# 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

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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:​

 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.

#### 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?

#### 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