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​​R, S And T Were Partners Sharing Profits and Losses in the Ratio of 5 : 3 : 2 Respectively. on 31st March, 2018, Their Balance Sheet Stood As: - Accountancy

Numerical

​​R, S and T were partners sharing profits and losses in the ratio of 5 : 3 : 2 respectively. On 31st March, 2018, their Balance Sheet stood as:

Liabilities

 

Assets

Sundry Creditors

40,000

Goodwill

25,000

Bills Payable

15,000

Leasehold

1,00,000

Workmen Compensation Reserve

30,000

Patents 30,000

Capital A/cs:

  Machinery 1,50,000
   R 1,50,000   Stock 50,000
   S

1,25,000

  Debtors 40,000
   T

75,000

3,50,000

Cash at Bank 40,000
 

4,35,000

 

4,35,000

   
T died on 1st August, 2018. It was agreed that:
(a) Goodwill be valued at 212 years' purchase of average of last 4 years' profits which were:
    2014-15: ₹ 65,000;  2015-16: ₹ 60,000; 2016-17: ₹ 80,000 and 2017-18: ₹ 75,000.
(b) Machinery be valued at ₹ 1,40,000; Patents be valued at ₹ 40,000; Leasehold be valued at ₹ 1,25,000 on 1st August, 2018.
(c) For the purpose of calculating T's share in the profits of 2018-19, the profits in 2018-19 should be taken to have accrued on the same scale as in 2017-18.
(d) A sum of ₹ 21,000 to be paid immediately to the Executors of T and the balance to be paid in four equal half-yearly instalments together with interest @ 10% p.a.
Pass necessary Journal entries to record the above transactions and T's Executors' Account. 

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Solution

Journal

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

Revaluation A/c

Dr.

 

10,000

 

To Machinery A/c

 

 

10,000

(Decrease in value of Machinery transferred to Revaluation Account)

 

 

 

Patents A/c

Dr.

 

10,000

 

Leasehold A/c

Dr.

 

25,000

 

To Revaluation A/c

 

 

35,000

(Increase in value Patents and Leasehold transferred to Revaluation Account)

 

 

 

 

Revaluation A/c

Dr.

 

25,000

 

To R’s Capital A/c

 

 

12,500

To S’s Capital A/c

 

 

7,500

To T’s Capital A/c

 

 

5,000

(Revaluation profit distributed among partners in their old ratio)

 

 

 

R’ Capital A/c

Dr.

 

12,500

 

S’s Capital A/c

Dr.

 

7,500

 

T’s Capital A/c

Dr.

 

5,000

 

To Goodwill A/c

 

 

25,000

(Goodwill written off among partners in their old ratio)

 

 

 

R’s Capital A/c

Dr.

 

21,875

 

S’s Capital A/c

Dr.

 

13,125

 

To T’s Capital A/c

 

 

35,000

(T’s share of goodwill adjusted)

 

 

 

Profit and Loss Suspense A/c

Dr.

 

5,000

 

  To T’s Capital A/c

 

 

5,000

(T’s share of profit transferred to his capital account)

 

 

 

Workmen’s Compensation Reserve A/c

Dr.

 

30,000

 

To R’s Capital A/c

 

 

15,000

To S’s Capital A/c

 

 

9,000

To T’s Capital A/c

 

 

6,000

(Workmen’s Compensation Reserve distributed among partners in their old ratio )

 

 

 

T’s Capital A/c

Dr.

 

1,21,000

 

To T’s Executors A/c

 

 

1,21,000

(Amount due to T after all adjustments transferred to his Executor’s Account)

 

 

 

T’s Executor’s A/c

Dr.

 

21,000

 

To Bank A/c

 

 

21,000

(Amount paid to T’s Executor)

 

 

 

 

T’s Executor’s Account

Dr.

 

Cr.

Date

Particulars

Amount

Rs

Date

Particulars

Amount

Rs

2018

 

 

2018

 

 

Aug. 01

Cash A/c

21,000

Aug. 01

T’s Capital A/c

1,21,000

2019     2019    

Jan. 31

Cash A/c (25,000 + 5,000)

30,000

Jan. 31

Interest (1,00,000 ×10% for 6 months)

5,000

Mar. 31

Balance c/d

76,250

Mar. 31

Interest (75,000 ×10% for 2 months)

1,250

 

 

1,27,250

 

 

1,27,250

2019

 

 

2019

 

 

Aug. 01

Cash A/c (25,000 + 1,250 + 2,500)

28,750

Apr. 01

Balance b/d

76,250

2020

 

 

Aug. 01

Interest (75,000 × 10% for 4 months)

2,500

Jan. 31 Cash A/c (25,000 + 2,500) 27,500 2020    

Mar. 31

Balance c/d

25,417

Jan. 31

Interest (50,000 × 10% for 6 months)

2,500

 

 

 

Mar. 31

Interest (25,000 × 10% for 2 months)

417

 

 

81,667

 

 

81,667

2020

 

 

2020

 

 

Aug. 01

Cash A/c (25,000 + 417 + 833)

26,250

Apr. 01

Balance b/d

25,417

 

 

 

Aug. 01

Interest (25,000 × 10% for 4 months)

833

 

 

26,250

 

 

26,250

Working Notes:

WN 1Calculation of Goodwill

Goodwill = Average Profit × Number of Year’s Purchase

Avearge Profit = `(65,000 + 60,000 + 80,000 + 75,000)/4 = (2,80,000)/4 = "Rs"  70,000`

Goodwill = Average Profit xx Number of year's Purchase

               = 70,000 xx 2.5 

               = Rs 1,75,000

WN 2 Adjustment of Goodwill

Old Ratio (R, S and T) = 5 : 3 : 2

T died.

∴ New Ratio (R and S) = 5 : 3 and

Gaining Ratio = 5 : 3

T’s Share in Goodwill =`1,75,000 xx 2/10 = "Rs"  35,000`

This share of goodwill is to be distributed between R and S in their gaining ratio (i.e. 5 : 3).

`"R's share in Goodwill" = 35,000 xx 5/8 = "Rs"  21,875`

`"S's share in goodwill" = 35,000 xx 3/8 = "Rs" 13,125`

WN 3 Calculation of T’s Share of Profit

Profit for 2017-18 = Rs 75,000

T's Share of Profit for 2018-19 = `75,000 xx 2/10 xx 4/12 = "Rs" 5,000`

WN 4

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Machinery

10,000

Patents

10,000

Profit transferred to:

 

Leasehold

25,000

R’s Capital A/c

12,500

 

 

 

S’s Capital A/c

7,500

 

 

 

T’s Capital A/c

5,000

25,000

 

 

 

35,000

 

35,000


WN 5

T’s Capital Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Goodwill

5,000

Balance b/d

75,000

T’s Executor’s A/c

1,21,000

Workmen’s Compensation Reserve

6,000

 

 

Profit and Loss Suspense A/c

5,000

 

 

R’s Capital A/c

21,875

 

 

S’s Capital A/c

13,125

 

 

Revaluation A/c (Profit)

5,000

 

1,26,000

 

1,26,000

Concept: Retirement and Death of a Partner - Calculation of New Profit Sharing Ratio
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APPEARS IN

TS Grewal Class 12 Accountancy - Double Entry Book Keeping Volume 1
Chapter 6 Retirement/Death of a Partner
Exercise | Q 76 | Page 98
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