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The Balance Sheet Of X, Y And Z As at 31st March, 2018 Was: - Accountancy

Numerical

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 profit-sharing 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: 2017-18: ₹ 24,000; 2016-17: ₹ 16,000; 2015-16: ₹ 20,000 and 2014-15: ₹ 10,000 and 2013-14: ₹ 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.

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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 2017-18 ( 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

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 79 | Page 100
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