12th | Death  of a Partner | Question No.  26 To 30 | Ts Grewal Solution 2022-2023

Balance sheet
Assets		`	Liabilities	`
Bill Payables		20,000	Cash	26,000
Loan		22,000	Stock	64,000
General Reserve		10,000	Investments	85,000
Capital A/cs:			Land and building	97,000
Sadhu	80,000		Sadhu’s Loan	20,000
Raja	60,000
Karan	1,00,00	2,40,000
		2,92,000		2,92,000

 

Sadhu died on 31st July, 2021. The Partnership Deed provided for the following on the death of a partner:

(i) Goodwill of the firm be valued at two years’s purchase of average profits for the last three years.

(ii) Sadhu’s share of profit or loss till the date of his death was to be calculated on the basis of sales. Sales for the year ended 31st March, 2021 amounted to  ` 4,50,000 and that from 1st April to 31st July, 2021 ` 2,70,000. The profit for the year ended 31st March, 2021 was calculated as ` 1,25,000.

(iii) Interest on capital was to be provided @ 5% p.a.

(iv) The average profits of the last three years were ` 55,000.

Prepare Sadhu’s Capital Account to be rendered to his executor. (Delhi 2013, Modified)

 

Sadhu’s Capital Account
Particulars	Dr. `	Particulars	Cr. `
To Sadhu’s Executors A/c		By Balance b/d	80,000
		By Sadhu’s loan A/c	20,000
		By Raja’s Capital A/c (WN-1)	14,667
		By Karan’s Capital A/c (WN-1)	29,333
		By P&L Suspense A/c	8,467
		By Interest on Capital A/c	1,333

Working notes:

WN-1 Calculation of goodwill

The average profits of the last three years were ` 55,000

Goodwill of the Firm = ` 55,000×2=1,10,000

Share of Sadhu is in Goodwill = 1,10,000 × 4/10 = 44,000

Goodwill Share of Sadhu is in Goodwill will be compensated by Raja and Karan in 2:4

Raja = 44,000 × 2/6 = 14,667

Karan = 44,000 × 4/6 = 29,333

WN-2 Interest on capital was to be provided @ 5% p.a.

Sadhu’s Interest on Capital = 80,000×5×4/100×12= 1,333

 

WN-3 Calculation of Sadhu’s share of Profit

Sales for the year ended 31st March, 2021 = ` 4,50,000

The profit for the year ended 31st March, 2021 = ` 1,25,000.

Percentage of Profit for the year ended 31st March, 2021 = 1,25,000×100/4,50,000= 28%

Sales from 1st April to 31st July, 2021 = ` 2,70,000

Profit from 1st April to 31st July, 2021 = ` 2,70,000×28/100= ` 75,600

Sadhu’s Share of Profit = 75,600×28×4/100×10 = ` 8,467

 

X and Y are partners. The Partnership Deed provides inter alia:
(a) That the Accounts be balanced on 31st March every year.
(b) That the profits be divided as: X one-half, Y one-third and carried to a Reserve one-sixth.
(c) That in the event of the death of a partner, his Executors be entitled to be paid:
    (i) The Capital to his credit till the date of death.
    (ii) His proportion of profits till the date of death based on the average profits of the last three completed years.
    (iii) By way of Goodwill, his proportion of the total profits for the three preceding years.
(d)

BALANCE SHEET as at 31st March, 2022
Liabilities		`	Assets		`
Capital A/cs:			Sundry Assets		21,000
X	9,000
Y	6,000	15,000
Reserve		3,000
Creditors		3,000
		21,000			21,000

Profits for three years were: 2020 −  ` 4,200; 2021 −  ` 3,900; 2022 −  ` 4,500.

Y died on 1st August, 2022. Prepare necessary accounts.

