Question

Minaxi, Ramesh and Poonam were partners sharing profits and losses in the proportion to their capitals, Their Balance sheet of the firm on 31^st March, 2012 was as under:

           Balance Sheet as on 31^st March, 2012

Liabilities	Amount (Rs)	Assets		Amount (Rs)
Capital		Land and Building		40,000
Minaxi	30,000	Investment		20,000
Ramesh	20,000	Debtors	16,000	14,000
Poonam	10,000	Less : R.D.D	2,000
Creditors	28,000	Stock		18,000
Reserve	18,000	Cash		14,000
	1,06,000			1,06,000

Poonam died on 1^st August, 2012 and the following adjustments were made

1) Assets revalued as under-Land & Building Rs 44,000, Investment Rs 18,000, Stock Rs 17,000.

2) All debtors were good.

3) Goodwill of the firm valued at two times the average profits of the last 4 years. No goodwill account to be shown in the books of the firm.

4) Poonam’s share of profit upto her death to be calculated on the basis of average profits of last two year.

5) Profits were Rs 6,000, Rs 12,000, Rs 7,000, Rs 11,000
Prepare:
1) Profits and loss adjustment A/c
2) Balance sheet as on 1^st August 2012

Answer 1

            Profit and Loss Adjustment Account

Dr.                                                                               Cr.

Particulars		Amount (Rs)	Particulars	Amount (Rs)
Investment		2,000	Land and Building	4,000
Stock		1,000	Reserve for Doubtful Debts	2,000
Loss transferred to:
Minaxi	1,500	3,000
Ramesh	1,000
Poonam	500
		6,000		6,000

 

Balance Sheet

as on Aug 01, 2012 after Poonam’s death

Liabilities		Amount (Rs)	Assets		Amount (Rs)
Creditors		28,000	Land and Building		44,000
Poonam's Legal Heir A/c		17,000	Debtors		16,000
Capital A/cs:			Cash		14,000
Minaxi	38,700	64,500	Investment	20,000	18,000
Ramesh	25,800		Less : Amortised	2000
			Stock	18,000	17,000
			Less : Depreciation	1,000
			Profit and loss Suspense A/c		500
		1,09,500			1,09,500

Working Notes:
Calculation of Gaining Ratio of Minaxi and Ramesh:

Old ratio = Minaxi : Ramesh : Poonam

               = 3 : 2 : 1

 New ratio of Minaxi and Ramesh = 3:2

Gaining Ratio = Old ratio - New ratio

Minaxi's Gain = `3/5 - 3/6 = 3/30`

Ramesh's Gain = `2/5 -2/6 = 2/30`

Gaining Ratio = 3:2

WN 1: Distribution of Reserve:

Minaxi will get = `18000 xx 3/6 = "Rs" 9000 `

Ramesh will get =`18000 xx 2/6 = "Rs" 6000`

Poonam will get = `18000 xx 1/6 = "Rs" 3000`

WN 2: Share of Profit of Poonam 

Average Profit =`"Total Profit"/"Number of years"`

                        = `(7000 + 11000)/2` = Rs 9000

Poonam's share of profit =`9000 xx 4/12 xx 1/6` = Rs.500

WN 3: Calculation of Share of goodwill of Poonam

i) Total Profit = 6000+12000+7000+11000 = Rs 36000

ii) Average Profit =`36000/4 = Rs 9000`

iii) Goodwill = 9000 × 2 = Rs 18000

iv) Poonam's share of goodwill = `18000 xx 1/6 = 3000`

WN 4: Partners’ Capital Accounts

                     Partners’ Capital Accounts
Dr.                                                                                Cr.

Particulars	Minaxi	Ramesh	Poonam	Particulars	Minaxi	Ramesh	Poonam
Legal Heir’s A/c			17,000	Balance b/d	30,000	20,000	10,000
Goodwill A/c	1,800	1,200		Reserve	9,000	6,000	3,000
Balance c/d	38,700	25,800		Goodwill			3,000
				Profit and Loss Suspense A/c			500
				Profit and Loss Adjustment A/c (Profit)	1500	1000	500
	40,500	27,000	17,000		40,500	27,000	17,000