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A, B And C Are Partners in a Firm Sharing Profits in the Proportion of 3 : 2 : 1. Their Balance Sheet as at 31st March, 2018 Stood as Follows: - Accountancy

Numerical

A, B and C are partners in a firm sharing profits in the proportion of 3 : 2 : 1. Their Balance Sheet as at 31st March, 2018 stood as follows:

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Sundry Creditors

2,70,000

Cash in Hand

42,500

General Reserve

1,20,000

Cash at Bank

2,14,500

Capital A/cs:

  Debtors 1,63,000
  A

2,00,000

  Stock 17,500
  B 1,20,000   Investment 1,32,500
  C 

80,000

4,00,000

Building 2,10,000
      B's Loan 10,000
 

7,90,000

 

7,90,000

   
B died on 30th June, 2018 and according to the deed of the said partnership his executors are entitled to be paid as under:
(a) The capital to his credit at the time of his death and interest thereon @ 10% per annum.
(b) His proportionate share of General Reserve.
(c) His share of profit for the intervening period will be based on the sales during that period. Sales from 1st April, 2018 to 30th June, 2018 were as ₹ 12,00,000. The rate of profit during past three years had been 10% on sales.
(d) Goodwill according to his share of profit to be calculated by taking twice the amount of profits of the last three years less 20%. The profit of the previous three years were: 1st Year: ₹ 82,000; 2nd year: ₹ 90,000; 3rd year ₹ 98,000.
(e) The investments were sold at par and his executors were paid out in full.
Prepare B's Capital Account and his Executors' Account.

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Solution

B’s Capital Account

Dr.

 

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

B’s Loan A/c

10,000

Balance b/d

1,20,000

B' Executor A/c

3,37,000

Interest on Capital A/c

3,000

 

 

General Reserve

40,000

 

 

Profit & Loss Suspense A/c

40,000

 

 

Goodwill A/c

1,44,000

 

3,47,000

 

3,47,000

 

B’s Executor Account

Dr.

 

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

Bank A/c

3,37,000

B’s Capital A/c

3,37,000

 

3,37,000

 

3,37,000

Working Notes:

WN 1: Calculation of Interest on Capital

`"Opening capital" = "Rs" 1.20,000`  (last year's closing capital)

`"Interest on capital" = 1,20,000 xx 10/100 xx 3/12 = "Rs" 3,000`

WN 2: Calculation of Profit Share up-to-death

B's profit share (up to death) = `("previous years profit")/"previous year's sales" xx "sales till death" xx "B's profit share"`

Previous years profit = Rs 98,000

Rate of profit to sales = `"previous years profit"/"previous years sales" xx 100`

                `10 = (98,000)/"previous years sales" xx 100`

Previous Year's sales = Rs 9,80,000

Sales till death = Rs 12,00,000

`"B's profit share" ("up to death") = (98,000)/(9,80,000) xx 12,00,000 xx 2/6`

`"B's profit share" ("up to death") = "Rs" 40,000`

WN 3: Calculation of share of goodwill

`"Average profits" = (82,000 + 90,000 + 98,000)/3 = "Rs" 90,000`

`"Avearge profits" ("less 20 %") = "Rs" 72,000`

`"Goodwill" = 72,000 xx 2 = "Rs" 1,44,000`

`"B's share of goodwill" = "Rs" 1,44,000`

Concept: Retirement and Death of a Partner - Calculation of New Profit Sharing Ratio
  Is there an error in this question or solution?
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APPEARS IN

TS Grewal Class 12 Accountancy - Double Entry Book Keeping Volume 1
Chapter 6 Retirement/Death of a Partner
Exercise | Q 73 | Page 97
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