# 12th | Ts grewal 2022-2023 Question 31 to 35 | Death of A Partner

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 2 ½   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 ` Date Particulars ` 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 ` Particulars ` 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 ` Particulars ` 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

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, 2022, their Balance Sheet was as follows:

#### 29,50,000

Naman died on 30th June, 2022. 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:

2019: ` 2,40,000; 2020: ` 4,00,000; 2021: ` 5,20,000 and 2022: ` 4,40,000.

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

#### 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

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

#### Question 34:

The Balance Sheet of X, Y and Z as at 31st March, 2021 was:

 Liabilities ( `) Assets ( `) 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, 2021. 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: 2021:
` 24,000; 2020:  ` 16,000; 2019:  ` 20,000 and 2018:  ` 10,000 and 2017:  ` 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.

 Journal Particulars L.F. Debit ` Credit ` 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 ` Date Particulars ` 2021 2021 July 31 Bank A/c 12,233 July 31 Z’s Capital A/c 22,233 2022 2022 Mar. 31 Balance c/d 10,667 Mar. 31 Interest (10,000 × 10% for 8 months) 667 22,900 22,900 2022 2022 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 2023 2023 Mar.31 Balance c/d 5,333 Mar. 31 Interest (5,000 × 10% for 8 months) 333 11,333 11,333 2023 2023 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

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 2021 (Immediate Previous Year) =
` 24,000

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

WN4

 Revaluation Account Dr. Cr. Particulars ` Particulars ` 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

#### Question 35:

X, Y and Z were partners in a firm sharing profits and losses in the 5 : 4 : 3. Their Balance Sheet on 31st March, 2021 was as follows:

 Liabilities ( `) Assets ( `) 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, 2021 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 2018 2019 2020 2021 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, 2021.

 Revaluation Account Dr. Cr. Particulars ` Particulars ` 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 ` Particulars ` 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 ` Particulars ` 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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