# 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:

#### 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)

#### 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

#### 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.

 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:

#### 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)

 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

#### 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.

 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]

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