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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.

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Question

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.

Journal Entry
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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.

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2015-2016 (March) Foreign Set 2

RELATED QUESTIONS

On1.4.2014 the Balance Sheet of Anant, Sampat and Gunvant was as follows :

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

General Reserve

Capital Reserve

    Anant    30,000

   Sampat   15,000

   Gunvant  15,000

9,000

9,600

 

 

 

60,000

Bank

Bills Receivables

Stock

Tools

Furniture

 

15,600

18,000

18,000

3,000

24,000

 

  78,600   78,600

Gunvant died on 30.9.2014. Under the terms of Partnership Deed, the executors of the deceased partner were entitled to:

(a) The amount standing to the credit of partner's capital account.
(b) Interest on capital @12% per annum.
(c) A share of goodwill on the basis of twice the average of past three years profits.
(d) A share of profit from the closing of last financial year to the date of death on the basis of last year's profit.

The profits of the last three years were as follows:

Year Profit
2011 - 2012 18.000
2012 - 2013 21,000
2013 - 2014 24,000

The firm closes its books on 31st March every year. Partners share profits in the ratio of their capitals.
Prepare Gunvant's Capital Account to be presented to his executors


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Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

Bills Payable

Agarwal's Loan

Capitals

   Joshi     2,10,000

  Pandey   2,04,000

51,000

36,000

84,000

 

 

4,14,000

Cash

Debtors

Bills payable

Furniture

Machinery

Agarwal’s Capital

24,000

39,000

27,000

81,000

3,75,000

39,000

  5,85,000   5,85,000

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Prepare Agarwal's Capital Account to be presented to his executors.


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Harry, Pammy and Sunny are partners sharing profits in the ratio of 3:2:1. Goodwill is appearing in the books at a value of Rs. 60, 000. What is the journal entry for the following case?


Analyse the case given below and answer the question that follow:

Alia, Karan and Shilpa were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Goodwill appeared in their books at the value of ₹ 60,000. Karan decided to retire from the firm. On the date of his retirement, goodwill of the firm was valued at ₹ 2,40,000. The new profit sharing ratio decided among Alia and Shilpa was 2 : 3. Give the answer to the question given below:

How much will be transferred to Karan's Capital Account of the existing goodwill?


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Fill in the blank.

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Calculate goodwill of a firm on the basis of three years purchases of the Weighted Average Profits of the last four years. The profits of the last four years were: 

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Amount 28,000 27,000 46,900 53,810
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Complete the following Table:

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40,000
(Profit)
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(Profit)
30,000
(Loss)
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Find out value of Goodwill.


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On 1st April, 2020, Anish started a business with a capital of ₹ 3,00,000.
During the three years ending 31st March, 2023, the results of his business were:

Year   (₹)
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2021-22 Profit 34,000
2022-23 Profit 46,000

From the year 2020-21 to the year 2022-23, Anish withdrew ₹ 30,000 from the firm for his personal use.
On 1st April, 2023, he admitted Danish into partnership on the following terms:

  1. Goodwill of the firm to be valued at two years’ purchase of the average profits of the last three years.
  2. Danish to have a `1/4` share in the future profits.
  3. Danish’s capital is to be equal to `1/4` of Anish’s capital determined on 1st April, 2023, after the goodwill compensation has been taken into account.

You are required to give:

  1. The formula to calculate goodwill by the Average Profit Method.
  2. The value of self-generated goodwill of the firm.
  3. Danish’s capital contribution.

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