Question 56 Chapter 6 of +2- Part

Question 56 Chapter 6 of +2-Part-1

56. (Journal Entries/Amount due to executors of deceased Partner) Following is the balance sheet of Black, Brown, and White as of 31st December 2018

Liabilities Rs.Assets Rs. 
Capital A/c  Plant & Machinery 10,000
Black 10,000Stock4,000
Brown 5,000Sundry Debtors6,000
White 5,000Cash in hand 200
Sundry Creditors 2,000Cash at bank5,000
Reserve fund 3,200  
    
 25,200 25,200

White died on 31st March 2019. Under the terms of the partnership deed, the Executors of a deceased partner wore entitled:

  1. the amount standing to the credit of the partner’s capital account,
  2. share of goodwill on the basis of twice the average of the past three year’s profit; and
  3. share of profit from the closing of the last financial year to the death on the basis of the last years profits.
    Profits for 2016, 2017, and 2018 were respectively. Rs. 6,000, Rs. 8,000 and Rs. 7,000.Profits were shared in the ratio of capitals.
    Pass the necessary journal entries and show the amount due to the executors of White.

The solution of Question 56 Chapter 6 of +2 Part-1: –

Journal
Date  Particulars
L.F.DebitCredit
a)Reserve fund A/cDr. 3,200 
 To Black’s capital A/c   1600
 To Brown’s capital A/c   800
 To White’s capital A/c   800
 (Being reserve fund transferred to the capital A/c in old profit sharing ratio )    
      
b)Black’s capital A/cDr. 2,333 
 Brown’s capital A/cDr. 1,167 
 To White’s capital A/c   3,500
 (Being goodwill A/c raised with the share of deceased partner )    
      
c)Profit & loss suspense A/cDr. 438 
 To White’s capital A/c   438
 (Being white’s share of profit to the date of death )    
      
d)White’s capital A/cDr. 9,738 
 To Executor’s of White loan A/c   9,738
 (Being amount due to white transferred to executors A/c )    
     
White’s Capital A/c
Particulars
AmountParticularsAmount
To executor’s loan A/c 9,738By balance b/d 5,000
   By reserve fund 800
   By goodwill A/c 3,500
   By profit & loss A/c 438
  9,738  9,738

WORKING NOTES :

Valuation of goodwill

YearProfit
20166,000
20178,000
20187,000
Total21,000
Average profit=21,000
3
   
 =7,000

Value of goodwill at 2 year’s purchase = 2 X 7,000 = Rs. 14,000

White’s share in goodwill=1x14,000
3
     
 =Rs 3,500  

Calculation of share of profit of white till date of death
Profit average = Rs. 7,000

Profit for 3 months=3x7,000
12
     
 =Rs 1,750  
White’s share of profit=1x1,750
4
     
 =Rs 438  

Comment if you have any questions.

Also, Check out the solved question of previous Chapters: –

Usha Publication – Accountancy PSEB (Class 12) – Volume I – Solution

Usha Publication – Accountancy PSEB (Class 12) – Volume II – Solution

Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication

2 Book 1 min - Question 56 Chapter 6 of +2 Part-1 - USHA Publication 12 Class Part - 1
Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firm

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