Question

Karan, Ali and Deb are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. On 31st March, 2016, their Balance Sheet was as under:

Balance sheet of Karan, Ali and Deb as at 31st March, 2016
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capital A/cs:			Building		1,00,000
Karan	1,00,000		Furniture		40,000
Ali	75,000		Investments		50,000
Deb	50,000	2,25,000	Debtors	30,000
Investment Fluctuation Reserve		30,000	Less: Provision for Doubtful Debts	1,000	29,000
Bills Payable		10,000	Cash at Bank		43,000
Creditors		15,000	Goodwill		18,000
		2,80,000			2,80,000

Karan died on 1st July, 2016. An agreement was reached among Ali, Deb and Karan's legal representatives that:

1. Building be revalued at ₹ 93,500.
2. Furniture be appreciated by ₹ 10,000.
3. To write off the Provision for Doubtful Debts since all debtors are good.
4. Investments be valued at ₹ 38,000.
5. Goodwill of the firm be valued at ₹ 1,20,000.
6. Karan's share of profit to the date of his death, to be calculated on the basis of previous year’s profit which was ₹ 25,000.
7. Interest on capital to be allowed on Karan's capital @ 6% per annum.
8. Amount payable to Karan’s legal representative to be transferred to his legal representative’s loan account.

You are required to:

1. Pass journal entries on the date of Karan’s death.
2. Prepare the Interim Balance Sheet of the reconstituted firm.

Answer 1

Journal
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
2016
July 1	Karan’s Capital A/c       ...Dr.		9,000
	Ali’s Capital A/c           ...Dr.		6,000
	Deb’s Capital A/c		3,000
	To Goodwill A/c			18,000
	(Goodwill written off)
	Revaluation A/c        ...Dr.		6,500
	To Building A/c			6,500
	(Decrease in the value of Building)
	Furniture A/c           ...Dr.		10,000
	Prov. for Doubtful Debts A/c        ...Dr.		1,000
	To Revaluation A/c			11,000
	(Increase in the value of assets)
	Revaluation A/c          ...Dr.		4,500
	To Karan’s Capital A/c			2,250
	To Ali’s Capital A/c			1,500
	To Deb’s Capital A/c			750
	(Gain on revaluation transferred to Partner's Capital Accounts)
	Investment Fluctuation Reserve A/c        ...Dr.		30,000
	To Investments A/c			12,000
	To Karan’s Capital A/c			9,000
	To Ali’s Capital A/c			6,000
	To Deb’s Capital A/c			3,000
	(Loss in the value of investments written oft)
	Ali’s Capital A/c           ...Dr.		40,000
	Deb’s Capital A/c          ...Dr.		20,000
	To Karan’s Capital A/c			60,000
	(Karan’s share of goodwill adjusted through the gaining partner’s capital accounts)
	P & L Suspense A/c      ...Dr.		3,125
	To Karan’s Capital A/c			3,125
	(Karan’s share of Profits credited to his Capital A/c)
	Interest on Capital A/c     ...Dr.		1,500
	To Karan’s Capital A/c			1,500
	(Interest on capital allowed to Karan)
	P & L Suspense A/c        ...Dr.		1,500
	To Interest on Capital A/c			1,500
	(Transfer of interest on Capital to P & L Suspense A/c)
	Karan’s Capital A/c      ...Dr.		1,66,875
	To Karan’s Executor’s Loan A/c			1,66,875
	(Transfer of amount due to Karan)

 

Dr.	Partner’s capital A/c						Cr.
Particulars	Karan	Ali	Deb	Particulars	Karan	Ali	Deb
To Goodwill A/c	9,000	6,000	3,000	By Balance b/d	1,00,000	75,000	50,000
To Karan’s Capital A/c	-	40,000	20,000	By Investment Fluctuation Reserve A/c	9,000	6,000	3,000
To Karan’s Executor’s Loan A/c	1,66,875	-	-	By Revaluation A/c	2,250	1,500	750
To Balance c/d	-	36,500	30,750	By Ali’s Capital A/c	40,000	-	-
				By Deb’s Capital A/c	20,000	-	-
				By P & L Suspense A/c	3,125	-	-
				By Interest on Capital A/c	1,500	-	-
	1,75,875	82,500	53,750		1,75,875	82,500	53,750

 

Balance sheet of Ali and Deb as at 1st July, 2016
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capital A/cs:			Building		93,500
Ali	36,500		Furniture		50,000
Deb	30,750	67,250	Investments		38,000
Bills Payable		10,000	Debtors		30,000
Creditors		15,000	Cash at Bank		43,000
Karan’s Executor’s Loan A/c		1,66,875	P & L Suspense:
			Share of Profit	3,125
			Interest on Capital	1,500	4,625
		2,59,125			2,59,125

Working Notes:

(1) Karan’s share of profit = `25,000xx3/12xx3/6`

= ₹ 3,125

(2) Interest on Capital = `1,00,000xx6/100xx3/12`

= ₹ 1,500