investment A/c Rs.
4,000
4,000
Capital Accounts of Partners
Shastri
Rs. Patil
Rs. Prabu
Rs. Shastri
Rs. Patil
Rs. Prabu
Rs.
To Cash A/c
To Balance c/d
--
58,000
58,800 --
58,000
39,400 18,300
--
18,300 By Balance b/d
By Revaluation A/c
By General Reserve
By Goodwill A/c
By Cash A/c
By Balance b/d 30,000
1,600
2,500
12,500
12,250
58,800
58,800 25,000
800
2,500
6,250
6,100
39,400
39,400 10,000
800
1,250
6,250
--
18,300
BALANCE SHEET OF SHASTRI AND PATIL AS ON 31.12.2000
Liabilities Rs. Assets Rs. Rs.
Sundry Creditors
Bills Payable
Capital Accounts
Shatri
Patil
18,000
2,000
58,800
39,400
1,18,200 Cash in hand and at bank
Sundry Debtors
Less: Provision
Stock in trade
Furniture
Investment
Goodwill
45,000
1,800
20,000
43,200
20,000
6,000
4,000
25,000
1,18,200
Example:-
Khanna and Krishna are partners sharing profits and issues in the ratio of 3:2 respectively . They close their books of accounts every year on 31st March. Their Balance as on 31st Marth 2000 was as under.
Liabilities Rs. Rs. Assets Rs. Rs.
Capitals
Khanna
Krishna
General Reserve
Creditors
1,35,000
90,000
45,000
30,000
3,00,000 Furniture
Stock
Debtors
Cash
30,000
1,50,000
75,000
45,000
3,00,000
Krishna died on August 31st 2000 .Partnership deed provided that in the event of death of any partner his heirs would be entitled to be paid out:
Capital to his credit at the date of death.
His share of reserve at the date of the last Balance Sheet.
His share of profits to the date of his death based on the average profits of the last three accounting years.
By way of goodwill his share of total profits for the preceding three accounting years.
The profits for the three proceeding accounting years were as follows:
1999 – 2000 Rs.67,500
1998 – 2000 Rs.58,800
1997 – 1998 Rs.62,700
He is decided to transfer the amount due to Krishna to his heir’s Loan Account Prepare
Solution:
Krishna’s Capital A/c
2000
Aug.31
To Krishna Heir’s Loan A/c Rs.
1,94,100
1,94,100 1999
Apr.1
Aug.31
By Balance b/d
By General Reserve
By P & L A/c
By Goodwill Rs.
90,000
18,000
10,500
75,600
1,94,100
Working Notes:
Calculation of Share of Prifit of Krishna to the date of death:
Profit for three preceding accounting years.
1999 – 2000 Rs.67,500
1998 – 2000 Rs.58,800
1997 – 1998 Rs.62,700
Total profit Rs.1,89,000
Average Profits Rs. 1,89,000/3 = Rs.63,000
Profit up to the date of death of Krishna = Rs.63,000x5/12
= Rs.26,250
Krishna’s share of profit =Rs.26,250 x2/5=Rs.10,500
Calculation of Krishna’s Share of Goodwill:
Goodwill = Average Profit x 3 years
= Rs.63,000 x3 = Rs.1,89,000
Krishna’s share of goodwill = Rs.1,89,000x2/5=Rs.75,600
Unit Questions:
1. What are the adjustments to be made when a partner is retired or died?
2. A, B and C are partners sharing profits in the ratio of 4:3:2. C is retired and his share was purchased by A and B. Calculate the new profit sharing ratio and gaining ratio.
3. A, B, C and D are partners sharing profits in the ratio of 3:3:2:2. D is retired and the new profit sharing ratio among A,B and C will be 3:3:2. Calculate the gaining ratio.
4. A, B and C are partner sharing profits in the ratio 4:3:2. C retired and it is decided to raise only his share of good will only. No goodwill account appears in the books. Goodwill of the firm is valued at Rs.36,000. Pass journal entry.
5. Raja, Bala and Gaja were partners sharing profits and losses in the ration of 3:2:1 respectively. The Balance Sheet of the firm as on 31st December 2000 was as follows:
Liabilities Rs. Assets Rs.
Bills Payable 1,00,000 Cash at Bank 50,000
Sundry Creditors 3,80,000 Debtors 3,20,000
Reserve 2,40,000 Less:Provision 10,000 3,10,000
Capital Accounts
Raja 8,00,000
Bala 6,00,000
Gaja 5,00,000
19,00,000
Stock
Motor Vechicle
Plant and Machinery
Buildings
5,00,000
1,60,000
7,00,000
9,00,000
26,20,000 26,20,000
6. The Balance Sheet of a partnership firm of A, B and C, who were sharing profits and losses in the ratio 5:3:2 respectively, as on 31st March 2000 was as follows:
Liabilities Rs. Assets Rs.
Creditors 75,000 Cash at Bank 33,600
General Reserve 60,000 Bills Receivable 38,400
Capital Account Debtors 60,000
A 2,25,000 Stock 1,05,000
B 1,80,000 Furniture 63,000
C 1,50,000 Land and buildings 1,50,000
5,55,000 Machinery 2,40,000
6,90,000 6,90,000
On the above date C retired on the following terms:
The goodwill of the firm is valued at Rs.2,40,000
Machinery was to be depreciated by 10% and land and building was to be appreciated by 20%
Stock valued at 25% above cost. It was to be brought into the books of the new firm at cost price.
There was a liability for repairs to furniture amounting to Rs.600, the same was to be recorded in the books.
Capital accounts of the continuing partners were to be adjusted in the new profit sharing ratio by opening necessary current accounts.
You are required to prepare Revaluation Account, Capital Accounts and the opening Balance Sheet of the new firm.
7. Following is the Balance Sheet of A, B and C as on 31st December 1999:
Liabilities Rs. Assets Rs.
Sundry Creditors 14,000 Goodwill 16,000
General Reserve 12,800 Furniture 21,200
Fixed Capital Accounts Stock 20,800
A 40,000 Sundry Creditors 24,000
B 20,000 Cash at Bank 16,000
C 20,000 Cash in hand 8,800
1,06,800 1,06,800
C died on 31st March 2000. Under the terms of the partnership deed, the executors of the deceased partner were entitled to:
(a) Amount standing to the credit of partner’s capital account.
(b) Interest on capital at 5% per annum.
(c) Share of goodwill on the basis of thrice the average of the past three years profits and
(d) Share of profit from the closing of the last financial year to the date of death on the basis of the average of the last three years’ profits.
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