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A, B And C Were Partners in a Firm Sharing Profits in the Ratio of 5 : 3 : 2. on 31st March, 2018, Their Balance Sheet Was as Follows:​ - Accountancy

Numerical

​A, B and C were partners in a firm sharing profits in the ratio of 5 : 3 : 2. On 31st March, 2018, their Balance Sheet was as follows:​
 

Liabilities

Assets

Creditors

11,000

Building

20,000

Reserves

6,000

Machinery

30,000

A's Loan A/c 5,000 Stock 10,000

Capital A/cs:

  Patents 11,000
   A

25,000

  Debtors 8,000
   B 25,000   Cash 8,000
   C

15,000

65,000

   
 

87,000

 

87,000


A died on 1st October, 2018. It was agreed among his executors and the remaining partners that:
(i) Goodwill to be valued at 212 years' purchase of the average profit of the previous 4 years, which were 2014-15: ₹ 13,000; 2015-16: ₹ 12,000; 2016-17: ₹ 20,000 and 2017-18: ₹ 15,000.
(ii) Patents be valued at ₹ 8,000; Machinery at ₹ 28,000; and Building at ₹ 25,000.
(iii) Profit for the year 2017-18 be taken as having accrued at the same rate as that of the previous year.
(iv) Interest on capital be provided @ 10% p.a. 
(v) Half of the amount due to A to be paid immediately to the executors and the balance transferred to his (Executors') Loan Account.
Prepare A's Capital Account and A's Executors' Account as on 1st October, 2018.

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Solution

A’s Capital  Account

Dr.

 

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

Bank A/c

28,450

Balance b/d

25,000

A’s Executors A/c

28,450

Reserve (WN1)

3,000

 

 

B’s Capital A/c (Goodwill)

11,250

 

 

C ’s Capital A/c (Goodwill)

7,500

 

 

Profit & Loss Suspense

3,750

 

 

Interest on Capital (WN2)

1,250

    A's Loan A/c (WN6) 5,150

 

56,900

 

56,900

 

A’s Executors  Account

Dr.

 

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

Bank A/c

28,450

A’s Capital A/c

56,900

A’s Executors  Loan Account

28,450

 

 

 

56,900

 

56,900

Working Notes:

WN1: Calculation of Share in Reserve
`"Reserve" = (6,000 xx 50)/10 = "Rs" 3,000`

WN2: Calculation of Interest on Capital
`"Interest on Capital" = (25,000 xx 10 xx 6)/100 xx 12 = "Rs"  1,250`

WN3: Calculation of Profit & Loss Suspense
`"Profit & loss suspense" = (15,000 xx 5 xx 6)/10 xx 12 = "Rs" 3,750`


WN4: Calculation of Share in Revaluation Profit/Loss
`"Revaluation" = "Nil" (-3,000 - 2,000 + 5,000)`


WN5: Calculation of Share in Goodwill

`"Goodwill" = "Average profit" xx "No. of Years purchase"`

                   = `15,000 xx 2.5`

                   = `"Rs" 37,500`

`"A's share in goodwill" = 37,500 xx 5/10 = "Rs"  18,750`

`"A's share of goodwill will be brought by B & C in" 3 : 2`

`"B's Capital will be debited by"  18,750 xx 3/5 = 11,250`

`"C's Capital will be debited by" 18,750 xx 2/5 = 7,500`

`"Average profit" = "Total profits of past year's given"/"Number of year's"`

                           = `(13,000 + 12,000 + 20,000 + 15,000)/4`

                           = `"Rs"  15,000`

WN6 : Loan Amount to be transferred to A's capital A/c 

`"A's Loan" = "Rs" 5,000`

`"Interest on loan till the date of death" = "Rs" (5,000 xx 6/100 xx 6/12) = "Rs" 150` 

`"Total of loan amount transferred to A's Capital A/c" = "Rs" (5,000 + 150) = "Rs"  5,150`

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 70 | Page 96
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