Question 77 Chapter 6 of +2-A
77. Akhil, Nikhil and Sunil were partners sharing profits and losses equally. Following was their Balance Sheet as at 31st March, 2018:
| Liabilities | Amount | Assets | Amount | |
| Trade Creditor | 40,000 | Building | 2,00,000 | |
| General Reserve | 45,000 | Plant and Machinery | 80,000 | |
| Capital A/cs: | Stock | 35,000 | ||
| Akhil | 1,95,000 | Debtors | 80,000 | |
| Nikhil | 1,20,000 | Cash at Bank | 85,000 | |
| Sunil | 80,000 | 3,95,000 | ||
| 4,80,000 | 4,80,000 |
Sunil died on 1st August 2018. The Partnership Deed provided that the executor of a deceased partner was entitled to:
a Balance of Partners’ Capital Account and his share of the accumulated reserve.
b Share of profits from the closure of the last accounting year till the date of death on the basis of the profit of the preceding completed year before death.
c Share of goodwill calculated on the basis of three times the average profit of the last four years.
d Interest on deceased partner’s capital @ 6% p.a.
e 50,000 to be paid to deceased’s executor immediately and the balance to remain in his Loan Account. Profits and Losses for the preceding years were: 2014-15 − 80,000 Profit; 2015-16 − 1,00,000 Loss; 2016-17 − 1,20,000 Profit; 2017-18 − 1,80,000 Profit.
Pass necessary Journal entries and prepare Sunil’s Capital Account and Sunil’s Executor Account.
The solution of Question 77 Chapter 6 of +2-A: –
| Date | Particulars |
L.F. | Debit | Credit | |
| General Reserve A/c | Dr. | 45,000 | |||
| To Akhil’s Capital A/c | 15,000 | ||||
| To Nikhil’s Capital A/c | 15,000 | ||||
| To Sunil’s Capital A/c | 15,000 | ||||
| (Being General Reserve distributed among partners in their old ratio) | |||||
| Akhil’s Capital A/c | Dr. | 35,000 | |||
| Nikhil’s Capital A/c | Dr. | 35,000 | |||
| To Sunil’s Capital A/c | 70,000 | ||||
| (Being Sunil’s share of goodwill adjusted) | |||||
| Interest on Capital A/c | Dr. | 1,600 | |||
| To Sunil’s Capital A/c | 1,600 | ||||
| (Being Interest allowed on Sunil’s Capital) | |||||
| Profit and Loss Suspense A/c | Dr. | 20,000 | |||
| To Sunil’s Capital A/c | 20,000 | ||||
| (Being Sunil’s profit share transferred to his capital account) | |||||
| Sunil’s Capital A/c | Dr. | 1,86,600 | |||
| To Sunil’s Executor’s A/c | 1,86,600 | ||||
| (Being Amount due to Sunil after all adjustments transferred to his Executor’s Account) | |||||
| Sunil’s Executor’s A/c | Dr. | 50,000 | |||
| To Bank A/c | 50,000 | ||||
| (Being Amount paid to Sunil’s Executor ) | |||||
| Sunil’s Capital Account |
||||
| Particular | Amount | Particular | Amount | |
| To Executor’s A/c | 1,86,600 | By Balance b/d | 80,000 | |
| By Interest on Capital A/c | 1,600 | |||
| By General Reserve | 15,000 | |||
| By Profit and Loss Suspense A/c | 20,000 | |||
| By Akhil’s Capital A/c Goodwill | 35,000 | |||
| By Nikhil’s Capital A/c Goodwill | 35,000 | |||
| 1,86,600 | 1,86,600 | |||
| Sunil’s Executor Account | ||||
| Particular | Amount | Particular | Amount | |
| To Bank A/c | 1,86,600 | By Sunil’s Capital A/c | 1,86,600 | |
| 1,26,000 | 1,26,000 | |||
Working Notes:
Calculation of Sunil’s Share of Profit
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Profit for 2017-18 = Rs 1,80,000
| Sunil’s share of Profit | = | 1,80,000 | X | 1 | X | 4 |
| 3 | 12 | |||||
| = | Rs 20,000 |
Calculation of Goodwill
Goodwill = Average Profit × Number of Year’s Purchase
| Average Profit | = | (80,000 -1,00,000 + 1,20,000 + 1,80,000 ) |
| 4 | ||
| = | Rs 70,000 |
∴ Goodwill = Average Profit × Number of Years’ Purchase
= 70,000 × 3 = Rs 2,10,000
Adjustment of Goodwill
Old Ratio = 1 : 1 : 1
Sunil died
∴ New Ratio = 1 : 1
Gaining Ratio = 1 : 1
| Sunil’s Share in Goodwill | = | 2,10,000 | X | 2 |
| 10 | ||||
| = | Rs 70,000 |
This share of goodwill is to be distributed between Akhil and Nikhil in their gaining ratio i.e. 1 : 1
| Akhil’s Share in Goodwill | = | 70,000 | X | 1 |
| 2 | ||||
| = | Rs 35,000 |
| Nikhil’s Share in Goodwill | = | 70,000 | X | 1 |
| 2 | ||||
| = | Rs 35,000 |
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Calculation of Interest on Sunil’s Capital
Sunil’s Capital Balance = Rs 80,000
| Interest on Capital | = | 80,000 | X | 6 | X | 4 |
| 100 | 12 | |||||
| = | Rs 1,600 |
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
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
