Question

Arun and Amit were partners sharing profits and losses in the ratio of 5 : 3 and their balance sheet as at 31st March, 2023 stood as under:

Liabilities	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capital A/cs:		Land on Leasehold		95,000
Arun	1,50,000	Plant and Machinery		50,000
Amit	75,000	Motor Van		20,000
Sundry Creditors	20,000	Stock in Hand		15,000
Bills Payable	5,000	Debtors	50,000	48,000
		Less: Provision for Bad Debts	2,000
		Cash at Bank		22,000
	2,50,000			2,50,000

Amit died on 1st December, 2023 and the following decisions were taken:

1. Goodwill to be calculated by taking thrice the amount of the average profit of the last four years. The profits of the previous years ending 31st March were: 2020 ₹ 15,000 (Profit); 2021 ₹ 20,000 (Profit); 2022 ₹ 10,000 (Loss); 2023 ₹ 35,000 (Profit).
2. A provision of ₹ 5,000 is to be made in respect of outstanding legal charges.
3. Further provision of ₹ 3,000 to be created on Debtors.
4. Assets are to be revalued as following:
   • Leasehold Land ₹ 1,05,000
   • Plant & Machinery ₹ 65,000
   • Motor Van ₹ 18,000
   • Stock in Hand ₹ 12,000
5. His share of profit for the period he was alive is to be based on the figure of profit on 31st March, 2023.
6. Executor is entitled to Amit’s Capital as appearing in the last balance sheet and interest thereon at 10% p.a. upto the date of death.

Prepare Revaluation Account, Partner’s Capital Accounts and a Balance Sheet as at 1st December, 2023.

Answer 1

Dr.	Revaluation A/c			Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Outstanding legal charges A/c		5,000	By Leasehold Land A/c	10,000
To Provision for Bad Debts A/c		3,000	By Plant & Machinery A/c	15,000
To Motor Van A/c		2,000
To Stock in Hand A/c		3,000
To Profit t/f to Partner’s Capital A/cs:		12,000
Arun	7,500
Amit	4,500
		25,000		25,000

 

Dr.	Partners’ Capital Accounts				Cr.
Particulars	Arun	Amit	Particulars	Arun	Amit
To Amit’s Capital A/c	16,875	-	By Balance b/d	1,50,000	75,000
To Amit’s executor’s A/c	-	1,10,125	By Revaluation A/c - Profit	7,500	4,500
To Balance c/d	1,40,625	-	By Arun’s Capital A/c	-	16,875
			By Profit and Loss Suspense A/c	-	8,750
			By Interest on Capital A/c	-	5,000
	1,57,500	1,10,125		1,57,500	1,10,125

 

Balance sheet as at 1st December, 2023
Liabilities	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Sundry Creditors	20,000	Land on Leasehold		1,05,000
Bills Payable	5,000	Plant & Machinery		65,000
Outstanding legal charges	5,000	Motor Van		18,000
Arun’s Capital A/c	1,40,625	Stock in Hand		12,000
Amit’s executor’s A/c	1,10,125	Debtors	50,000	45,000
		Less: Provision for Bad Debts	5,000
		Cash at Bank		22,000
		P & L Suspense (8,750 + 5,000)		13,750
	2,80,750			2,80,750

Working Notes:

(i) Average Profit = `(15,000+20,000+(-10,000)+35,000)/4`

= `(60,000)/4`

= ₹ 15,000

Goodwill = 15,000 × 3

= ₹ 45,000

Amit’s share of goodwill = `45,000xx3/8` = ₹ 16,875

(ii) Share of Profit up to 31^st March 2023 to 1^st December 2023

Amit’s Share of Profit = `35,000xx8/12xx3/8` = ₹ 8,750

(iii) Interest on Capital = `75,000xx10/100xx8/12` = ₹ 5,000