In case of retirement and death, goodwill is adjusted through the partners’ account in Gaining Ratio.

New ratio = old ratio + gaining ratio

Calculation of gaining ratio

When shares issued at par are forfeited the accounting treatment will be as follows:

(i) Debit Share Capital Account with amount called up (whether received or not) per share up to the time of forfeiture.

(ii) Credit Share Forfeited A/c. with the amount received up to the time of forfeiture.

(iii) Credit ‘Unpaid Calls A/c’ with the amount due on forfeited shares. This cancels the effect of debit to such calls which take place when the amount is made due forfeited shares account will be credited by the amount which has been received in respect of forfeited shares.

Here Shveta holding 100 shares did not pay final call money.

Thus amount received in respect of the shares forfeited will be = 100 × (20 + 20 + 25) = Rs. 6,500

When a new partner comes into the business, old partners have to give him his profit share from their portion. Thus change in profit sharing ratio is an important aspect to be considered on reconstitution by admission. In academic accounting, change in profit sharing ratio can be presented in various ways. The existing partners may decide to change their profit sharing ratio for various reasons. When the profit sharing ratio is revised among existing partners, there ought to be a partial sacrifice of profit share by some partners in favour of others. The sacrifice of one or a group of partners becomes the gain of the remaining partners. Following is the formula for calculating sacrificing ratio:

Sacrificing ratio = Old ratio – New ratio

Gaining/sacrificing ratio

After making the Trading and Profit and Loss account of a Partnership firm the next step is to divide the profits or losses among the partners and to make other appropriations like interest on capital, salary, commission etc. For this purpose an another account is prepared i.e. profit and Loss appropriation account.

This account is prepared to show the division of profit and other appropriations among partners like salary, commission, interest on capital, interest on drawings etc.

The maximum amount of discount allowed at the time of reissue implies the maximum amount of discount that a company can allow at the time of reissue of the forfeited shares. The maximum discount on the reissue of shares depends upon the following two circumstances.

Whether the forfeited shares were originally issued at par or at premium .

Whether the forfeited shares were originally issued at discount .

If the forfeited shares were originally issued at par or at premium , then these forfeited shares can be reissued with the maximum discount equal to the amount received (or paid by) the original shareholder. On the other hand, if the forfeited shares were originally issued at discount, then these forfeited shares can be reissued with the maximum discount equal to the amount received (or paid by) the original shareholder plus discount allowed at the time of original issue. Thus option (d) is the correct option.

When a new partner comes into the business, old partners have to give him his profit share from their portion. Thus change in profit sharing ratio is an important aspect to be considered on reconstitution by admission. In academic accounting, change in profit sharing ratio can be presented in various ways. The existing partners may decide to change their profit sharing ratio for various reasons. When the profit sharing ratio is revised among existing partners, there ought to be a partial sacrifice of profit share by some partners in favour of others. The sacrifice of one or a group of partners becomes the gain of the remaining partners. Following is the formula for calculating sacrificing ratio:

Sacrificing ratio = Old ratio – new ratio

Gaining/sacrificing ratio

The amount of debenture discount can be written off in two ways :

1. All debentures are to be redeemed after a fixed period. When the debentures are to be redeemed after a fixed period, the amount of discount will be distributed equally within the number of years spreaded between the issue of debentures and their redemption. The amount of discount on issue of debentures to be written off each year is calculated as

Amount of discount to be written off annually

= Total amount of Discount/Number of years

2. Debentures are redeemed in instalments. Debentures may also be redeemed in instalments but over a fixed period. In that case the amount of debenture discount will be written off each year in proportion to the amount of debentures redeemed.

Here company issued debentures of the face value of Rs. 1,00,000 at a discount of 6% on Jan. 1, 2009. These debentures are redeemable by annual drawings of Rs.20,000 made on 31st Dec. each year. The directors decided to write off discount based on the debentures outstanding each year.

Total discount = 6% of 1,00,000 = Rs. 6,000

Calculation of discount to be written off every year

When the shares forfeited are reissued at discount, Bank account is debited by the amount received and Share capital account is credited by the paid up amount. The amount of discount allowed is debited to Share Forfeited Account. This is for adjusting the amount of discount so allowed from the amount forfeited at the time of forfeiture.

Now the amount of discount allowed on reissue of shares at the most can be equal to the forfeited amount on such shares. In that case the share forfeited account after reissue will show a zero balance. But in case, this amount of discount is less than the amount forfeited, the remaining forfeited amount will be profit for the company. This profit is a capital gain to the company and is transferred to Capital Reserve account.

In the above question discount on shares reissued = number of shares reissued × discount allowed per share = 2,500 – 2,000 = Rs. 500

Amount available for the reissued shares in shares forfeiture account = number of shares reissued × amount forfeited per share = 250 × (10 – 3-4) = Rs. 750

The surplus amount to be transferred to capital reserve account = 750 – 500 = Rs.250

Amount spent for reduction in working expenses will give benefit for more than one accounting period, thus it is capital in nature.