Question

Arti, Bharti and Seema are partners sharing profits in the proportion of 3:2:1 and their Balance Sheet as on March 31, 2016 stood as follows:

Books of Arti, Bharti and Seema
Balance Sheet as on March 31, 2016

Liabilities		Amt (Rs.)	Assets	Amt (Rs.)
Bills Payable		12,000	Buildings	21,000
Creditors		14,000	Cash in Hand	12,000
General Reserve		12,000	Bank	13,700
Capitals:			Debtors	12,000
Arti                      20,000			Bills Receivable	4,300
Bharti	12,000		Stock	1,750
Seema	8,000	40,000	Investment	13,250
		78,000		78,000

Bharti died on June 12, 2016 and according to the deed of the said partnership, her executors are entitled to be paid as under:(a) The capital to her credit at the time of her death and interest thereon @ 10% per annum.
(b) Her proportionate share of reserve fund.
(c) Her share of profits for the intervening period will be based on the sales during that period, which were calculated as Rs 1,00,000. The rate of profit during past three years had been 10% on sales.
(d) Goodwill according to her share of profit to be calculated by taking twice the amount of the average profit of the last three years less 20%. The profits of the previous years were:
2013 – Rs 8,200
2014 – Rs 9,000
2015 – Rs 9,800
The investments were sold for Rs 16,200 and her executors were paid out. Pass the necessary journal entries and write the account of the executors of Bharti.

Answer 1

Books of Arti and Seema
Journal

Date	Particulars		L.F.	Amt (Rs.)	Amt (Rs.)
2016 June 12	Interest on Capital A/c General Reserve A/c Profit and Loss (Suspense) A/c   To Bharti’s Capital A/c (Profit, interest and general reserve are in credited to Bharti’s Capital account)	Dr. Dr. Dr.		240 4,000 3,333	7,573
June 12	Arti’s Capital A/c Seema’s Capital A/c   To Bharti’s Capital A/c (Bharti’s share of goodwill adjusted to Arti’s and Seema’s Capital Account in their gaining ratio, 3:1)	Dr. Dr.		3,600 1,200	4,800
June 12	Bharti’s Capital A/c    To Bharti's Executor's A/c (Bharti’s capital account is transferred to her executor’s account)	Dr.		24,373	24,373
June 12	Bank A/c     To Investment A/c     To Profit on Sale of       Investment (Investment sold)	Dr.		16,200	13,250 2,950
June 12	Bharti’s Executor A/c        To Bank A/c (Bharti Executor paid)	Dr.		24,373	24,373

Bharti’s Capital Account
Dr.                                                                                             Cr.

Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2016 June 12	Bharti's Executor’s A/c		24,373	2016 Mar. 31	Balance b/d		12,000
				June 12	Interest on Capital		240
					Profit and Loss (Suspense)		3,333
					General Reserve		4,000
					Arti’s Capital A/c		3,600
					Seema’s Capital A/c		1,200
			24,373				24,373

                                    Bharti’s Executor’s Account
Dr.                                                                                             Cr.

Date	Particulars	J.F.	Amount Rs		Date	Particulars	J.F.	Amount Rs
2016 June 12	Bank		24,373		2016 June 12	Bharti's Capital A/c		24,373
			24,373					24,373

Working Notes:
1. Bharti’s share of profit = Profit is 10% of sales
Sales during the last year for that period were Rs 1,00,000
If sales are Rs 1,00,000, then the profit is Rs 10,000

Bharti's share = 10,000 x `2/6` = Rs. 3,333.

2. Bharti’s Share of Goodwill
Goodwill of the firm = Average Profit × Number of Years Purchase

Average Profit = `[8,200 + 9,000 + 9,800]/3 = "Rs." 9,000`
Or, 9,000 − 20% of 9,000 = 9,000 − 1,800 = Rs 7,200
Goodwill of the firm = 7,200 × 2 = Rs 14,400

3. Gaining Ratio = New Ratio − Old Ratio
Arti's Gaining Share = `3/4 - 3/6 = [ 9 - 6]/12 = 3/12`

Seema's Gaining Share = `1/4 - 1/6 = [ 3 -2]/12 = 1/12`

Gaining ratio between Arti and Seema = 3:1

4. Interest on Capital for 73 days, i.e. from April 1, 2016 to June 12, 2016
Interest on capital = Amount of Capital × Ratio of Interest × Period 
= 12,000 x `10/100` x `73/365` = Rs. 240.