 

Y’s Capital Account
Dr.			Cr.
Particulars	( `)	Particulars	( `)
		Balance b/d	6,000
		X’s Capital A/c (Reserve)	1,200
Y’s Executor’s A/c	12,800	X’s Capital A/c (Goodwill)	5,040
		X’s Capital A/c (Profit)	560
	12,800		12,800

Working Notes:

WN 1
Old Ratio (X and Y) = 1/2 : 1/3 or     3:2

WN 2
Y’s share of reserve =3,000×2/5=1,200

WN 3 Calculation Y’s Share of Profit 
Average profit = total profit of past given years/number of years

Average profit =4200+3900+4500/3=12600/3=4,50

Y’s Share of Profit (from April 01,2021 to August 01, 2022 ) 4,200×2/5×4/12=560

WN 4 Calculation of Y’s Share of Goodwill 
Y’s share of Goodwill = Y’s Profit Share in last three year
Profit for last three years = 4,200 + 3,900 + 4,500 = ` 12,600
Y’s Share of Goodwill=12,600×2/5=5040

 

Balance sheet as at 31st March, 2018
Assets		`	Liabilities	`
Bill Payables		7,000	Cash at bank	12,000
Loan		9,000	Debtors	32,000
General Reserve		10,000	Furniture	30,000
Profit and Loss Account		6,000	Plant	40,000
Capital A/cs:			Patents	8,000
Sadhu	40,000
Raja	30,000
Karan	20,000	90,000
		1,22,000		1,22,000

On A’s death it was found that patents were valueless, furniture was to be brought down to ` 24,000, plant was to be reduced by ` 10,000 and there was a liability of ` 7,000 on account of workmen’s compensation.

Pass the necessary Journal entries for the above at the time of A’s death. (CBSE 2019)

 

Date	Particulars		L.F.	(Dr.) `	(Cr.) `
	Patent A/c Furniture A/c Plant A/c   To Revaluation a/c (Being Values of Fixed assets decreased)	Dr. Dr. Dr.		8,000 6,000 10,000	24,000
	Revaluation A/c    To A’s capital A/c    To B’s capital A/c    To C’s capital A/c (Being Loss on Revaluation transferred to capital accounts)	Dr.		24,000	8,000 8,000 8,000
	General Reserve A/c    To A’s capital A/c    To B’s capital A/c    To C’s capital A/c (Being General Reserve transferred to capital accounts)	Dr.		9,000	3,000 3,000 3,000
	Workers’ Compensation Reserve A/c   To workers’ Compensation Claim A/c   To A’s capital A/c   To B’s capital A/c   To C’s capital A/c (Being Workers’ Compensation Reserve transferred to capital accounts after adjusting Claim)	Dr.		10,000	7,000 1,000 1,000 1,000
	Profit and Loss  A/c    To A’s capital A/c    To B’s capital A/c    To C’s capital A/c	Dr.		6,000	2,000 2,000 2,000
	A’s capital A/c      To  A’s Executors’ A/c	Dr.		38,000	38,000

 

On 31st March, 2014, the Balance Sheet of Pooja, Qureshi and Ross, who were partners in a firm was as under:

Liabilities		( `)	Assets	( `)
Sundry Creditors		2,50,000	Building	2,60,000
Reserve Fund		2,00,000	Investment	1,10,000
Capital A/cs: Pooja	1,50,000		Qureshi's Loan	1,00,000
Qureshi	1,00,000		Debtors	1,50,000
Ross	1,00,000	3,50,000	Stock	1,20,000
			Cash	60,000
		8,00,000		8,00,000

   
Qureshi died on 1st July, 2014. The profit-sharing ratio of the partners was 2 : 1 : 1. On the death of a partner, the partnership deed provided for the following:
(i) His share in the profits of the firm till the date of his death will be calculated on the basis of average profits of last three completed years.
(ii) Goodwill of the firm will be calculated on the basis of total profit of last two years.
(iii) Interest on loan given by the firm to a partner will be charged at the rate of 6% p.a. or  ` 4,000, whichever is more.
(iv) Profits for the last three years were  ` 45,000;  ` 48,000 and  ` 33,000.
Prepare Qureshi's Capital Account to be rendered to his executors.

