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12th | Death  of a Partner | Question No.  31 To 35 | Ts Grewal Solution 2022-2023

Question 31: The Balance Sheet of A, B and C who were sharing profits in the ratio of 3:3 :4 as at 31st March, 2019 was as follows:


BALANCE SHEET OF A, B AND C as at 31th March, 2019

Assets

 

`

Liabilities

`

General Reserve

 

40,000

Cash

4,000

Bills Payable

 

15,000

Stock

43,000

Loan from Bank

 

30,000

Investment

70,000

Capital A/cs:

 

 

Land and Buildings

1,58,000

A

60,000

 

 

 

B

90,000

 

 

 

C

40,000

1,90,000

 

 

 

 

2,75,000

 

2,75,000

A died on 1st October, 2019. The partnership deed provided for the following on the death of a partner:

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

(b) The profit for the year ending 31st March, 2019 was ` 50,000.

(c) Interest on capital was to be provided @ 6% p.a.

(d) The average profits of the last three years were ` 35,000.

Prepare A’s Capital Account to be rendered to his executors. (CBSE 2020 C)

 

Answer:                   


A’s Capital Account

Particulars

Dr. `

Particulars

Cr. `

To Sadhu’s Executors A/c

1,02,300

By Balance b/d

60,000

 

 

By General Reserve A/c (WN-1)

12,000

 

 

By B’s Capital A/c (WN-2)

9,000

 

 

By C’s Capital A/c (WN-2)

12,000

 

 

By Interest on Capital A/c (WN-3)

1,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,02,300

 

1,02,300

Working notes:

WN-1 A’s share of General Reserve

A’s Share of Profit = 40,000×3/10 = ` 12,000

 

WN-2 Calculation of goodwill

The average profits of the last three years were ` 35,000

Goodwill of the Firm = ` 35,000×2=70,000

Share of A is in Goodwill = 70,000 × 3/10 = 21,000

Goodwill Share of A is in Goodwill will be compensated by B and C in 3:4

A = 21,000 × 3/7 = 9,000

B = 21,000 × 4/7 = 12,000

 

WN-3 Calculation of Interest on Capital

A’s Interest on Capital till the date of death = 60,000×6×6/100×12=1,800

 

Question 32:


R, S and T were partners sharing profits and losses in the ratio of 5 : 3 : 2 respectively. On 31st March, 2018, their Balance Sheet stood as:

Liabilities

 

 `

Assets

 `

Sundry Creditors

40,000

Goodwill

25,000

Bills Payable

15,000

Leasehold

1,00,000

Workmen Compensation Reserve

30,000

Patents

30,000

Capital A/cs:

 

Machinery

1,50,000

   R

1,50,000

 

Stock

50,000

   S

1,25,000

 

Debtors

40,000

   T

75,000

3,50,000

Cash at Bank

40,000

 

4,35,000

 

4,35,000

 

 

 

 

   
T died on 1st August, 2018. It was agreed that:
(a) Goodwill be valued at 2 ½   years' purchase of average of last 4 years' profits which were:
    2014-15: 
` 65,000;  2015-16:  ` 60,000; 2016-17:  ` 80,000 and 2017-18:  ` 75,000.
(b) Machinery be valued at  ` 1,40,000; Patents be valued at
 ` 40,000; Leasehold be valued at  ` 1,25,000 on 1st August, 2018.
(c) For the purpose of calculating T's share in the profits of 2018-19, the profits in 2018-19 should be taken to have accrued on the same scale as in 2017-18.
(d) A sum of 
` 21,000 to be paid immediately to the Executors of T and the balance to be paid in four equal half-yearly instalments together with interest @ 10% p.a.
Pass necessary Journal entries to record the above transactions and T's Executors' Account. 

 

Answer:


Journal

Particulars

L.F.

Debit

`

Credit

`

Revaluation A/c

Dr.

 

10,000

 

To Machinery A/c

 

 

10,000

(Decrease in value of Machinery transferred to Revaluation Account)

 

 

 

 

 

 

 

Patents A/c

Dr.

 

10,000

 

Leasehold A/c

Dr.

 

25,000

 

To Revaluation A/c

 

 

35,000

(Increase in value Patents and Leasehold transferred to Revaluation Account)

 

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

25,000

 

To R’s Capital A/c

 

 

12,500

To S’s Capital A/c

 

 

7,500

To T’s Capital A/c

 

 

5,000

(Revaluation profit distributed among partners in their old ratio)

 

 

 

 

 

 

 

R’ Capital A/c

Dr.

 

12,500

 

S’s Capital A/c

Dr.

 

7,500

 

T’s Capital A/c

Dr.

 

5,000

 

To Goodwill A/c

 

 

25,000

(Goodwill written off among partners in their old ratio)

 

 

 

 

 

 

 

R’s Capital A/c

Dr.

 

21,875

 

S’s Capital A/c

Dr.

 

13,125

 

To T’s Capital A/c

 

 

35,000

(T’s share of goodwill adjusted)

 

 

 

 

 

 

 

Profit and Loss Suspense A/c

Dr.

 

5,000

 

  To T’s Capital A/c

 

 

5,000

(T’s share of profit transferred to his capital account)

 

 

 

 

 

 

 

Workmen’s Compensation Reserve A/c

Dr.

