Q.No.78 | Chapter 6 – Retirement/Death of a Partner | T.S. Grewal 12 Class Book Keeping Part - A - Vol. 1

Question 78 Chapter 6 of +2-A

78. B, C and D were partners in firm sharing profits in the ratio of 5 :3: 2. On 31st December 2008, their Balance Sheet was as follows:

Liabilities		Amount	Assets	Amount
Creditors		43,000	Cash	10,200
Bills Payable		17,000	Stock	24,500
General Reserve		70,000	Debtors	27,300
Capital A/csp:			Land and Building	1,40,000
B	40,000		Profit and Loss A/c	70,000
C	50,000
D	52,000	1,42,000
		2,72,000		2,72,000

B died on 31st March 2009. The Partnership Deed provided for the following on the death of a partner:
a Goodwill of the firm was to be valued at 3 years' purchase of the average profit of the last 5 years. The profits for the years ended 31st December 2007, 31st December 2006, 31st December 2005, and 31st December 2004 were 70,000; 60,000; 50,000 and 40,000 respectively.
b B's share of profit or loss till the date of his death was to be calculated on the basis of the profit or loss for the year ended 31st December 2008. You are required to calculate the following:
i Goodwill of the firm and B's share of goodwill at the time of his death.
ii B's share in the profit or loss of the firm till the date of his death.
iii Prepare B's Capital Account at the time of his death to be presented to his Executors.

 

The solution of Question 78 Chapter 6 of +2-A: -

 

(i) Calculation of Goodwill

Goodwill = Average Profit × Number of Year’s Purchase

Average Profit	=	(-70,000 + 70,000 + 60,000 + 50,000 +40,000)
		5
	=	Rs 30,000

∴ Goodwill = Average Profit × Number of Years’ Purchase
= 30,000 × 3 = Rs 90,000

Old Ratio B, C and D = 5 : 3 : 2
B Died
New Ratio C and D = 3 : 2

B’s Share in Goodwill	=	90,000	X	5
				10
	=	Rs 45,000

This share of goodwill is to be distributed between C and D in their gaining ratio i.e. 3 : 2

C’s Share in Goodwill	=	45,000	X	3
				5
	=	Rs 27,000

D’s Share in Goodwill	=	45,000	X	2
				5
	=	Rs 18,000

(ii) Calculation of B’s Share of Profit or Loss

Loss for the Year 2008 = Rs 70,000

Sunil’s share of Profit	=	70,000	X	5	X	3
				10		12
	=	Rs 8,750

 

B’s Capital Account

Particular	Amount	Particular		Amount
To Profit and Loss A/c	35,000	By Balance b/d		40,000
To Profit and Loss Suspense A/c	8,750	By General Reserve		35,000
		By C’s Capital A/c Goodwill		27,000
To B’s Executor’s A/c	76,250	By D’s Capital A/c Goodwill		18,000
	1,20,000			1,20,000

 

T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)

• Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
• Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
• Chapter No. 3 – Goodwill: Nature and Valuation
• Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
• Chapter No. 5 – Admission of a Partner
• Chapter No. 6 – Retirement/Death of a Partner
• Chapter No. 7 – Dissolution of a Partnership Firm

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 8 – Company Accounts –  Accounting for Share Capital
• Chapter No. 9 – Company Accounts – Issue of Debentures
• Chapter No. 10 – Redemption of Debentures

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 1 – Financial Statements of a Company
• Chapter No. 2 – Financial Statement Analysis 
• Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
• Chapter No. 4 – Accounting Ratios
• Chapter No. 5 – Cash Flow Statement

 

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