12th | Ts grewal 2021-2022 Question 31 And 32 | Death of a partner

Page No 7.35:


Question 31: The Balance Sheet of A, B and C who were sharing profits in the ratio of 3:3 :4 as at 31st March, 2019 was as follows:

BALANCE SHEET OF A, B AND C as at 31th March, 2019

Assets

 

`

Liabilities

`

General Reserve

 

40,000

Cash

4,000

Bills Payable

 

15,000

Stock

43,000

Loan from Bank

 

30,000

Investment

70,000

Capital A/cs:

 

 

Land and Buildings

1,58,000

A

60,000

 

 

 

B

90,000

 

 

 

C

40,000

1,90,000

 

 

 

 

2,75,000

 

2,75,000

A died on 1st October, 2019. The partnership deed provided for the following on the death of a partner:

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

(b) The profit for the year ending 31st March, 2019 was ` 50,000.

(c) Interest on capital was to be provided @ 6% p.a.

(d) The average profits of the last three years were ` 35,000.

Prepare A’s Capital Account to be rendered to his executors. (CBSE 2020 C)

 

Answer:                   


A’s Capital Account

Particulars

Dr. `

Particulars

Cr. `

To Sadhu’s Executors A/c

1,02,300

By Balance b/d

60,000

 

 

By General Reserve A/c (WN-1)

12,000

 

 

By B’s Capital A/c (WN-2)

9,000

 

 

By C’s Capital A/c (WN-2)

12,000

 

 

By Interest on Capital A/c (WN-3)

1,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,02,300

 

1,02,300

Working notes:

WN-1 A’s share of General Reserve

A’s Share of Profit = 40,000×3/10 = ` 12,000

 

WN-2 Calculation of goodwill

The average profits of the last three years were ` 35,000

Goodwill of the Firm = ` 35,000×2=70,000

Share of A is in Goodwill = 70,000 × 3/10 = 21,000

Goodwill Share of A is in Goodwill will be compensated by B and C in 3:4

A = 21,000 × 3/7 = 9,000

B = 21,000 × 4/7 = 12,000

 

WN-3 Calculation of Interest on Capital

A’s Interest on Capital till the date of death = 60,000×6×6/100×12=1,800

 

Page No 7.36:

Question 32:


R, S and T were partners sharing profits and losses in the ratio of 5 : 3 : 2 respectively. On 31st March, 2018, their Balance Sheet stood as:

Liabilities

 

 `

Assets

 `

Sundry Creditors

40,000

Goodwill

25,000

Bills Payable

15,000

Leasehold

1,00,000

Workmen Compensation Reserve

30,000

Patents

30,000

Capital A/cs:

 

Machinery

1,50,000

   R

1,50,000

 

Stock

50,000

   S

1,25,000

 

Debtors

40,000

   T

75,000

3,50,000

Cash at Bank

40,000

 

4,35,000

 

4,35,000

 

 

 

 

   
T died on 1st August, 2018. It was agreed that:
(a) Goodwill be valued at 212 years' purchase of average of last 4 years' profits which were:
    2014-15:  ` 65,000;  2015-16:  ` 60,000; 2016-17:  ` 80,000 and 2017-18:  ` 75,000.
(b) Machinery be valued at  ` 1,40,000; Patents be valued at  ` 40,000; Leasehold be valued at  ` 1,25,000 on 1st August, 2018.
(c) For the purpose of calculating T's share in the profits of 2018-19, the profits in 2018-19 should be taken to have accrued on the same scale as in 2017-18.
(d) A sum of  ` 21,000 to be paid immediately to the Executors of T and the balance to be paid in four equal half-yearly instalments together with interest @ 10% p.a.
Pass necessary Journal entries to record the above transactions and T's Executors' Account. 

 

Answer:


Journal

Particulars

L.F.

Debit

`

Credit

`

Revaluation A/c

Dr.

 

10,000

 

To Machinery A/c

 

 

10,000

(Decrease in value of Machinery transferred to Revaluation Account)

 

 

 

 

 

 

 

Patents A/c

Dr.

 

10,000

 

Leasehold A/c

Dr.

 

25,000

 

To Revaluation A/c

 

 

35,000

(Increase in value Patents and Leasehold transferred to Revaluation Account)

 

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

25,000

 

To R’s Capital A/c

 

 

12,500

To S’s Capital A/c

 

 

7,500

To T’s Capital A/c

 

 

5,000

(Revaluation profit distributed among partners in their old ratio)

 

 

 

 

 

 

 

R’ Capital A/c

Dr.

 

12,500

 

S’s Capital A/c

Dr.

 

7,500

 

T’s Capital A/c

Dr.

