Question

Arun, Varun and Karun were partners in a business sharing profits and losses in the ratio of 2 : 2: 1 respectively. Their Balance sheet as on 31^st March, 2019 was as under :

Balance Sheet as on 31st March,2019
Liabilities	Amount ₹	Assets		Amount ₹
Capital Account:		Land and Building		27,900
Arun	20,000	Investment		15,000
Varun	20,000	Furniture		8,000
Karun	10,000	Debtors	10,400	10,000
Creditors	16,000	Less: R.D.D	400
Bank Loan	4,000	Bank		4,100
		Goodwill		5,000
	70,000			70,000

On 1^st July, 2019 Karun died and the following adjustments were made:

1. All the debtors were considered as good.
2. Bank Loan were paid off.
3. Furniture was depreciated by ₹ 550.
4. Investments were sold out in the Market at 10% profit.
5. Goodwill of the firm was valued at ₹ 7,500. It was to be raised in the books.
6. Karun was entitled to get his share in the profit up to the date of his death. Profit for 2019-2020 was estimated at ₹ 5,000.
7. The amount due to Karun’s Executor was paid by NEFT.

Prepare:

1. Profit and Loss Adjustment A/c.
2. Partners’ Capital Account.
3. Balance sheet of New Firm.

Answer 1

In the books of firm
Dr.	Profit & Loss adjustment A/c			Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Furniture A/c		550	By R.D.D A/c	400
To Profit on Revaluation transferred to Partner’s Capital A/c			By Investment A/c	1,500
Arun	540	1,350
Varun	540
Karun	270
		1,900		1,900

 

Dr.	Partner’s Capital A/c						Cr.
Particulars	Arun	Varun	Karun	Particulars	Arun	Varun	Karun
To Karun’s Executor Loan A/c	-	-	11,020	By Balance b/d	20,000	20,000	10,000
To Balance c/d	21,540	21,540	-	By Goodwill A/c	1,000	1,000	500
				By Profit & Loss suspense A/c	-	-	250
				By Profit and Loss Adjustment A/c (Profit)	540	540	270
	21,540	21,540	11,020		21,540	21,540	11,020

 

New Balance Sheet as on 1st July 2019
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Partner’s Capital			Land & Building		27,900
Arun	21,540	43,080	Furniture	8,000	7,450
Varun	21,540		Less: Depreciation	550
Creditors		16,000	Debtors		10,400
			Goodwill	5,000	7,500
			Add: Appreciation	2,500
			Investment	15,000	-
			Add: Appreciation	1,500
			Less: Sold	16,500
			Profit & Loss suspense A/c		250
			Bank		5,580
		59,080			59,080

Working Note:

(1)

Dr.	Bank A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance b/d	4,100	By Bank Loan A/c	4,000
To Investment A/c	16,500	By Karun’s Executor’s Loan A/c	11,020
		By Balance c/d	5,580
	20,600		20,600

(2)

Dr.	Karun’s Executor’s Loan A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Bank A/c	11,020	By Karun’s Capital A/c	11,020
	11,020		11,020

(3)

Karun’s share of Profit up to his date of death 

Profit for 3 months = `5,000 xx 3/12` = ₹ 1,250

∴ Karun’s share = `1,250 xx1/5` = ₹ 250