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.
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
|
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
|
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 |
Rockey's Executor A/c |
|
33,821 |
2017 |
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.
