# 12th | Ts grewal 2021-2022 Question 35 And 36 | Death of a partner

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Question 35: Karim, Saleem and Raheem were partners in a firm sharing profits and losses in the ratio of 3:4:3. The firm closes its books on 31st March every year. On 1st October, 2019, Karim died. On Karim’s death, the goodwill of the firm was valued at ` 3,50,000. Karim’s share in the profits of the firm in the year of his death was to be calculated on the basis of average profits of last four years. The profits for the last four years were 2015-16- ` 1,70,000; 2016-17- ` 1,30,000;2017-18- ` 1,90,000 and 2018-19- ` 1,10,000.The total amount payable to Karim’s executors on his death was ` 7,35,000. It was paid on 15th October, 2019.

Pass necessary Journal entries for the above transactions in the books of the firm. (CBSE 2020)

 Date Particulars L.F. (Dr.) ` (Cr.) ` Saleem’s capital A/c Raheem’s capital A/c   To Kareem’s capital A/c (Being Kareem’s Sacrifice compensated) Dr. Dr. Dr. 60,000 45,000 1,05,000 P&L Suspense  A/c   To Kareem’s capital A/c (Being Profit transferred to capital accounts till the date death) Dr. 22,500 22,500 Kareem’s capital A/c   To Kareem’s Executor’s A/c  (Being Kareem’s capital A/c has been transferred Kareem’s Executor’s A/c) Dr. 7,35,000 7,35,000

Working notes:

WN-1 Calculation of goodwill

The goodwill of the firm was valued at ` 3,50,000

Karim’s Share of Goodwill = 3,50,000×3/10 = ` 1,05,000

Goodwill Share of Karim is in Goodwill will be compensated by Saleem and Raheem in 4:3

Saleem = 1,05,000× 4/7 = 60,000

Raheem = 1,05,000× 3/7 = 45,000

WN-2 Karim’s share of Profit till the date of death

The average profits = 1,70,000+1,30,000+1,90,000 +1,10,000/4=1,50,000

Karim’s share of Profit = ` 1,50,000×3×6/10×12=22,500

#### Question 36:

X, Y and Z were partners in a firm sharing profits and losses in the 5 : 4 : 3. Their Balance Sheet on 31st March, 2020 was as follows:

 Liabilities Amount ( `) Assets Amount ( `) Creditors 2,00,000 Building 2,00,000 Employees' Provident Fund 1,50,000 Machinery 3,00,000 General Reserve 36,000 Furniture 1,10,000 Investment Fluctuation Reserve 14,000 Investment (Market value  ` 86,000) 1,00,000 Capital A/cs: Debtors 80,000 X 3,00,000 Cash at Bank 1,90,000 Y 2,50,000 Advertisement Suspense 1,20,000 Z 1,50,000 7,00,000 11,00,000 11,00,000

X died on 1st October, 2020 and Y and Z decide to share future profits in the ratio of 7 : 5. It was agreed between his executors and the remaining partners that:
(i) Goodwill of the firm be valued at 2 ½  years' purchase of average of four completed years' profit which were:

 Year 2016-17 2017-18 2018-19 2019-20 Profits ( `) 1,70,000 1,80,000 1,90,000 1,80,000

(ii) X's share of profit from the closure of last accounting year till date of death be calculated on the basis of last years' profit.
(iii) Building undervalued by  ` 2,00,000; Machinery overvalued by
` 1,50,000 and Furniture overvalued by  ` 46,000.
(iv) A provision of 5% be created on Debtors for Doubtful Debts.
(v) Interest on Capital to be provided at 10% p.a.
(vi) Half of the net amount payable to X's executor was paid immediately and the balance was transferred to his loan account which was to be paid later.
Prepare Revaluation Account, X's Capital Account and X's Executor's Account as on 1st October, 2020.

 Revaluation Account Dr. Cr. Particulars Amount ` Particulars Amount ` Machinery 1,50,000 Building 2,00,000 Furniture 46,000 Provision for Doubtful Debts 4,000 2,00,000 2,00,000 X’s Capital  Account Dr. Cr. Particulars Amount ` Particulars Amount ` Advertisement Suspense A/c 50,000 Balance b/d 3,00,000 X’s Executors A/c 5,05,000 General Reserve 15,000 Y’s Capital A/c 1,12,500 Z’s Capital A/c 75,000 Profit & Loss Suspense 37,500 Interest on Capital 15,000 5,55,000 5,55,000

 X’s Executors  Account Dr. Cr. Particulars Amount ` Particulars Amount ` Bank A/c 2,52,500 X’s Capital A/c 5,05,000 X’s Executors  Loan Account 2,52,500 57,000 57,000

Working Notes:

WN1: Calculation of Share in General Reserve

Reserve=36,000×5/12=
` 15,000

WN2: Calculation of Interest on Capital

Interest on capital=3,00,000×10×6/100×12=
` 15,000

WN3: Calculation of Profit & Loss Suspense

Profit & Loss Suspense=1,80,000×5×6/12×12=
` 37,500

WN4: Calculation of Share in Goodwill

Gaining Ratio = New Ratio - Old Ratio

Y's Gain = 7/12−4/12=7−4/12=3/12

Z's Gain = 5/12−3/12=5−3/12=2/12

Goodwill=Average Profit×No. of years' Purchase

=1,80,000×2.5=` 4,50,000

X's share in Goodwill = 4,50,000×5/12=`1,87,500,

`1,87,500 should be contributed by Y & Z in gaining ratio i.e. 3:2

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