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Pass the Necessary Journal Entries and Draw up Rockey’S Capital Account to Be Rendered to His Executor. - Accountancy

Ledger

Following is the Balance Sheet of Prateek, Rockey and Kushal as on March 31, 2017.

Books of Prateek, Rockey and Kushal
Balance Sheet as on March 31, 2017

Liabilities

Amt (Rs.)

Assets

Amt (Rs.)

Sundry Creditors

16,000

Bills Receivable

16,000

General Reserve

16,000

Furniture

22,600

Capital Accounts:

 

Stock

20,400

Prateek

30,000

 

Sundry Debtors

22,000

Rockey

20,000

 

Cash at Bank

18,000

Kushal

20,000

70,000

Cash in Hand

3,000

 

1,02,000

 

1,02,000

Rockey died on June 30, 2017. Under the terms of the partnership deed, the executors of a deceased partner were entitled to:

a) Amount standing to the credit of the Partner’s Capital account.
b) Interest on capital at 5% per annum.
c) Share of goodwill on the basis of twice the average of the past three years’ profit and
d) Share of profit from the closing date of the last financial year to the date of death on the basis of last year’s profit.

Profits for the year ending on March 31, 2015, March 31, 2016 and March 31, 2017 were Rs 12,000, Rs 16,000 and Rs 14,000 respectively. Profits were shared in the ratio of capitals.Pass the necessary journal entries and draw up Rockey’s capital account to be rendered to his executor.

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Solution

Books of Prateek and Kushal
Journal Entries

Date Particulars L.F. Amt
(Rs.)
Amt
(Rs.)
2017
June 30
Interest on Capital A/c         Dr
Profit and Loss (Suspense) A/c 
General Reserve A/c
      To Rockey’s Capital A/c
(Share of profit, interest on capital and share of General Reserve credited to Rockey’s Capital Account)
 

250
1,000
4,571

 

 

 

 

5,821

 

June 30 Prateek’s Capital A/c            Dr.
Kushal’s Capital A/c             Dr.
    To Rockey’s Capital A/c
(Rockey’s share of goodwill adjusted to Prateek’s and Kushal’s Capital Account in their gaining ratio, 3:2)
 

4,800
3,200

 

8,000
June 30 Rockey’s Capital A/c           Dr.
    To Rockey Executor’s A/c
(Balance of Rockey’s Capital Account transferred to his Executor’s Account)
  33,821 33,821

                                 Rockey’s Capital Account
Dr.                                                                                                Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

2017
April 1

Rockey's Executor A/c

 

33,821

2017
April 1

Balance b/d

 

20,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on Capital

 

250

 

 

 

Profit and Loss (Suspense) A/c

 

1,000

 

 

 

General Reserve

 

4,571

 

 

 

Prateek’s Capital

 

4,800

 

 

 

Kushal’s Capital

 

3,200

 

 

 

33,821

 

 

 

33,821

Working Notes:
1. Rockey’s Share of Profit
= Previous year’s profit × Proportionate Period × Share of Deceased Partner
= 14,000 x `3/12` x `2/7` = Rs. 1,000. 

2. Rockey’s Share of Goodwill
Goodwill of a firm = Average profit × Numbers of year’s Purchase
Average profit = `[ 12,000 + 16,000 + 14,000]/3 = [42,000]/3 = Rs. 14,000`
Goodwill of a firm = 14,000 × 2 = Rs 28,000

Rockey's Share = 28,000 x `2/7` = Rs. 8,000

3. Gaining Ratio = New Ratio − Old Ratio
Prateek's Share = `3/5 - 3/7 = [21 - 15]/35 = 9/35`

Kushal's Share = `2/5 - 2/7 = [14 - 10]/35 = 4/35`
Gaining Ratio between Prateek and Kushal = 9:4 or 3:2

4. Interest on Capital for 3 months i.e. from April 1, 2017 to June 30, 2017
Amount of × Rate of Interest × Period 
= 20,000 x `5/100` x `3/12` = Rs.250.

Concept: Adjustment of Partners’ Capitals
  Is there an error in this question or solution?
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APPEARS IN

NCERT Class 12 Accountancy - Not-for-profit Organisation and Partnership Accounts
Chapter 4 Reconstitution of a Partnership Firm – Retirement/Death of a Partner
Exercise | Q 9 | Page 217
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