Question 79 Chapter 6 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 79 Chapter 6 of +2-A

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

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)

  • 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

 

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

2 Book 1 min - Question 79 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

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.