Maharashtra State BoardHSC Commerce 12th Board Exam
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Ashish, Satish and Manish Were Partners in Business Profits and Losses in the Ratio of 3 : 1 : 1 Respectively. Their Balance Sheen as on 31st March, 2016 Was as Follows : - Book Keeping and Accountancy

Answer in Brief

Ashish, Satish and Manish were partners in business profits and losses in the ratio of 3 : 1 : 1 respectively. Their Balance Sheet as on 31st March, 2016 was as follows :

Balance Sheet as on 31st March, 2016

Liabilities Amount Assets Amount
Capital accounts :   Plant and machinery 70,000
Ashish 80,000 Stock 50,000
Satish 60,000 Debtors 40,000
Manish 50,000 Cash 60,000
Creditors 10,000    
Reserve fund 20,000    
  2,20,000   2,20,000

Manish died on 1st October, 2016 and the partnership deed provided that :

(1) The deceased partner to be given his share of profit upto the date of death on the basis of the profit of the previous year.
(2) His share of goodwill will be calculated on the basis of two years' purchase of average profit of the last four years
The net profits for the last four years were :

First year : Rs 1,40,000,      Second year : Rs 1,10,000

Third year : Rs 90,000.            Fourth year : Rs  60,000.

(3) Plant and machinery to be valued at Rs. 80,000. Reserve for doubtful debts of Rs. 4,000 to be created.

(4) The drawings of Manish upto the date of death amounted to `Rs 40,000.

(5) Interest on capital is to be allowed at 10% p.a. and interest on drawings is charged at 6% p.a.

Prepare :
(1) Profit and Loss Adjustment Account.
(2) Manish's Capital Account.
(3) Wording of Manish's share in profit and goodwill.

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Solution

In the books of the firm.
Profit and Loss Adjustment A/c
Particulars
Rs.
Rs.
Particulars
Rs.
Rs.
To R.D.D. A/c
 
4000
By Machinery A/c
 
10000
To Revaluation Profit:
         
Ashish Capital A/c
3600
       
Satish Capital A/c
1200
       
Manish Capital A/c
1200
6000
     
   
10000
   
10000
Manish’s Capital A/c
Particulars
Rs.
Particulars
Rs.
To Drawings A/c
40000
By Balance b/d
50000
To Interest on Drawings A/c
1200
By Reserve Fund A/c
4000
To Executor’s Loan A/c
62500
By Profit and Loss Suspense A/c
6000
   
By Goodwill A/c
40000
   
By Profit and Loss Adjustment A/c
1200
   
By Interest on Capital A/c
2500
 
103700
 
103700

Working of manish's share of profit :

= previous year's profit x profit sharing ratio x period 

`60000xx1/5xx6/12= Rs. 6000`

Working of manish's share of goodwill : 

`= (140000+110000+90000+60000)/4xx2`

`=400000/4xx2`

`=200000xx1/5= Rs. 40000`

Concept: Retirement Or Death of a Partner - Treatment of Goodwill
  Is there an error in this question or solution?
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