Question 76 Chapter 6 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 76 Chapter 6 of +2-A

Question 76 Chapter 6 of +2-A

76. R, S and T were partners sharing profits and losses in the ratio of 5 : 3 : 2 respectively. On 31st March, 2018, their Balance Sheet stood as:

Liabilities   Amount  Assets Amount
Sundry Creditors   40,000 Goodwill 25,000
Bills Payable   15,000 Leasehold 1,00,000
Workmen Compensation Reserve   30,000 Patents 30,000
Capital A/cs:     Machinery 1,50,000
R 1,50,000   Stock 50,000
S 1,25,000   Debtors 40,000
T 75,000 3,50,000 Cash at Bank 40,000
    4,35,000   4,35,000

T died on 1st August 2018. It was agreed that:
a Goodwill be valued at 212 years’ purchase of average of last 4 years’ profits which were: 2014-15: 65,000; 2015-16: 60,000; 2016-17: 80,000 and 2017-18: 75,000.
b Machinery be valued at 1,40,000; Patents be valued at 40,000; Leasehold be valued at 1,25,000 on 1st August, 2018.
c For the purpose of calculating T’s share in the profits of 2018-19, the profits in 2018-19 should be taken to have accrued on the same scale as in 2017-18.
d A sum of 21,000 to be paid immediately to the Executors of T and the balance to be paid in four equal half-yearly instalments together with interest @ 10% p.a.
Pass necessary Journal entries to record the above transactions and T’s Executors’ Account.

 

The solution of Question 76 Chapter 6 of +2-A: –

 

Date Particulars
L.F. Debit Credit
  Revaluation A/c Dr.   75,000  
  To Machinery A/c       75,000
  (Being Decrease in value of Machinery transferred to Revaluation Account)      
  Patents A/c Dr.   10,000  
  Leasehold A/c Dr.   25,000  
  To Revaluation A/c       35,000
  (Being Increase in value Patents and Leasehold transferred to Revaluation Account)        
  Revaluation A/c Dr.   25,000  
  To R’s Capital A/c       12,500
  To S’s Capital A/c       7,500
  To T’s Capital A/c       5,000
  (Being Revaluation profit distributed among partners in their old ratio)        
  R’ Capital A/c Dr.   12,500  
  S’s Capital A/c Dr,   7,500  
  T’s Capital A/c Dr.   5,000  
  To Goodwill A/c       25,000
  (Being Goodwill written off among partners in their old ratio)        
  R’s Capital A/c Dr.   21,875  
  S’s Capital A/c Dr.   13,125  
  To T’s Capital A/c       35,000
  (Being T’s share of goodwill adjusted)        
  Profit and Loss Suspense A/c Dr.   5,000  
  To T’s Capital A/c       5,000
  (Being T’s share of profit transferred to his capital account)        
  Workmen’s Compensation Reserve A/c Dr.   30,000  
  To R’s Capital A/c       15,000
  To S’s Capital A/c       9,000
  To T’s Capital A/c       6,000
  (Being Workmen’s Compensation Reserve distributed among partners in their old ratio)        
  T’s Capital A/c Dr.   1,21,000  
  To T’s Executors A/c       1,21,000
  (Being Amount due to T after all adjustments transferred to his Executor’s Account)        
  T’s Executor’s A/c Dr.   21,000  
  To Bank A/c       21,000
  (Being Amount due to T after all adjustments transferred to his Executor’s Account)        

 

 

T’s Executor’s Account
Date Particular Amount Date Particular Amount
2018          
Aug. 01 To Cash A/c 21,000 Aug. 01 By T’s Capital A/c 1,21,000
2019          
Jan. 31 To Cash A/c 25,000 + 5,000 30,000 Aug. 01 By Interest 1,00,000 ×10% for 6 months   5,000
Mar. 31 To Balance c/d 76,250 Mar. 31 By Interest 75,000 ×10% for 2 months   1,250
    1,27,250       1,27,250
2019            
Aug. 01 To Cash A/c 25,000 + 1,250 + 2,500 28,750 Aug. 01 By Balance b/d   76,250
2020            
Jan. 31 To Cash A/c 25,000 + 2,500 27,500 Aug. 01 By Interest 75,000 × 10% for 4 months   2,500
Mar. 31 To Balance c/d 25,417 Mar. 31 By Interest 50,000 × 10% for 6 months   2,500
      Mar. 31 By Interest 25,000 × 10% for 2 months   417
    81,667       81,667
2020            
Aug. 01 To Cash A/c 25,000 + 417 + 833 26,250 Aug. 01 By Balance b/d   25,417
      Aug. 01 By Interest 25,000 × 10% for 4 months   833
    26,250       26,250

 

Working Notes:

Calculation of Goodwill

Goodwill = Average Profit × Number of Year’s Purchase

Average Profit = 65,000 +60,000 +80,000 + 75,000
4
     
  = Rs 70,000

∴ Goodwill = Average Profit × Number of Years’ Purchase
= 70,000 × 2.5 = Rs 1,75,000

Adjustment of Goodwill

Old Ratio R, S and T = 5 : 3: 2
T died.
∴ New Ratio R and S = 5 : 3
Gaining Ratio = 5 : 3

T’s Share in Goodwill = 1,75,000 X 2
10
         
  = Rs 35,000    

This share of goodwill is to be distributed between R and S in their gaining ratio i.e. 5 : 3.


R’s Share in Goodwill = 35,000 X 5
8
         
  = Rs 21,875    

 

S’s Share in Goodwill = 35,000 X 3
8
         
  = Rs 13,125    

 

Calculation of T’s Share of Profit

Profit for 2017-18 = Rs 75,000

T’s Share of Profit for 2018-19 = 75,000 X 2 X 4
10 12
             
  = Rs 5,000        

 

Revaluation Account
Particular Amount Particular Amount
To Machinery 10,000 By Patents 10,000
Profit transferred to:   By Leasehold 25,000
R’s Capital A/c 12,500      
S’s Capital A/c 7,500      
T’s Capital A/c 5,000      
  81,350     81,350



T’s Capital Account
Particular Amount Particular Amount
To Executor’s A/c 1,21,000 By Balance b/d 75,000
To Goodwill A/c 5,000 By Workmen’s Compensation Reserve 6,000
    By Profit and Loss Suspense A/c   5,000
    By R’s Capital A/c   21,875
    By S’s Capital A/c   13,125
    By Revaluation A/c Profit   5,000
  1,26,000     1,26,000

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)

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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2 Book 1 min - Question 76 Chapter 6 of +2-A - T.S. Grewal 12 Class Part - A Vol. 1
Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms

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