# 12th | Ts grewal 2021-2022 Question 21 to 24 | Death of a partner

#### 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.

 In the books of the A, B and C Journal Date Particulars L.F. Debit Amount ( `) Credit Amount ( `) 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. 30th 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

#### 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 one-half 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.

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

#### 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 profit-sharing 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 2015-16 2016-17 2017-18 2018-19 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.

 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

#### 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.

 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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