Page No 7.32:
Question 21:
A, B and C were
partners sharing profits in the ratio of 3 : 2 : 1.
The firm closes its books on 31st March every year. B died on 30th June, 2020.
On his death, Goodwill of the firm was valued at ` 6,00,000. B's share in
profit or loss till the date of death was to be calculated on the basis of
previous year's profit which was ` 15,00,000 (Loss). Pass necessary Journal
entries for goodwill and his share of loss.
Answer:
In the books of the A, B and C Journal 

Date 
Particulars 

L.F. 
Debit (
`) 
Credit (
`) 
2020 





June 30 
A’s
Capital A/c (2,00,000 × 3/4) 
Dr. 

1,50,000 


C’s
Capital A/c (2,00,000 × 1/4) 
Dr. 

50,000 


To B’s Capital A/c (WN1) 



2,00,000 

(Being
B’s share of goodwill adjusted in gaining ratio 3 : 1) 











B’s
Capital A/c (WN2) 
Dr. 

1,25,000 


To Profit & Loss Suspense A/c 



1,25,000 

(Being
B’s Share of loss debited to his Capital) 




Working
Notes:
1. Calculation of B’s Share of Goodwill
Goodwill 
= 
` 6,00,000 
B’s Share of Goodwill 
= 
`
(6,00,000
× 2/6) = `
2,00,000 
2. Calculation of B’s Share of Loss till the date of his death i.e.
30^{th} June, 2020
Previous
year’s loss 
= 
` 15,00,000 
B’s share of loss till the date of death 
= 
Previous
year’s loss × B’s Share of Loss × Months till the date of his death/12 

= 
` (15,00,000 × 2/6
× 3/12) 

= 
`
1,25,000 
Page No 7.32:
Question 22:
P, R and S
are in partnership sharing profits 4/8, 3/8 and 1/8 respectively. It is
provided in the Partnership Deed that on the death of any partner his share of
goodwill is to be valued at onehalf of the net profit credited to his account
during the last four completed years.
R died on 1st January, 2021. The firm's profits for the last four
years ended 31st December, were as:
2017 − ` 1,20,000; 2018 − ` 80,000; 2019 − ` 40,000; 2020 − ` 80,000.
(a) Determine the amount that should be credited to R in respect of
his share of Goodwill.
(b) Pass Journal entry without raising Goodwill Account for its adjustment.
Answer:
Calculation
of R’s Share of Goodwill
Profit credited to R’s Capital Account in 4 years = Net profit for last four
years × R’s Share
=1,20,000+80,000+80,000+4,000×3/8
=3,20,000×3/8=1,20,000
(b)
Journal 

Particulars 
L.F. 
Debit Amount ` 
Credit Amount ` 

P’s
Capital A/c 
Dr. 

48,000 

S’s
Capital A/c 
Dr. 

12,000 

To
R’s Capital A/c 


60,000 

(R’s
share of goodwill adjusted) 



Working Notes:
R’s Share of Goodwill = ` 60,000
Old Ratio (P, R and S) = 4 : 3 : 1
R died.
∴ Gaining Ratio = 4 : 1
This share of goodwill is to be distributed between P and S in their gaining
ratio (i.e. 4 : 1)
p’s Share of Goodwill = 60,000×4/5=48,000
S’s
share of Goodwill =60,000 ×1/5=12,000
Page No 7.32:
Question 23:
X, Y and
Z were partners in a firm sharing profits in the ratio of 4 : 3 : 1. The firm closes its books on 31st March every
year. On 1st February, 2020, Y died and it was decided that the new
profitsharing ratio between X and Z will be equal.
Partnership Deed provided for the following on the death of a partner:
(a) His share of goodwill be calculated on the basis of half of the profits
credited to his account during the previous four completed years. The firm's
profits for the last four years were:
Year 
201516 
201617 
201718 
201819 
Profits
( `) 
1,50,000 
1,00,000 
50,000 
1,00,000 
(b) His share of profit in the year of his death was to be computed on the
basis of average profit of past two years.
Pass necessary Journal entries relating to goodwill and profit to be
transferred to Y's Capital Account.
Answer:
Journal 

Date 
Particulars 
L.F. 
Debit Amount ( `) 
Credit Amount ( `) 

2020 





Feb 1 
Z’s Capital A/c 
Dr. 

75,000 


To Y’s Capital A/c 



75,000 

(Adjustment of
Y’s share of Goodwill ) 










Feb 1 
Z’s Capital A/c 
Dr. 

23,438 


To Y’s Capital A/c 



23,438 

(Adjustment of
Y’s share of Profit) 









Working
Notes:
WN1: Calculation of Gaining Ratio
X :Y :Z=4:3:1(Old ratio)
X :Z=1:1(New ratio)
Gaining Ratio = New Ratio  Old Ratio
X's Gain=1/2−4/8=4−4/8=0
Z's Gain=1/2−1/8=4−1/8=3/8
X:Z=0:3
WN2: Calculation of Retiring Partner’s Share of Goodwill
Y's share of goodwill=4,00,000×3/8×1/2=` 75,000
Y's share of goodwill will be brought by Z only.
WN3: Calculation of Retiring Partner’s Share of Profit
Y's share of profit=75,000×3/8×10/12=` 23,438
Average profit for last two years=` 75,000
Page No 7.33:
Question 24:
Iqbal and Kapoor
are in partnership sharing profits and losses in 3 :
2. Kapoor died three months after the date of the last Balance Sheet. According
to the Partnership Deed, the legal heir is entitled to the following:
(a) His capital as per the last Balance Sheet.
(b) Interest on above capital @ 3% p.a. till the date of death.
(c) His share of profits till the date of death calculated on the basis of last
year's profits.
His drawings are to bear interest at an average rate of 2% on the amount
irrespective of the period.
The net profits for the last three years, after charging insurance premium,
were `
20,000; ` 25,000 and
` 30,000 respectively. Kapoor's capital as per Balance
Sheet was `
40,000 and his drawings till the date of death were ` 5,000.
Draw Kapoor's Capital Account to be rendered to his representatives.
Answer:
Kapoor’s Account 

Dr. 
Cr. 

Particulars 
Amount ` 
Particulars 
Amount ` 
Drawings A/c 
5,000 
Balance b/d 
40,000 
Interest on
Drawings A/c 
100 
Interest on
Capital A/c 
300 
Balance c/d 
38,200 
Profit and Loss
Adjustment A/c 
3,000 









43,300 

43,300 




Working Notes
WN1 Calculation of
Interest on Capita of Kapoor till date of his death
Interest 
= capital ×Rate100×time /12 

=40,000×3/100×3/12 =300 
WN2 Calculation of
Share of Profit of Kapoor till date of his death
Profit 
= last years’ profit ×time /12×share of profit 

=30,000×3/12×3/5 =3,000 
WN3
Calculation
of Interest on Drawings
Interest 
= Drawing ×2% 

=5,000×2% =100 
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