12th | Ts grewal 2021-2022 Question 25 to 28 | Death of a partner

Page No 7.33:

Question 25: The Balance sheet of Sadhu, Raja and Karan who were sharing profits in the ratio of 4:2:4  as at 31st March, 2020 was as follows:


Balance sheet

Assets

 

`

Liabilities

`

Bill Payables

 

20,000

Cash

26,000

Loan

 

22,000

Stock

64,000

General Reserve

 

10,000

Investments

85,000

Capital A/cs:

 

 

Land and building

97,000

Sadhu

80,000

 

Sadhu’s Loan

20,000

Raja

60,000

 

 

 

Karan

1,00,00

2,40,000

 

 

 

 

2,92,000

 

2,92,000

 

Sadhu died on 31st July, 2020. The Partnership Deed provided for the following on the death of a partner:

(i) Goodwill of the firm be valued at two years’s purchase of average profits for the last three years.

(ii) Sadhu’s share of profit or loss till the date of his death was to be calculated on the basis of sales. Sales for the year ended 31st March, 2020 amounted to  ` 4,50,000 and that from 1st April to 31st July, 2020 ` 2,70,000. The profit for the year ended 31st March, 2020 was calculated as ` 1,25,000.

(iii) Interest on capital was to be provided @ 5% p.a.

(iv) The average profits of the last three years were ` 55,000.

Prepare Sadhu’s Capital Account to be rendered to his executor. (Delhi 2013, Modified)

 

Answer:


Sadhu’s Capital Account

Particulars

Dr. `

Particulars

Cr. `

To Sadhu’s Executors A/c

 

By Balance b/d

80,000

 

 

By Sadhu’s loan A/c

20,000

 

 

By Raja’s Capital A/c (WN-1)

14,667

 

 

By Karan’s Capital A/c (WN-1)

29,333

 

 

By P&L Suspense A/c

    8,467

 

 

By Interest on Capital A/c

1,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working notes:

WN-1 Calculation of goodwill

The average profits of the last three years were ` 55,000

Goodwill of the Firm = ` 55,000×2=1,10,000

Share of Sadhu is in Goodwill = 1,10,000 × 4/10 = 44,000

Goodwill Share of Sadhu is in Goodwill will be compensated by Raja and Karan in 2:4

Raja = 44,000 × 2/6 = 14,667

Karan = 44,000 × 4/6 = 29,333

WN-2 Interest on capital was to be provided @ 5% p.a.

Sadhu’s Interest on Capital = 80,000×5×4/100×12= 1,333

 

WN-3 Calculation of Sadhu’s share of Profit

Sales for the year ended 31st March, 2020 = ` 4,50,000

The profit for the year ended 31st March, 2020 = ` 1,25,000.

Percentage of Profit for the year ended 31st March, 2020 = 1,25,000×100/4,50,000= 28%

Sales from 1st April to 31st July, 2020 = ` 2,70,000

Profit from 1st April to 31st July, 2020 = ` 2,70,000×28/100= ` 75,600

Sadhu’s Share of Profit = 75,600×28×4/100×10 = ` 8,467

 

Page No 7.33:

Question 26:


X and Y are partners. The Partnership Deed provides inter alia:
(a) That the Accounts be balanced on 31st March every year.
(b) That the profits be divided as: X one-half, Y one-third and carried to a Reserve one-sixth.
(c) That in the event of the death of a partner, his Executors be entitled to be paid:
    (i) The Capital to his credit till the date of death.
    (ii) His proportion of profits till the date of death based on the average profits of the last three completed years.
    (iii) By way of Goodwill, his proportion of the total profits for the three preceding years.
(d)

BALANCE SHEET as at 31st March, 2021

Liabilities

 `

Assets

 `

Capital A/cs:

 

Sundry Assets

21,000

 X

9,000

 

 

 

 Y

     6,000

 15,000

 

   

Reserve

 

3,000

 

 

 

Creditors

3,000

 

 

 

 

 

 

 

21,000

 

21,000

 

 

 

 


Profits for three years were: 2019  ` 4,200; 2020 −
 ` 3,900; 2021 −  ` 4,500.

Y died on 1st August, 2021. Prepare necessary accounts.

 

Answer:


Y’s Capital Account

Dr.

 

Cr.

Particulars

Amount

( `)

Particulars

Amount

( `)

 

 

Balance b/d

6,000

 

 

X’s Capital A/c (Reserve)

1,200

Y’s Executor’s A/c

12,800

X’s Capital A/c (Goodwill)

5,040

 

 

X’s Capital A/c (Profit)

560

 

12,800

 

12,800

 

 

 

 


Working Notes:

WN 1
Old Ratio (X and Y) = 1/2 : 1/3 or     3:2

WN 2
Y’s share of reserve =3,000×2/5=1,200

WN 3 Calculation Y’s Share of Profit 
Average profit = total profit of past given years/number of years

Average profit =4200+3900+4500/3=12600/3=4,50

Y’s Share of Profit (from April 01,2021 to August 01, 2021 ) 4,200×2/5×4/12=560

WN 4 Calculation of Y’s Share of Goodwill 
Y’s share of Goodwill = Y’s Profit Share in last three year
Profit for last three years = 4,200 + 3,900 + 4,500 =
` 12,600
Y’s Share of Goodwill=12,600×2/5=5040

 

Page No 7.34:


Question 27: A, B were partners in a firm. A died on 31sth March, 2018 and the Balance sheet of the firm on that date was as under:

Balance sheet as at 31st March, 2018

Assets

 

`

Liabilities

`

Bill Payables

 

7,000

Cash at bank

12,000

Loan

 

9,000

Debtors

32,000

General Reserve

 

10,000

Furniture

30,000

Profit and Loss Account

 

6,000

Plant

40,000

Capital A/cs:

 

 

Patents

8,000

Sadhu

40,000

 

 

 

Raja

30,000

 

 

 

Karan

20,000

90,000

 

 

 

 

1,22,000

 

1,22,000

On A’s death it was found that patents were valueless, furniture was to be brought down to ` 24,000, plant was to be reduced by ` 10,000 and there was a liability of ` 7,000 on account of workmen’s compensation.

