12th | Ts grewal 2021-2022 Question 33 And 34 | Death of a partner

Page No 7.36:


Question 33: Aman, Naman and Raman were partners in a firm sharing profits and losses in the ratio of 2:2:1. On 31st March, 2021, their Balance Sheet was as follows:

Balance sheet

Assets

 

`

Liabilities

`

Capital A/cs:

 

 

Fixed assets

14,00,000

Aman

8,00,000

 

Stock

4,00,000

Naman

7,00,000

 

Debtors

3,00,000

Raman

5,00,000

20,00,000

Cash at bank

7,00,000

 Worker’s comensation reserve

 

50,000

Cash in hand

1,00,000

Genseral Reserve

 

2,00,000

Advertisement suspense A/c

50,000

Employee’s Provident fund

 

2,00,000

(Deferred Revenue)

 

Creditors

 

5,00,000

 

 

 

 

29,50,000

 

29,50,000

Naman died on 30th June, 2021. According to the Partnership Deed, his legal heirs were entitled to:

(a) Balance in his Capital Account.

(b) His share of goodwill will be calculated on the basis of thrice the average of the past 4 years’ profits.

(c) His share in profits up to the date of death on the basis of average profits of the last two years.

(d) Interest on capital @ 12% p.a. up to the date of his death.

The firm’s profits for the last four years ended 31st March, were:

2018: ` 2,40,000; 2019: ` 4,00,000; 2020: ` 5,20,000 and 2021: ` 4,40,000.

Naman’s Executor was paid the sum due immediately. Prepare Naman’s Capital Accounts to be presented to his legal heirs.

 

Answer:                   


Naman’s Capital Account

Particulars

Dr. `

Particulars

Cr. `

To Advertisement suspense A/c (WN-6)

20,000

By Balance b/d

7,00,000

To Naman’s Executors A/c

13,29,000

By Worker’s compensation reserve A/c (WN-1)

20,000

 

 

By General Reserve A/c (WN-2)

80,000

 

 

By P&L Suspense A/c (WN-3)

48,000

 

 

By Interest on Capital A/c (WN-4)

21,000

 

 

By Aman’s Capital A/c (WN-5)

3,20,000

 

 

By Raman’s Capital A/c (WN-5)

1,60,000

 

 

 

 

 

 

 

 

 

13,49,000

 

13,49,000

Working notes:

WN-1 Naman’s share of Workers’ Compensation Reserve

Naman’s Share of Profit = 50,000×2/5 = ` 20,000

 

WN-2 Naman’s share of General Reserve

Naman’s Share of Profit = 2,00,000×2/5 = ` 80,000

 

WN-3 Naman’s share of Profit till the date of death

Average Profit =5,20,000+4,40,000/2=4,80,000

Naman’s Share of Profit = 4,80,000×2×3/5×12 = ` 48,000

 

WN-4 Calculation of Interest on Capital

Naman’s Interest on Capital till the date of death = 7,00,000×12×3/100×12=21,000

 

WN-5 Calculation of goodwill

The average profits = 2,40,000+4,00,000+5,20,000 +4,40,000/4=4,00,000

Goodwill of the Firm = ` 4,00,000×3=12,00,000

Share of Naman is in Goodwill = 12,00,000 × 2/5 = 4,80,000

Goodwill Share of Naman is in Goodwill will be compensated by Aman and Raman in 2:1

Aman = 4,80,000 × 2/3 = 3,20,000

Raman = 4,80,000 × 1/3 = ,160,000

 

WN-6 Naman’s share of Advertisement Suspense A/c

Naman’s Share of Profit = 50,000×2/5 = ` 20,000

 

Page No 7.37:

Question 34:


The Balance Sheet of X, Y and Z as at 31st March, 2020 was:
 

Liabilities

Amount

( `)

Assets

Amount

( `)

Bills Payable

2,000

Cash at Bank

5,800

Employees' Provident Fund

5,000

Bills Receivable

800

Workmen Compensation Reserve

6,000

Stock

9,000

General Reserve

6,000

Sundry Debtors

16,000

Loans

7,100

Furniture

2,000

Capital A/cs:

 

Plant and Machinery

6,500

X

22,750

 

Building

30,000

Y

15,250

 

Advertising Suspense

6,000

Z

12,000

50,000

 

 

 

76,100

 

76,100

 

 

 

 

   
The profit-sharing ratio was 3 : 2 : 1. Z died on 31st July, 2020. The Partnership Deed provides that:
(a) Goodwill is to be calculated on the basis of three years' purchase of the five years' average profit. The profits were: 2020:  ` 24,000; 2019:  ` 16,000; 2018:  ` 20,000 and 2017:  ` 10,000 and 2016:  ` 5,000.
(b) The deceased partner to be given share of profits till the date of death on the basis of profits for the previous year.
(c) The Assets have been revalued as: Stock  ` 10,000; Debtors  ` 15,000; Furniture  ` 1,500; Plant and Machinery  ` 5,000; Building  ` 35,000. A Bill Receivable for  ` 600 was found worthless.
(d) A Sum of  ` 12,233 was paid immediately to Z's Executors and the balance to be paid in two equal annual instalments together with interest @ 10% p.a. on the amount outstanding.
Give Journal entries and show the Z's Executors' Account till it is finally settled.

