Question

Khanna, Seth and Mehta were partners in a firm sharing profit in the ratio of 3 : 2 : 5. On

31.12.2010 the Balance Sheet of Khana, Seth and Mehta was as follows:  

Liabilities		Amount Rs	Assets	Amount Rs
Capitals:			Goodwill	3,00,000
Khanna:	3,00,000		Land and Building	5,00,000
Seth:	2,00,000		Machinery	1,70,000
Mehta:	5,00,000	10,00,000	Stock	30,000
General Reserve		1,00,0000	Debtors	1,20,000
Loan from Seth		50,000	Cash	45,000
Creditors		75,000	Profit and Loss Account	60,000
		12,25,000

On 14^th March 2011, Seth died.

The partnership deed provides that on the death of a partner the executor of the deceased partners

is entitled to:

(i) Balance in Capital Account;

(ii) Share in profits upto the date of death on the basis of last year’s profit;

(ii) His share in profit/loss in revaluation of assets and re-assessment of liabilities which were as follows:

(a) Land and Building was to be appreciated by Rs 1,20,000;

(b) Machinery was to be depreciated to Rs 1,35,000 and stock to Rs 25,000;

(c) A provision of `2 1/2%` for bad and doubtful debts was to created on debtors;

(iv) The net amount payable to Seth’s executors was transferred to his loan account which was to be paid later.

Prepare Revalution Account, Partners Capital Accounts, Seth’s Executors Account and the

Balance Sheet of Khanna and Mehta who decided to continue the business keeping their capital balances in their new profit sharing ratio. Any surplus of deficit to be transferred the current account of the partners. 

Answer 1

Revaluation Account
Dr.						Cr.
Particulars		Amount Rs		Particulars	Amount Rs
Machinery		35,000		Land and Building	1,20,000
Stock		5,000
Provision for Doubtful Debt		3,000
Profit transferred to Capital account:
Khanna	23,100
Seth	15,400
Mehta	38,500	77,000
		1,20,000			1,20,000

 

Partners’ Capital Account
Dr.				Cr.
Particulars	Khanna	Seth	Mehta		Particulars	Khanna	Seth	Mehta
Profit and loss	18,000	12,000	30,000		Balance b/d	3,00,000	2,00,000	5,00,000
Goodwill	90,000	60,000	1,50,000		General Reserve	30,000	20,000	50,000
Profit and loss surplus		2,400			Revaluation	23,100	15,400	38,500
Seth’s Executors		1,61,000
Balance c/d	2,45,100		4,08,500
	3,53,100	2,35,400	5,88,500			3,53,100	2,35,400	5,88,500
					Balance b/d	2,45,100		4,08,500
Balance c/d (adj.)	2,45,100		4,08,500
	2,45,100		4,08,500			2,45,100		4,08,500

Balance Sheet
Liabilities		Amount Rs	Assets		Amount Rs
Capital:			Land and Building		6,20,000
Khanna	2,45,100		Machinery		1,35,000
Mehta	4,08,500	6,53,600	Stock		25,000
Seth’s Executors’ Loan		2,11,000	Debtors	1,20,000
Creditors		75,000	Less: Provision for Bad Debts	3,000	1,17,000
Profit and Loss Suspense		2,400	Cash		45,000
		9,42,000			9,42,000

E’s Executors’ Account
Dr.			Cr.
Particulars	Amount Rs	Particulars	Amount Rs
		Seth’s Capital	1,61,000
Balance c/d	2,11,000	Seth’s Loan	50,000
	2,11,000		2,11,000

Working Notes: