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:

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)

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

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.

 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

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

Click on Below link for more questions Of Volume-1 of 12th