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Question
On1.4.2014 the Balance Sheet of Anant, Sampat and Gunvant was as follows :
| Liabilities |
Amount Rs |
Assets |
Amount Rs |
|
Sundry Creditors General Reserve Capital Reserve Anant 30,000 Sampat 15,000 Gunvant 15,000 |
9,000 9,600
60,000 |
Bank Bills Receivables Stock Tools Furniture
|
15,600 18,000 18,000 3,000 24,000
|
| 78,600 | 78,600 |
Gunvant died on 30.9.2014. Under the terms of Partnership Deed, the executors of the deceased partner were entitled to:
(a) The amount standing to the credit of partner's capital account.
(b) Interest on capital @12% per annum.
(c) A share of goodwill on the basis of twice the average of past three years profits.
(d) A share of profit from the closing of last financial year to the date of death on the basis of last year's profit.
The profits of the last three years were as follows:
| Year | Profit |
| 2011 - 2012 | 18.000 |
| 2012 - 2013 | 21,000 |
| 2013 - 2014 | 24,000 |
The firm closes its books on 31st March every year. Partners share profits in the ratio of their capitals.
Prepare Gunvant's Capital Account to be presented to his executors
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Solution
| Gunvant’s Capital Account | |||
| Dr. | Cr. | ||
| Particulars | Rs | Particulars | Rs |
|
To Executor A/c
|
31,800
|
By Balance c/d By Interest on Capital A/c By Profit and Loss Suspense A/c By Anant’s Capital A/c By Sampat’s Capital A/c By General Reserve A/c |
15,000 900 3,000 7,000 3,500 2,400 |
| 31,800 | 31,800 | ||
Working Notes:
WN 1 Calculation of Interest on Gunvant’s Capital
Interest on Capital = `15000 xx 12/100 xx 6/12 = 900`
WN 2 Calculation of Gunvant’s share of profits
Profit of last financial year (2013-14) = 24,000
Gunvant's share in profits = `24000 xx 1/4 xx 6/12 = 3000`
WN 3 Adjustment of Goodwill
Average Profit = `(18,000+21,000+24,000)/3 = 21000`
Goodwill of the firm = `21000 xx 2 = 42000`
Gunvant's Share of Goodwill = `42000 xx 1/4 = 10500`
Anant will pay = `10500 xx 2/5 = 7000`
Sampat will pay = `10500 xx 1/3 = 3500`
WN 4 Calculation of Gunvant’s Share in Reserve Fund
Gunvant's Share in General Reserve = `9600 xx 1/4 = 2400`
Note: Since, here no information is given regarding the share acquired by Anant and Sampat, therefore, their gaining ratio is same as their new profit sharing ratio i.e. 2:1
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RELATED QUESTIONS
Joshi, Pandey and Agarwal were partners in a firm sharing profits in the ratio of 2:2:1. On 31.3.2014, their Balance Sheet was as follows:
| Liabilities |
Amount Rs |
Assets |
Amount Rs |
|
Creditors Bills Payable Agarwal's Loan Capitals Joshi 2,10,000 Pandey 2,04,000 |
51,000 36,000 84,000
4,14,000 |
Cash Debtors Bills payable Furniture Machinery Agarwal’s Capital |
24,000 39,000 27,000 81,000 3,75,000 39,000 |
| 5,85,000 | 5,85,000 |
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|
Balance Sheet of Keith, Bina, and Veena as on 31-3-2019 |
||||
| Liabilities |
Amount (₹) |
Amount (₹) |
Assets | Amount (₹) |
| Capitals: |
|
3,25,000 |
Plant and Machinery | 2,40,000 |
| Keith | 1,50,000 | Stock | 60,000 | |
| Bina | 1,00,000 | Sundry debtors | 35,000 | |
| Veena |
75,000 |
Cash at bank | 50,000 | |
| General Reserve |
|
30,000 |
||
| Sundry creditors |
|
30,000 |
||
| 3,85,000 | 3,85,000 | |||
Veena died on 30th June 2019. According to the partnership deed, the executors of the deceased partner were entitled to :
- Balance in the capital account
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- Share of goodwill calculated on the basis of twice the average profits of the past three years.
- Share of profit from the closure of the last accounting year till the date of death on the basis of the average of three completed years profits before death.
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Veena withdrew ₹ 15,000 on 1st June 2019 for paying her daughter’s school fees.
Prepare Veena’s capital account to be rendered to her executors.
Write a word/phrase/term which can substitute the following statement.
Name the method of the treatment of goodwill where new partner will bring his share of goodwill in cash.
State True or False with reason.
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Find the Odd one.
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State the ratio in which the old partner’s Capital A/c will be credited for goodwill when the new partner does not bring his share of goodwill in cash?
In the absence of partnership deed, interest on capital and drawing to be:
____________ profit is excess of actual profits over normal profits.
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| Balance Sheet as at 31st March,2021 | |||||
| Liabilities | Amount (₹) | Assets | Amount (₹) | ||
| Sundry Creditors | 56,500 | Cash | 1,17,300 | ||
| Bank Overdraft | 61,500 | Debtors | 38,000 | ||
| Workmen’s Compensation Reserve | 32,000 | Less: Provision For Doubtful Debts | (2,300) | 35,700 | |
| Capitals: | Inventories | 1,34,000 | |||
| Gini | 4,60,000 | Machinery | 1,00,000 | ||
| Bini | 3,00,000 | Furniture | 1,80,000 | ||
| Mini | 2,90,000 | 10,50,000 | Building | 5,70,000 | |
| Goodwill | 63,000 | ||||
| 12,00,000 | 12,00,000 | ||||
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- Liability of ₹23,000 is to be created on account of Claim for Workmen Compensation.
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| Year | (₹) | |
| 2020-21 | Loss | 20,000 |
| 2021-22 | Profit | 34,000 |
| 2022-23 | Profit | 46,000 |
From the year 2020-21 to the year 2022-23, Anish withdrew ₹ 30,000 from the firm for his personal use.
On 1st April, 2023, he admitted Danish into partnership on the following terms:
- Goodwill of the firm to be valued at two years’ purchase of the average profits of the last three years.
- Danish to have a `1/4` share in the future profits.
- Danish’s capital is to be equal to `1/4` of Anish’s capital determined on 1st April, 2023, after the goodwill compensation has been taken into account.
You are required to give:
- The formula to calculate goodwill by the Average Profit Method.
- The value of self-generated goodwill of the firm.
- Danish’s capital contribution.
