Advertisement Remove all ads

Geeta, Sita and Meeta Were Partners in a Firm Sharing Profits in the Ratio of 5:3:2. the Firm Closes Its Books on 31st March Every Year. on 30-6-2015 Geeta Died. on that Date Her Capital Account Showed a Debit Balance of Rs.5,000 and Goodwill of the Firm Was Valued at Rs.3,70,000. There Was a Debit Balance of Rs.12,000 in the Profit and Loss Account. - Accountancy

Advertisement Remove all ads
Advertisement Remove all ads
Advertisement Remove all ads

Geeta, Sita and Meeta were partners in a firm sharing profits in the ratio of 5:3:2. The firm closes its books on 31st March every year. On 30-6-2015 Geeta died. On that date her capital account showed a debit balance of Rs.5,000 and Goodwill of the firm was valued at Rs.3,70,000. There was a debit balance of Rs.12,000 in the profit and loss account. Geeta's share of profit in the year of her death was to be calculated on the basis of the average profit of last 5 years which was Rs.80,000.

Pass necessary journal entries in the books of the firm on Geeta's death.

Advertisement Remove all ads

Solution

                                                                                                      Journal

Date Particulars L.F. Dr. (Rs) Cr. (Rs)
 

Sita’s Capital A/c                                                                                                                        Dr

Meeta’s Capital A/c                                                                                                                     Dr

              To Geeta’s Capital A/c

(Being goodwill adjusted in gaining ratio)

 

Geeta’s Capital A/c                                                                                                                     Dr

Sita’s Capital A/c                                                                                                                        Dr

Meeta’s Capital A/c                                                                                                                     Dr

               To Profit and Loss A/c

(Being debit balance in P&L A/c written-off among all partners in old ratio)

 

Profit and Loss Suspense A/c                                                                                                       Dr

               To Geets’s Capital A/c

(Being Geeta‘s share of profit up to date of death dispensed through P & L Suspense A/c)

 

Geeta’s Capital A/c                                                                                                                     Dr

                To Geeta’s Executor A/c

(Being amount due to Geeta transferred to his executor’s A/c)

 

1,11,000

74,000

 

 

 

6,000

3,600

2,400

 

 

 

10,000

 

 

 

1,84,000

 

 

 

 

1,85,000

 

 

 

 

 

12,000

 

 

 

10,000

 

 

 

1,84,000

 

Working Notes :

WN 1 Calculation of Geeta's Share of Goodwill

Geeta's Share of Goodwill = Firm's Goodwill x Her Profit Share

                                      = 3,70,000 x (5/10) = 1,85,000

Rs. 1,85,000 will be borne by gaining partners in gaining ratio.

It is assumed that continuing partners gain in their old profit sharing ratio of 3:2 as no other detail is specified.

Sita's gain = 1,85,000 x (3/5) = 1,11,000

Meeta's gain = 1,85,000 x (2/5) = 74,000

WN 2 Calculation of Share of Debit balance in P&L A/c

Geet's share = 12,000 x (5/10) = 6,000

Sita's share = 12,000 x (3/10) = 3,600

Meeta's share = 12,000 x (2/10) = 2,400

WN 3 Calculation of Share in Profit (earned during the year)

Geeta's share = Average Profits x Number of Months Geeta Remained x Her Profit Share

                     = 80,000 x (3/12) x (5/10) = 10,000

WN 4 Calculation of Amount transferred to Geeta's Executor A/c

Amount due to Geeta = Capital + Credit items - Debit Items

                                = (5,000) + 1,85,000 - 6,000 + 10,000

                                = 1,84,000

Concept: Retirement and Death of a Partner - Effect of Retirement I Death of a Partner on Change in Profit Sharing Ratio
  Is there an error in this question or solution?
Advertisement Remove all ads
Share
Notifications

View all notifications


      Forgot password?
View in app×