The Balance Sheet of X, Y and Z as at 31st March, 2018 was:
Liabilities 
Amount (₹) 
Assets 
Amount (₹) 

Bills Payable 
2,000 
Cash at Bank 
5,800 

Employees' Provident Fund 
5,000 
Bills Receivable 
800 

Workmen Compensation Reserve 
6,000 
Stock  9,000  
General Reserve  6,000  Sundry Debtors  16,000  
Loans  7,100  Furniture  2,000  
Capital A/cs: 
Plant and Machinery  6,500  
X  22,750  Building  30,000  
Y 
15,250 
Advertising Suspense  6,000  
Z 
12,000 
50,000 

76,100 
76,100 
The profitsharing ratio was 3 : 2 : 1. Z died on 31st July, 2018. The Partnership Deed provides that:
(a) Goodwill is to be calculated on the basis of three years' purchase of the five years' average profit. The profits were: 201718: ₹ 24,000; 201617: ₹ 16,000; 201516: ₹ 20,000 and 201415: ₹ 10,000 and 201314: ₹ 5,000.
(b) The deceased partner to be given share of profits till the date of death on the basis of profits for the previous year.
(c) The Assets have been revalued as: Stock ₹ 10,000; Debtors ₹ 15,000; Furniture ₹ 1,500; Plant and Machinery ₹ 5,000; Building ₹ 35,000. A Bill Receivable for ₹ 600 was found worthless.
(d) A Sum of ₹ 12,233 was paid immediately to Z's Executors and the balance to be paid in two equal annual instalments together with interest @ 10% p.a. on the amount outstanding.
Give Journal entries and show the Z's Executors' Account till it is finally settled.
Solution
Journal
Particulars 
L.F. 
Debit Amount Rs 
Credit Amount Rs 

Workmen’s Compensation Reserve 
Dr. 

6,000 

To X’s Capital A/c 


3,000 

To Y’s Capital A/c 


2,000 

To Z’s Capital A/c 


1,000 

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




General Reserve A/c 
Dr. 

6,000 

To X’s Capital A/c 


3,000 

To Y’s Capital A/c 


2,000 

To Z’s Capital A/c 


1,000 

(General Reserve distributed among partners in their old ratio) 




X’s Capital A/c 
Dr. 

3,000 

Y’s Capital A/c 
Dr. 

2,000 

Z’s Capital A/c 
Dr. 

1,000 

To Advertisement Suspense A/c 


6,000 

(Advertisement suspense written off among partners in their old ratio) 




X’s Capital A/c 
Dr. 

4,500 

Y’s Capital A/c 
Dr. 

3,000 

To Z’s Capital A/c 


7,500 

(Z’s share of goodwill adjusted) 




Revaluation A/c 
Dr. 

3,600 

To Sundry debtors A/c 
Dr. 


1,000 
To Furniture A/c 


500 

To Plant and Machinery A/c 


1,500 

To Bills Receivable A/c 


600 

(Decrease in value of Assets transferred to Revaluation Account) 




Stock A/c 
Dr. 

1,000 

Building A/c 
Dr. 

5,000 

To Revaluation A/c 


6,000 

(Increase in value of Assets transferred to Revaluation Account) 




Revaluation A/c 
Dr. 

2,400 

To X’ Capital A/c 


1,200 

To Y’s Capital A/c 


800 

To Z’s Capital A/c 


400 

(Revaluation profit distributed among partners in their old ratio) 




Profit and Loss Suspense A/c 
Dr. 

1,333 

To Z’s Capital A/c 


1,333 

(Z’s share of profit transferred his capital account) 




Z’s Capital A/c 
Dr. 

22,233 

To Z’s Executor’s A/c 


22,233 

(Amount due to Z transferred to his Executor’s Account) 




Z’s Executor’s A/c 
Dr. 

12,333 

To Bank A/c 


12,333 

(Amount paid to Z’s Executor) 



Z’s Executor’s Account
Dr. 

Cr. 

Date 
Particulars 
Amount Rs 
Date 
Particulars 
Amount Rs 
2018 


2018 


July 31 
Bank A/c 
12,233 
July 31 
Z’s Capital A/c 
22,233 
2019  2019  
Mar. 31 
Balance c/d 
10,667 
Mar. 31 
Interest (10,000 × 10% for 8 months) 
667 


22,900 


22,900 
2019 


2019 


July 31 
Bank A/c (5,000 + 667 + 333) 
6,000 
Apr. 01 
Balance b/d 
10,667 



July 31 
Interest (10,000 × 10% for 4 months ) 
333 
2020  2020  
Mar.31 
Balance c/d 
5,333 
Mar. 31 
Interest (5,000 × 10% for 8 months) 
333 


11,333 


11,333 
2020 


2020 


July 31 
Bank A/c (5,000 + 333 + 167) 
5,500 
Apr. 01 
Balance b/d 
5,333 



July 31 
Interest (5,000 × 10% for 4months) 
167 


5,500 


5,500 
Working Notes:
WN1 Calculation of Goodwill
Goodwill = Average Profit × Number of Year’s Purchase
`"Average profit" = (24,000 + 16,000 + 20,000 + 10,000 + 5,000)/5 = (75.000)/5 = "Rs" 15,000`
∴ Goodwill = Average Profit × Number of Years’ Purchase
= 15,000 × 3 = Rs 45,000
WN2 Adjustment of Goodwill
Old Ratio = 3 : 2 : 1
Z died.
∴ New Ratio (X and Y) = 3 : 1 and
Gaining Ratio = 3 : 2
Z’s Share in Goodwill = `45,000 xx 1/6 = "Rs" 7,500`
This share of goodwill is to be distributed between X and Y in their gaining ratio (i.e. 3 : 1).
`"X's share in goodwill" = 7,500 xx 3/5 = "Rs" 4,500`
`"Y's share in goodwill" = 7,500 xx 2/5 = "Rs" 3,000`
WN3 Calculation Z’s Share of Profit
Profit for 201718 ( Immediate Previous Year) = Rs 24,000
∴ Z’s Profit Share = `24,000 xx 1/6 xx 4/12 = "Rs" 1,333`
WN4
Revaluation Account
Dr. 

Cr. 

Particulars 
Amount Rs 
Particulars 
Amount Rs 

Sundry Debtors 
1,000 
Stock 
1,000 

Furniture 
500 
Building 
5,000 

Plant and Machinery 
1,500 



Bills Receivable 
600 



Profit transferred to: 




X’s Capital A/c 
1,200 



Y’s Capital A/c 
800 



Z’s Capital A/c 
400 
2,400 



6,000 

6,000 