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Model Test Papers M.63
Or
Equity Share Capital is not redeemable whereas Preference Share Capital is redeemable.
5. Rent to a partner is a charge against profit. It is, therefore, debited to Profit and Loss
Account and not to Profit and Loss Appropriation Account.
6. Retiring Partner’s share of goodwill is debited to Remaining Partners in the
Gaining Ratio.
7. In the Books of Blue & Star Ltd.
JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)

2018
March 31 Surplus, i.e., Balance in Statement of Profit and Loss A/c ...Dr. 3,00,000
To Debentures Redemption Reserve A/c (WN) 3,00,000
(Being the transfer of balance amount to Debentures Redemption Reserve)

April 30 Debentures Redemption Investment A/c ...Dr. 3,00,000
To Bank A/c 3,00,000
(Being 15% of nominal value of debentures to be redeemed
invested, i.e., 15% of ` 20,00,000)

Aug. 31 Bank A/c ...Dr. 3,00,000
To Debentures Redemption Investment A/c 3,00,000
(Being the investment encashed for redemption)
Aug. 31 10% Debentures A/c ...Dr. 20,00,000
To Debentureholders’ A/c 20,00,000
(Being the amount due to debentureholders on redemption)

Debentureholders’ A/c ...Dr. 20,00,000
To Bank A/c 20,00,000
(Being the payment made to debentureholders)
Debentures Redemption Reserve A/c ...Dr. 5,00,000
To General Reserve A/c 5,00,000
(Being the Debentures Redemption Reserve transferred to General Reserve)

Working Note:
Calculation of Balance Amount to be transferred to DRR: `
DRR Required (25% of ` 20,00,000) 5,00,000
Less: Existing Balance of DRR 2,00,000
Amount to be transferred to DRR 3,00,000
8. In addition to (i) admission of a new partner, (ii) retirement of a partner, and
(iii) death of a partner, the need for the valuation of goodwill in partnership may arise
in the following circumstances:
(i) When profit-sharing ratio among partners has changed.
(ii) Dissolution of a firm involving sale of business as a going concern.
(iii) Amalgamation of two partnership firms.