Question

M, N and O were partners in a firm sharing profit and losses equally. Their Balance Sheet on 31-12-2009 was as follows: 

Liabilities		Amount Rs	Assets	Amount Rs
Capitals:			Plant and Machinery	60,000
M	70,000		Stock	30,000
N	70,000		Sundry Debtors	95,000
O	70,000	2,10,000	Cash at Bank	40,000
General Reserve		30,000	Cash in Hand	35,000
Creditors		20,000
		2,60,000		2,60,000

N died on 14^th March, 2010. According to the Partnership Deed, executors of the deceased partner are entitled to:

(i) Balance of partners’ capital account.

(ii) Interest on capital @ 5% p.a.

(iii) Share of goodwill calculated on the basis of twice the average of past three year’s profits and

(iv) Share of profits from the closure of the last accounting year till the date of death on the basis of twice the average of three completed year’s profit before death.

Profits for 2007, 2008 and 2009 were Rs 80,000, Rs 90,000, Rs 1,00,000 respectively. Show the working for deceased partners’ share of goodwill and profits till the date of his death. Pass the necessary journal entries and prepare N’s Capital Account to be rendered to his executors.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
2010
14th March	General Reserve A/c	Dr.		10,000
	To N’s Capital A/c				10,000
	(N’s share of general reserve transferred to his Capital Account)
	Interest on Capital A/c	Dr.		700
	To N’s Capital A/c				700
	(Interest on capital credited to N’s Capital Account)
	M’s Capital A/c	Dr.		30,000
	O’s Capital A/c			30,000
	To N’s Capital A/c				60,000
	(N’s share of  goodwill adjustment)
	Profit and Loss Suspense A/c	Dr.		12,000
	To N’s Capital A/c				12,000
	(N’s share of profit till the date of death transferred to his capital account)
	N’s Capital A/c	Dr.		1,52,700
	To N’s Executor A/c				1,52,700
	(Transfer of amount due to N to his Executor’s Account)

N’s Capital Account
Dr.			Cr.
Particulars	Amount Rs	Particulars	Amount Rs
N’s Executor’s A/c	1,52,700	Balance b/d	70,000
		General Reserve	10,000
		Interest on Capital (WN1)	700
		M’s Capital A/c (Goodwill)	30,000
		O’s Capital A/c (Goodwill)	30,000
		Profit and Loss Suspense A/c (WN3)	12,000
	1,52,700		1,52,700