Pass the necessary Journal entries for the above at the time of A’s death. (CBSE 2019)

 

Answer:


Date

Particulars

 

L.F.

(Dr.) `

(Cr.) `

 

Patent A/c

Furniture A/c

Plant A/c

  To Revaluation a/c

(Being Values of Fixed assets decreased)

Dr.

Dr.

Dr.

 

8,000

6,000

10,000

 

 

 

24,000

 

Revaluation A/c

   To A’s capital A/c

   To B’s capital A/c

   To C’s capital A/c

(Being Loss on Revaluation transferred to capital accounts)

Dr.

 

24,000

 

8,000

8,000

8,000

 

General Reserve A/c

   To A’s capital A/c

   To B’s capital A/c

   To C’s capital A/c

(Being General Reserve transferred to capital accounts)

Dr.

 

 

9,000

 

3,000

3,000

3,000

 

Workers’ Compensation Reserve A/c

  To workers’ Compensation Claim A/c

  To A’s capital A/c

  To B’s capital A/c

  To C’s capital A/c

(Being Workers’ Compensation Reserve transferred to capital accounts after adjusting Claim)

Dr.

 

 

10,000

 

7,000

1,000

1,000

1,000

 

 

 

Profit and Loss  A/c

   To A’s capital A/c

   To B’s capital A/c

   To C’s capital A/c

Dr.

 

 

6,000

 

2,000

2,000

2,000

 

  A’s capital A/c

     To  A’s Executors’ A/c

 

Dr.

 

 

38,000

 

38,000

 

Page No 7.34:

Question 28:


On 31st March, 2014, the Balance Sheet of Pooja, Qureshi and Ross, who were partners in a firm was as under:

Liabilities

Amount

( `)

Assets

Amount

( `)

Sundry Creditors

2,50,000

Building

2,60,000

Reserve Fund

2,00,000

Investment

1,10,000

Capital A/cs: Pooja

1,50,000

 

Qureshi's Loan

1,00,000

                     Qureshi

1,00,000

 

Debtors

1,50,000

                     Ross

1,00,000

3,50,000

Stock

1,20,000

 

 

 

Cash

60,000

 

8,00,000

 

8,00,000

 

 

 

 

   
Qureshi died on 1st July, 2014. The profit-sharing ratio of the partners was 2 : 1 : 1. On the death of a partner, the partnership deed provided for the following:
(i) His share in the profits of the firm till the date of his death will be calculated on the basis of average profits of last three completed years.
(ii) Goodwill of the firm will be calculated on the basis of total profit of last two years.
(iii) Interest on loan given by the firm to a partner will be charged at the rate of 6% p.a. or  ` 4,000, whichever is more.
(iv) Profits for the last three years were  ` 45,000; 
` 48,000 and  ` 33,000.
Prepare Qureshi's Capital Account to be rendered to his executors.

 

Answer:


Dr.

Qureshi’s Capital A/c

Cr.

Date

Particulars

Amount

( `)

Date

Particulars

Amount

( `)

2014

 

 

2014

 

 

July 01

To Qureshi’s Loan A/c (WN3)

1,04,000

April 01

By balance b/d

1,00,000

2015

 

 

July 01

By Pooja’s Capital A/c (WN1)

13,500

March 31

To balance c/d

68,875

July 01

By Ross’s Capital A/c (WN1)

6,750

 

 

 

July 01

By Profit & Loss Suspense A/c (WN2)

2,625

 

 

 

July 01

By Reserve Fund A/c

50,000

 

 

 

 

(2,00,000 × 1/4)

 

 

 

1,72,875

 

 

1,72,875

 

 

 

 

 

 

 
Working Notes:                              
1. Calculation of Qureshi’s Share of Goodwill

Goodwill

=

 ` (48,000 + 33,000) =  ` 81,000

Qureshi’s Share of Goodwill

=

 ` (81,000 × 1/4) =  ` 20,250

Gaining Ratio

=

Pooja : Ross = 2 : 1

Amount debited to Pooja’s Capital A/c

=

 ` (20,250 × 2/3) =  ` 13,500

Amount debited to Ross’s Capital A/c

=

 ` (20,250 × 1/3) =  ` 6,750


2. Calculation of Qureshi’s Share of Loss till the date of his death

Average Profit of the last three years

=

 ` (45,000 + 48,000 + 33,000)/3 =  ` 42,000

Qureshi’s share of loss till the date of death

=

Previous year’s loss × Qureshi’s Share of Loss × Months till the date of his death/12

 

=

 ` (42,000 × 1/4 × 3/12)

 

=

 ` 2,625


3. Calculation of Amount due on account of Loan given to Qureshi

Loan given to Qureshi by a firm

=

 ` 1,00,000

Amount of interest till 1st July, 2014

=

 ` (1,00,000 × 6/100 × 3/12) =  ` 1,500

Total Amount due to firm on 1st July

=

Loan amount + Amount of Interest

 

=

 ` (1,00,000 + 4,000)=  ` 1,04,000                              

[As 4,000 > Amount of Interest]