Question 77 Chapter 6 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 77 Chapter 6 of +2-A

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

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    

 

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)

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 77 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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