Question 79 Chapter 6 of +2-A
79. The Balance Sheet of X, Y and Z as at 31st March, 2018 was
Liabilities | Amount | Assets | Amount | |
Bills Payable | 2,000 | Cash at Bank | 5,800 | |
Employees’ Provident Fund | 5,000 | Bills Receivable | 800 | |
Workmen Compensation Reserve | 6,000 | Stock | 9,000 | |
General Reserve | 6,000 | Sundry Debtors | 16,000 | |
Loans | 7,100 | Furniture | 2,000 | |
Capital A/cs: | Plant and Machinery | 6,500 | ||
X | 22,750 | Building | 30,000 | |
Y | 15,250 | Advertising Suspense | 6,000 | |
Z | 12,000 | 50,000 | ||
76,100 | 76,100 |
The profit-sharing ratio was 3 : 2 : 1. Z died on 31st July, 2018. The Partnership Deed provides that:
a Goodwill is to be calculated on the basis of three years’ purchase of the five years’ average profit. The profits were: 2017-18: 24,000; 2016-17: 16,000; 2015-16: 20,000 and 2014- 15: 10,000 and 2013-14: 5,000.
b The deceased partner to be given a share of profits till the date of death on the basis of profits for the previous year.
c The Assets have been revalued as: Stock 10,000; Debtors 15,000; Furniture 1,500; Plant and Machinery 5,000; Building 35,000. A Bill Receivable for 600 was found worthless. d A Sum of 12,233 was paid immediately to Z’s Executors and the balance to be paid in two equal annual instalments together with interest @ 10% p.a. on the amount outstanding. Give Journal entries and show the Z’s Executors’ Account till it is finally settled
The solution of Question 79 Chapter 6 of +2-A: –
Date | Particulars |
L.F. | Debit | Credit | |
Workmen’s Compensation Reserve | Dr. | 6,000 | |||
To X’s Capital A/c | 3,000 | ||||
To Y’s Capital A/c | 2,000 | ||||
To Z’s Capital A/c | 1,000 | ||||
(Being Workmen’s Compensation Reserve distributed among partners in their old ratio) | |||||
General Reserve A/c | Dr. | 6,000 | |||
To Z’s Capital A/c | 3,000 | ||||
To Y’s Capital A/c | 2,000 | ||||
To Z’s Capital A/c | 1,000 | ||||
(Being General Reserve distributed among partners in their old ratio) | |||||
X’ Capital A/c | Dr. | 3,000 | |||
Y’s Capital A/c | Dr. | 2,000 | |||
Z’s Capital A/c | Dr. | 1,000 | |||
To Advertisement Suspense A/c | 6,000 | ||||
(Being Goodwill written off among partners in their old ratio) | |||||
X’s Capital A/c | Dr. | 4,500 | |||
Y’s Capital A/c | Dr. | 3,000 | |||
To Z’s Capital A/c | 7,500 | ||||
(Being T’s share of goodwill adjusted) | |||||
Revaluation A/c | Dr. | 3,600 | |||
To Sundry debtors A/c | 1,000 | ||||
To Furniture A/c | 500 | ||||
To Plant and Machinery A/c | 1,500 | ||||
To Bills Receivable A/c | 600 | ||||
(Being Decrease in value of Assets transferred to Revaluation Account) | |||||
Stock A/c | Dr. | 1,000 | |||
Building A/c | Dr. | 5,000 | |||
To Revaluation A/c | 6,000 | ||||
(Being Increase in value of Assets transferred to Revaluation Account) | |||||
Revaluation A/c | Dr. | 2,400 | |||
To X’ Capital A/c | 1,200 | ||||
To Y’s Capital A/c | 800 | ||||
To Z’s Capital A/c | 400 | ||||
(Being Revaluation profit distributed among partners in their old ratio ) | |||||
Profit and Loss Suspense A/c | Dr. | 1,333 | |||
To Z’s Capital A/c | 1,333 | ||||
(Being Z’s share of profit transferred his capital account) | |||||
Z’s Capital A/c | Dr. | 22,233 | |||
To Z’s Executor’s A/c | 22,233 | ||||
(Being Amount due to Z transferred to his Executor’s Account) | |||||
(Being Amount due to Z transferred to his Executor’s Account) | |||||
Z’s Executor’s A/c | Dr. | 12,333 | |||
To Bank A/c | 12,333 | ||||
(Being Amount paid to Z’s Executor) |
Z’s Executor’s Account |
||||||
Date | Particular | Amount | Date | Particular | Amount | |
2018 | ||||||
July 31 | To Bank A/c | 12,233 | July 31 | By Z’s Capital A/c | 22,233 | |
2019 | ||||||
Mar. 31 | To Cash A/c 25,000 + 5,000 | 10,667 | Mar. 31 | By Interest 10,000 × 10% for 8 months | 5,000 | |
22,900 | 22,900 | |||||
2019 | ||||||
July. 01 | To Bank A/c 5,000 + 667 + 333 | 6,000 | Aug. 01 | By Balance b/d | 10,667 | |
2020 | ||||||
Mar. 31 | To Balance c/d | 5,333 | Aug. 01 | By Interest 75,000 × 10% for 4 months | 333 | |
Mar. 31 | By Interest 5,000 × 10% for 8 month | 333 | ||||
11,333 | 11,333 | |||||
2020 | ||||||
Aug. 01 | To Bank A/c 5,000 + 333 + 167 | 5,500 | Aug. 01 | By Balance b/d | 5,333 | |
Aug. 01 | By Interest 25,000 × 10% for 4 months | 167 | ||||
5,500 | 5,500 |
Working Notes:
Calculation of Goodwill
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Goodwill = Average Profit × Number of Year’s Purchase
Average Profit | = | 24,000 + 16,000 + 20,000 + 10,000 + 5,000 |
5 | ||
= | Rs 15,000 |
∴ Goodwill = Average Profit × Number of Years’ Purchase
=15,000 × 3 = Rs 45,000
Adjustment of Goodwill
Old Ratio = 3 : 2 : 1
Z died.
∴ New Ratio X and Y = 3 : 1
Gaining Ratio = 3 : 2
Z’s Share in Goodwill | = | 45,000 | X | 1 |
6 | ||||
= | Rs 7,500 |
This share of goodwill is to be distributed between X and Y in their gaining ratio i.e. 3 : 1.
X’s Share in Goodwill | = | 7,500 | X | 3 |
5 | ||||
= | Rs 4,500 |
Y’s Share in Goodwill | = | 7,500 | X | 2 |
5 | ||||
= | Rs 3,000 |
Calculation Z’s Share of Prof
Profit for 2017-18 Immediate Previous Year = Rs 24,000
∴ Z’s Profit Share | = | 24,000 | X | 1 | X | 4 |
6 | 12 | |||||
= | Rs 1,333 |
Revaluation Account |
||||
Particular | Amount | Particular | Amount | |
To Sundry Debtors | 1,000 | By Balance b/d | 80,000 | |
To Furniture | 500 | By Interest on Capital A/c | 1,600 | |
To Plant and Machinery | 1,500 | |||
To Bills Receivable | 600 | |||
Profit transferred to: | ||||
X’s Capital A/c | 1,200 | |||
Y’s Capital A/c | 800 | |||
Z’s Capital A/c | 400 | |||
6,000 | 6,000 |
T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)
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- 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
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