 

Answer:


Journal

Particulars

L.F.

Debit

Amount

`

Credit

Amount

`

Workmen’s Compensation Reserve

Dr.

 

6,000

 

To X’s Capital A/c

 

 

3,000

To Y’s Capital A/c

 

 

2,000

To Z’s Capital A/c

 

 

1,000

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

 

 

 

 

 

 

 

General Reserve A/c

Dr.

 

6,000

 

To X’s Capital A/c

 

 

3,000

To Y’s Capital A/c

 

 

2,000

To Z’s Capital A/c

 

 

1,000

(General Reserve distributed among partners in their old ratio)

 

 

 

 

 

 

 

X’s Capital A/c

Dr.

 

3,000

 

Y’s Capital A/c

Dr.

 

2,000

 

Z’s Capital A/c

Dr.

 

1,000

 

To Advertisement Suspense A/c

 

 

6,000

(Advertisement suspense written off among partners in their old ratio)

 

 

 

 

 

 

 

X’s Capital A/c

Dr.

 

4,500

 

Y’s Capital A/c

Dr.

 

3,000

 

To Z’s Capital A/c

 

 

7,500

(Z’s share of goodwill adjusted)

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

3,600

 

  To Sundry debtors A/c

Dr.

 

 

1,000

To Furniture A/c

 

 

500

To Plant and Machinery A/c

 

 

1,500

To Bills Receivable A/c

 

 

600

(Decrease in value of Assets transferred to Revaluation Account)

 

 

 

 

 

 

 

Stock A/c

Dr.

 

1,000

 

Building A/c

Dr.

 

5,000

 

To Revaluation A/c

 

 

6,000

(Increase in value of Assets transferred to Revaluation Account)

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

2,400

 

To X’ Capital A/c

 

 

1,200

To Y’s Capital A/c

 

 

800

To Z’s Capital A/c

 

 

400

(Revaluation profit distributed among partners in their old ratio)

 

 

 

 

 

 

 

Profit and Loss Suspense A/c

Dr.

 

1,333

 

To Z’s Capital A/c

 

 

1,333

(Z’s share of profit transferred his capital account)

 

 

 

 

 

 

 

Z’s Capital A/c

Dr.

 

22,233

 

  To Z’s Executor’s A/c

 

 

22,233

(Amount due to Z transferred to his Executor’s Account)

 

 

 

 

 

 

 

Z’s Executor’s A/c

Dr.

 

12,333

 

To Bank A/c

 

 

12,333

(Amount paid to Z’s Executor)

 

 

 

 

 

 

 

 

Z’s Executor’s Account

Dr.

 

Cr.

Date

Particulars

Amount

`

Date

Particulars

Amount

`

2020

 

 

2020

 

 

July 31

Bank A/c

12,233

July 31

Z’s Capital A/c

22,233

2021

 

 

2021

 

 

Mar. 31

Balance c/d

10,667

Mar. 31

Interest (10,000 × 10% for 8 months)

667

 

 

22,900

 

 

22,900

2021

 

 

2021

 

 

July 31

Bank A/c (5,000 + 667 + 333)

6,000

Apr. 01

Balance b/d

10,667

 

 

 

July 31

Interest (10,000 × 10% for 4 months )

333

2022

 

 

2022

 

 

Mar.31

Balance c/d

5,333

Mar. 31

Interest (5,000 × 10% for 8 months)

333

 

 

11,333

 

 

11,333

2022

 

 

2022

 

 

July 31

Bank A/c (5,000 + 333 + 167)

5,500

Apr. 01

Balance b/d

5,333

 

 

 

July 31

Interest (5,000 × 10% for 4months)

167

 

 

5,500

 

 

5,500

 

 

 

 

 

 


Working Notes:

WN1 Calculation of Goodwill

Goodwill = Average Profit × Number of Year’s Purchase

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

Average profit =24,000+16,000+20,000+10,000+5000/5=15,000

∴ Goodwill = Average Profit × Number of Years’ Purchase

                   = 15,000 × 3 = ` 45,000

WN2 Adjustment of Goodwill

Old Ratio = 3 : 2 : 1

Z died.

∴ New Ratio (X and Y) = 3 : 1 and

Gaining Ratio = 3 : 2

Z’s Share in Goodwill = 45,000×1/6=7,500

This share of goodwill is to be distributed between X and Y in their gaining ratio (i.e. 3 : 1).

X’s Share of Goodwill = 7,500×3/5=4,500

Y’s Share of Goodwill = 7,500×2,5=3,000



WN3 Calculation Z’s Share of Profit

Profit for 2017-18 (Immediate Previous Year) = ` 24,000

∴ Z’s Profit Share = 24,000×1/6×4/12=1,333



WN4
 

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

`

Particulars

Amount

`

Sundry Debtors

1,000

Stock

1,000

Furniture

500

Building

5,000

Plant and Machinery

1,500

 

 

Bills Receivable

600

 

 

Profit transferred to:

 

 

 

X’s Capital A/c

1,200

 

 

 

Y’s Capital A/c

800

 

 

 

Z’s Capital A/c

400

2,400

 

 

 

6,000

 

6,000