Question

Vilas, Mangal, Guru were partners in a business sharing profits and losses in the ratio of 2:1:1 respectively. Their Balance sheet as on 31^st March, 2012 was as follows: 

          Balance Sheet as on 31st March 2012

Liabilities	Amount (Rs)	Assets	Amount (Rs)
Capital		Land and Building	6,000
Vilas	6,000	Debtors	5,000
Mangal	7,000	Stock	3,000
Guru	3,400	Cash	6,000
Creditors	2,000
General Reserve	1,600
	20,000		20,000

Guru died on 1^st July, 2012

1) Land and Building was to be revalued to Rs 7,000 and RDD was to be created of Rs 200.

2) The drawings of Guru upto the date of his death amounted to Rs 1,000/-

3) Charge interest on drawings Rs 100/-

4) His share of goodwill should be calculated at ‘Three’ years purchase of the profits for the last four years which were Rs 15,000, Rs 13,000/-, Rs 7,000, Rs 5,000

5) The deceased partners share of profit upto the date of his death to be calculated on the basis of average profit of last two years.

Prepare:

1) Profit and Loss Adjustment A/c

2) Partners Capital A/cs

3) Balance Sheet of the continuing firm

4) Give working or share of profit and goodwill

Answer 1

                 Profit and Loss Adjustment Account
Dr.                                                                               Cr.

Particulars		Amount (Rs)	Particulars	Amount (Rs)
Reserve for Doubtful Debts		200	Land and Building	1,000
Profit transferred to:			Interest on Drawings A/c	100
Vilas’s Capital	450	900
Mangal’s Capital	225
Guru’s Capital	225
		1,100		1,100

                     Partners’ Capital Accounts
Dr.                                                                               Cr.

Particulars	Vilas	Mangal	Guru	Particulars	Vilas	Mangal	Guru
Drawings			1,000	Balance b/d	6,000	7,000	3,400
Interest on Drawings			100	General Reserve			400
Legal Heir Loan A/c			10,800	Profit and Loss Adjustment A/c (Profit)	450	225	225
Goodwill A/c	5,000	2,500		Goodwill			7,500
Balance c/d	1,450	4,725		Profit and Loss Suspense A/c			375
	6,450	7,225	11,900		6,450	7,225	11,900

 

Balance Sheet

as on April 01, 2012 

Liabilities		Amount (Rs)	Assets		Amount (Rs)
Creditors		2,000	Land and Building		7,000
Capital A/cs			Stock		3,000
Vilas	1,450	6,175	Cash		5,000
Mangal	4,725		Debtors	5,000	4,800
Guru’s Legal Heir’s Loan A/c		10,800	Less : Reserve for Doubtful Debts	200
General Reserve		1,200	Profit and Loss Suspense A/c		375
		20,175			20,175

Working Notes :-

WN 1 : Cash Account

                                  Cash Account
Dr.                                                                              Cr.

Particulars	Amount (Rs)	Particulars	Amount (Rs)
To Balance b/d	6,000	By Guru’s Drawings A/c	1,000
		By Balance c/d	5,000
	6,000		6,000

WN 2 : Calculation of Gaining Ratio of Vilas and Mangal :

Old Ratio of = Vilas : Mangal : Guru = 2 : 1 : 1                New Ratio of Vilas and Mangal = 2 : 1

Gaining Ratio = New Ratio - Old Ratio

Vilas's Gain =`2/3 - 2/4 = 2/12`

Mangal's Gain = `1/3 - 1/4 = 1/12`  

WN 3 : Share in Goodwill

Average Profit = `(15000 + 13000 + 7000 + 5000)/4`
                        = "Rs" 10,000

Goodwill = 3 years’ purchase of average profits
               = 3 x Rs. 10000
               = Rs. 30,000

Guru's Share in Goodwill = `1/4 xx "Rs" 30000`
                                        = Rs. 7,500

WN 4: Share in Profits

Average Profits of 2 years = `(7000 + 5000)/2`

                                         = Rs 6,000

Estimated Profit till date of death = `3/12 xx "Rs" 6,000`
                                                      = Rs.1,500 

Share of Guru = `1/4 xx "Rs" 1500`
                       = Rs. 375   

WN 5 : It is assumed that remaining General Reserve is continued in the business by remaining partners.