 

5,000

 

To Goodwill A/c

 

 

25,000

(Goodwill written off among partners in their old ratio)

 

 

 

 

 

 

 

R’s Capital A/c

Dr.

 

21,875

 

S’s Capital A/c

Dr.

 

13,125

 

To T’s Capital A/c

 

 

35,000

(T’s share of goodwill adjusted)

 

 

 

 

 

 

 

Profit and Loss Suspense A/c

Dr.

 

5,000

 

  To T’s Capital A/c

 

 

5,000

(T’s share of profit transferred to his capital account)

 

 

 

 

 

 

 

Workmen’s Compensation Reserve A/c

Dr.

 

30,000

 

To R’s Capital A/c

 

 

15,000

To S’s Capital A/c

 

 

9,000

To T’s Capital A/c

 

 

6,000

(Workmen’s Compensation Reserve distributed among partners in their old ratio )

 

 

 

 

 

 

 

T’s Capital A/c

Dr.

 

1,21,000

 

To T’s Executors A/c

 

 

1,21,000

(Amount due to T after all adjustments transferred to his Executor’s Account)

 

 

 

 

 

 

 

T’s Executor’s A/c

Dr.

 

21,000

 

To Bank A/c

 

 

21,000

(Amount paid to T’s Executor)

 

 

 

 

 

 

 

 

T’s Executor’s Account

Dr.

 

Cr.

Date

Particulars

Amount

`

Date

Particulars

Amount

`

2018

 

 

2018

 

 

Aug. 01

Cash A/c

21,000

Aug. 01

T’s Capital A/c

1,21,000

2019

 

 

2019

 

 

Jan. 31

Cash A/c (25,000 + 5,000)

30,000

Jan. 31

Interest (1,00,000 ×10% for 6 months)

5,000

Mar. 31

Balance c/d

76,250

Mar. 31

Interest (75,000 ×10% for 2 months)

1,250

 

 

1,27,250

 

 

1,27,250

2019

 

 

2019

 

 

Aug. 01

Cash A/c (25,000 + 1,250 + 2,500)

28,750

Apr. 01

Balance b/d

76,250

2020

 

 

Aug. 01

Interest (75,000 × 10% for 4 months)

2,500

Jan. 31

Cash A/c (25,000 + 2,500)

27,500

2020

 

 

Mar. 31

Balance c/d

25,417

Jan. 31

Interest (50,000 × 10% for 6 months)

2,500

 

 

 

Mar. 31

Interest (25,000 × 10% for 2 months)

417

 

 

81,667

 

 

81,667

2020

 

 

2020

 

 

Aug. 01

Cash A/c (25,000 + 417 + 833)

26,250

Apr. 01

Balance b/d

25,417

 

 

 

Aug. 01

Interest (25,000 × 10% for 4 months)

833

 

 

26,250

 

 

26,250

 

 

 

 

 

 


Working Notes:

WN 1 Calculation of Goodwill

Goodwill = Average Profit × Number of Year’s Purchase

Average profit = total profit of past given years/number of years

Average profit =65,000+60,000+80,000+75,000/4=2,80,000/4=70,000

∴ Goodwill = Average Profit × Number of Years’ Purchase
                    = 70,000 × 2.5 = ` 1,75,000

WN 2 Adjustment of Goodwill

Old Ratio (R, S and T) = 5 : 3 : 2

T died.

∴ New Ratio (R and S) = 5 : 3 and

Gaining Ratio = 5 : 3

T’s Share in Goodwill = 1,75,000×2/10=35,000

This share of goodwill is to be distributed between R and S in their gaining ratio (i.e. 5 : 3).

R’s Share of Goodwill =35,000×5/8=21875

S’s Share of Goodwill =35,000×3/8=13,125


WN 3 Calculation of T’s Share of Profit

Profit for 2017-18 = ` 75,000

T's Share of Profit for 2017-18 =75,000×2/10×4/12=`5,000

WN 4
 

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

`

Particulars

Amount

`

Machinery

10,000

Patents

10,000

Profit transferred to:

 

Leasehold

25,000

R’s Capital A/c

12,500

 

 

 

S’s Capital A/c

7,500

 

 

 

T’s Capital A/c

5,000

25,000

 

 

 

35,000

 

35,000

 

 

 

 


WN 5

T’s Capital Account

Dr.

 

Cr.

Particulars

Amount

`

Particulars

Amount

`

Goodwill

5,000

Balance b/d

75,000

T’s Executor’s A/c

1,21,000

Workmen’s Compensation Reserve

6,000

 

 

Profit and Loss Suspense A/c

5,000

 

 

R’s Capital A/c

21,875

 

 

S’s Capital A/c

13,125

 

 

Revaluation A/c (Profit)

5,000

 

1,26,000

 

1,26,000