Question

M and N were partners in a firm. Their profit sharing ratio was 3 : 2. On 31st March, 2023, their Balance Sheet stood as under:

Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)
Capital A/cs:		9,00,000	Land & Building	6,00,000
M	5,00,000		Plant and Machinery	2,00,000
N	4,00,000		Furniture and Fixtures	90,000
General Reserve		60,000	Vehicles	75,000
Bank Overdraft		25,000	Goodwill	15,000
Sundry Creditors		75,000	Stock	30,000
			Debtors	50,000
		10,60,000		10,60,000

N died on 15th May, 2023. It was agreed that

1. Land and Building to be appreciated to 20%.
2. Value of Plant & Machinery, Furniture and Fixtures and Vehicles to be lowered by 10%.
3. Goodwill to be valued at 3 year’s purchase of last six year’s average profits which were:
   

   2017-18 ₹ 20,000;	2018-19 ₹ 18,000;	2019-20 ₹ 10,000;
   2020-21 ₹ 7,000;	2021-22 ₹ 15,000;	2022-23 ₹ 20,000

4. ₹ 3,000 of Debtors proved bad and hence have to be written off and provision for ₹ 2,000 to be created on the Debtors.
5. The profit for the year 2023-24 accrued on the same scale as in 2022-23.
6. A sum of ₹ 68,400 to be paid immediately to the executor’s of N and balance to be paid in 2 equal half-yearly instalments together with interest @ 7% per annum.

Pass the necessary journal entries to record the above transactions and prepare N’s Executor’s account for the year 2023-24.

Answer 1

Journal Entry
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
2023
May 15	Land and Building A/c    ...Dr.		1,20,000
	To Revaluation A/c			1,20,000
	(Being Increase in the value of Building)
	Revaluation A/c      ...Dr.		41,500
	To Plant & Machinery A/c			20,000
	To Furniture and Fixtures A/c			9,000
	To Vehicles A/c			7,500
	To Debtors A/c			5,000
	(Being Reduction in the value of assets)
	M’s Capital A/c      ...Dr.		18,000
	To N’s Capital A/c			18,000
	(Being N’s share of goodwill adjusted into the M’s Capital A/cs)
	M’s Capital A/c      ...Dr.		9,000
	N’s Capital A/c      ...Dr.		6,000
	To Goodwill A/c			15,000
	(Being Goodwill written off)
	General Reserve A/c       ...Dr.		60,000
	To M’s Capital A/c			36,000
	To N’s Capital A/c			24,000
	(Being General Reserve transferred to capital accounts of partners in the ratio of 3 : 2)
	Revaluation A/c        ...Dr.		78,500
	To M’s Capital A/c			47,100
	To N’s Capital A/c			31,400
	(Being Gain on revaluation transferred to partner’s capital A/cs)
	Profit & Loss Suspense A/c     ...Dr.		1,000
	To N’s Capital A/c			1,000
	(Being Transfer of `2/5`th share of profit upto 15th may 2023)
	N’s Capital A/c      ...Dr.		4,68,400
	To N’s Executor’s A/c			4,68,400
	(Being Amount due to N’s transferred to his Executor’s A/c)
	N’s Executor’s A/c        ...Dr.		68,400
	To Bank A/c			68,400
	(Being Amount paid immediately)

 

Dr.	N’s Executor’s A/c				Cr.
Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2023			2023
May 15	To Bank A/c	68,400	May 15	By N’s Capital A/c	4,68,400
Nov 16	To Bank A/c	2,14,000	Nov 16	By Interest A/c (7% p.a. on ₹ 4,00,000 for 6 months)	14,000
Nov 16	To Balance c/d	2,00,000
		4,82,400			4,82,400

Working Notes: 

Average Profit = `(20,000+18,000+10,000+7,000+15,000+20,000)/6`

= `(90,000)/6`

= ₹ 15,000

Goodwill = 15,000 × 3 = ₹ 45,000

N’s share of Goodwill = `45,000xx2/5` = ₹ 18,000