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Vivek, Viney and Vijay Were Partners in a Firm Sharing Profits in the Ratio of 2:1:2. the Firm Closes Its Books on 31st March Every Year. on 31-12-2014 Viney Died. - Accountancy

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Journal Entry

Vivek, Viney and Vijay were partners in a firm sharing profits in the ratio of 2:1:2. The firm closes its books on 31st March every year. On 31-12-2014 Viney died. On that date his capital account showed a debit balance of Rs 10,000 and Goodwill of the firm was valued at Rs 2, 40,000. There was a debit balance of Rs 7,000 in the profit and loss account. Viney's share of profit in the year of his death will be calculated on the basis of average profit of last 5 years which was Rs 90,000.

Pass necessary journal entries in the books of the firm on Viney's death.

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Solution

Journal

Date Particulars L.F.

Dr.

Rs

Cr.

Rs

 

Vivek’s Capital A/c                                                               Dr

Vijay’s Capital A/c                                                                Dr

           To Viney’s Capital A/c

(Being goodwill adjusted in gaining ratio)

Vivek’s Capital A/c                                                               Dr

Viney’s Capital A/c                                                               Dr

Vijay’s Capital A/c                                                                Dr

         To Profit and Loss A/c

(Being debit balance in P&L A/c written-off among all partners
in old ratio)

Profit and Loss Suspense A/c                                           Dr

       To Viney’s Capital A/c

(Being Viney’s share of profit up to date of death dispensed
through P&L Suspense A/c)

Viney’s Capital A/c                                                          Dr

      To Viney’s Executor A/c

(Being amount due to Viney transferred to his executor’s A/c)

 

24,000

24,000

 

 

2,800

1,400

2,800

 

 

 

13,500

 

 

50,100

 

 

 

 

48,000

 

 

 

 

7,000

 

 

 

13,500

 

 

50,100

 

Woring Notes :

WN:1 = Calculation of Viney's Share of Goodwill

Viney's Share of Goodwill = Firm's Goodwill x His Profit Share

`=240000xx1/5=48000`

Rs 48, 000 will be borne by gaining partners in gaining ratio.

It is assumed that continuing partners gain in their old profit sharing ratio of 2:2.

Vivek's gain `=48000xx2/4=24000`

Vijay's gain `=48000xx2/4=24000`

WN 2 : Calculation of Share of Debit balance in P&L A/c

Vivek's share `=7000xx2/5=2800`

Viney's share `=7000xx1/5=1400`

Vijay's share `=7000xx2/5=2800`

WN 3 : Calculation of Share in Profit (earned during the year)

Viney's share = Average Profits x Number of Months Viney Remained x Her Profit Share

`=90000xx9/12xx1/5=13500`

WN4 : Calculation of Amount transferred to Viney's Executor A/c

Amount due to Viney = Capital + Credit items - Debit Items

= (10,000) + 48,000 - 1,400 + 13500 = 50100.

Concept: Concept of Goodwill
  Is there an error in this question or solution?

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