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:
201415: ₹ 65,000; 201516: ₹ 60,000; 201617: ₹ 80,000 and 201718: ₹ 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 201819, the profits in 201819 should be taken to have accrued on the same scale as in 201718.
(d) A sum of ₹ 21,000 to be paid immediately to the Executors of T and the balance to be paid in four equal halfyearly instalments together with interest @ 10% p.a.
Pass necessary Journal entries to record the above transactions and T's Executors' Account.
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 201718 = Rs 75,000
T's Share of Profit for 201819 = `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 