 

Dr.	Qureshi’s Capital A/c						Cr.
Date		Particulars	( `)	Date	Particulars	( `)
2014				2014
July 01		To Qureshi’s Loan A/c (WN3)	1,04,000	April 01	By balance b/d	1,00,000
2015				July 01	By Pooja’s Capital A/c (WN1)	13,500
March 31		To balance c/d	68,875	July 01	By Ross’s Capital A/c (WN1)	6,750
				July 01	By Profit & Loss Suspense A/c (WN2)	2,625
				July 01	By Reserve Fund A/c	50,000
					(2,00,000 × 1/4)
			1,72,875			1,72,875

 
Working Notes:                              
1. Calculation of Qureshi’s Share of Goodwill

Goodwill	=	` (48,000 + 33,000) =  ` 81,000
Qureshi’s Share of Goodwill	=	` (81,000 × 1/4) =  ` 20,250
Gaining Ratio	=	Pooja : Ross = 2 : 1
Amount debited to Pooja’s Capital A/c	=	` (20,250 × 2/3) =  ` 13,500
Amount debited to Ross’s Capital A/c	=	` (20,250 × 1/3) =  ` 6,750

2. Calculation of Qureshi’s Share of Loss till the date of his death

Average Profit of the last three years	=	` (45,000 + 48,000 + 33,000)/3 =  ` 42,000
Qureshi’s share of loss till the date of death	=	Previous year’s loss × Qureshi’s Share of Loss × Months till the date of his death/12
	=	` (42,000 × 1/4 × 3/12)
	=	` 2,625

3. Calculation of Amount due on account of Loan given to Qureshi

Loan given to Qureshi by a firm	=	` 1,00,000
Amount of interest till 1st July, 2014	=	` (1,00,000 × 6/100 × 3/12) =  ` 1,500
Total Amount due to firm on 1st July	=	Loan amount + Amount of Interest
	=	` (1,00,000 + 4,000)=  ` 1,04,000                               [As 4,000 > Amount of Interest]

 

Balance sheet of Shirish,  Harish, Asha as at 31st March, 2018
Assets		`	Liabilities	`
Capital A/cs:			Plant and Machinery	5,60,000
Shirish	1,00,000		Stock	90,000
Harit	2,00,000		Debtors	10,000
Asha	3,00,000	6,00,000	Cash	40,000
Profits for the year 2017-18		80,000
Bills Payable		20,000
		7,00,000		7,00,000

According to the Partnership Deed, in addition to deceased partner’s capital, his executor is entitled to:

(i) Share in profits in the year of death on the basis of average of last two years’ profit. Profit for the year 2016-17 was 60,000.

(ii) Goodwill of the firm was to be valued at 2 years’ purchase of average of last two years’ profits.

Prepare Shirish’s Capital Account to be presented to his executor. (CBSE 2019)

 

Shirish’s Capital Account
Particulars	Dr. `	Particulars	Cr. `
To Sadhu’s Executors A/c	2,18,750	By Balance b/d	1,00,000
		By P&L Suspense A/c (WN-1)	8,750
		By Manish’s Capital A/c (WN-2)	56,000
		By Asha’s Capital A/c (WN-2)	14,000
		By P&L Appropriation A/c(WN-3)	40,000
	2,18,750		2,18,750

Working notes:

WN-1 Calculation of Sadhu’s share of Profit

Average Profit of last two years= 80,000+60,000/2=70,000

Shirish’s Share of Profit = 70,000×5×3/10×12 = ` 8,750

 

WN-2 Calculation of goodwill

The average profits of the last two years were ` 70,000

Goodwill of the Firm = ` 70,000×2=1,40,000

Share of Shirish is in Goodwill = 1,40,000 × 5/10 = 70,000

Goodwill Share of Shirish is in Goodwill will be compensated by Harish and Asha in 4:1

Harish = 70,000 × 4/5 = 56,000

Asha = 70,000 × 1/5 = 14,000

 

WN-3 Calculation of Sadhu’s share of undistributed Profits for the year 2017-18

Shirish’s Share of Profit = 80,000×5/10 = ` 40,000