 

30,000

 

To R’s Capital A/c

 

 

15,000

To S’s Capital A/c

 

 

9,000

To T’s Capital A/c

 

 

6,000

(Workmen’s Compensation Reserve distributed among partners in their old ratio )

 

 

 

 

 

 

 

T’s Capital A/c

Dr.

 

1,21,000

 

To T’s Executors A/c

 

 

1,21,000

(Amount due to T after all adjustments transferred to his Executor’s Account)

 

 

 

 

 

 

 

T’s Executor’s A/c

Dr.

 

21,000

 

To Bank A/c

 

 

21,000

(Amount paid to T’s Executor)

 

 

 

 

 

 

 

 

T’s Executor’s Account

Dr.

 

Cr.

Date

Particulars

`

Date

Particulars

`

2018

 

 

2018

 

 

Aug. 01

Cash A/c

21,000

Aug. 01

T’s Capital A/c

1,21,000

2019

 

 

2019

 

 

Jan. 31

Cash A/c (25,000 + 5,000)

30,000

Jan. 31

Interest (1,00,000 ×10% for 6 months)

5,000

Mar. 31

Balance c/d

76,250

Mar. 31

Interest (75,000 ×10% for 2 months)

1,250

 

 

1,27,250

 

 

1,27,250

2019

 

 

2019

 

 

Aug. 01

Cash A/c (25,000 + 1,250 + 2,500)

28,750

Apr. 01

Balance b/d

76,250

2020

 

 

Aug. 01

Interest (75,000 × 10% for 4 months)

2,500

Jan. 31

Cash A/c (25,000 + 2,500)

27,500

2020

 

 

Mar. 31

Balance c/d

25,417

Jan. 31

Interest (50,000 × 10% for 6 months)

2,500

 

 

 

Mar. 31

Interest (25,000 × 10% for 2 months)

417

 

 

81,667

 

 

81,667

2020

 

 

2020

 

 

Aug. 01

Cash A/c (25,000 + 417 + 833)

26,250

Apr. 01

Balance b/d

25,417

 

 

 

Aug. 01

Interest (25,000 × 10% for 4 months)

833

 

 

26,250

 

 

26,250

 

 

 

 

 

 


Working Notes:

WN 1 Calculation of Goodwill

Goodwill = Average Profit × Number of Year’s Purchase

Average profit = total profit of past given years/number of years

Average profit =65,000+60,000+80,000+75,000/4=2,80,000/4=70,000

Goodwill = Average Profit × Number of Years’ Purchase
                    = 70,000 × 2.5 =
` 1,75,000

WN 2 Adjustment of Goodwill

Old Ratio (R, S and T) = 5 : 3 : 2

T died.

New Ratio (R and S) = 5 : 3 and

Gaining Ratio = 5 : 3

T’s Share in Goodwill = 1,75,000×2/10=35,000

This share of goodwill is to be distributed between R and S in their gaining ratio (i.e. 5 : 3).

R’s Share of Goodwill =35,000×5/8=21875

S’s Share of Goodwill =35,000×3/8=13,125


WN 3 Calculation of T’s Share of Profit

Profit for 2017-18 =
` 75,000

T's Share of Profit for 2017-18 =75,000×2/10×4/12=
`5,000

WN 4
 

Revaluation Account

Dr.

 

Cr.

Particulars

`

Particulars

`

Machinery

10,000

Patents

10,000

Profit transferred to:

 

Leasehold

25,000

R’s Capital A/c

12,500

 

 

 

S’s Capital A/c

7,500

 

 

 

T’s Capital A/c

5,000

25,000

 

 

 

35,000

 

35,000

 

 

 

 


WN 5

T’s Capital Account

Dr.

 

Cr.

Particulars

`

Particulars

`

Goodwill

5,000

Balance b/d

75,000

T’s Executor’s A/c

1,21,000

Workmen’s Compensation Reserve

6,000

 

 

Profit and Loss Suspense A/c

5,000

 

 

R’s Capital A/c

21,875

 

 

S’s Capital A/c

13,125

 

 

Revaluation A/c (Profit)

5,000

 

1,26,000

 

1,26,000

 

 

 

 

 

Question 33: Aman, Naman and Raman were partners in a firm sharing profits and losses in the ratio of 2:2:1. On 31st March, 2022, their Balance Sheet was as follows:


Balance sheet

Assets

 

`

Liabilities

`

Capital A/cs:

 

 

Fixed assets

14,00,000

Aman

8,00,000

 

Stock

4,00,000

Naman

7,00,000

 

Debtors

3,00,000

Raman

5,00,000

20,00,000

Cash at bank

7,00,000

 Worker’s comensation reserve

 

50,000

Cash in hand

1,00,000

Genseral Reserve

 

2,00,000

Advertisement suspense A/c

50,000

Employee’s Provident fund

 

2,00,000

(Deferred Revenue)

 

Creditors

 

5,00,000

 

 

 

 

29,50,000

 

29,50,000

Naman died on 30th June, 2022. According to the Partnership Deed, his legal heirs were entitled to:

(a) Balance in his Capital Account.

(b) His share of goodwill will be calculated on the basis of thrice the average of the past 4 years’ profits.

(c) His share in profits up to the date of death on the basis of average profits of the last two years.

(d) Interest on capital @ 12% p.a. up to the date of his death.

The firm’s profits for the last four years ended 31st March, were:

2019: ` 2,40,000; 2020: ` 4,00,000; 2021: ` 5,20,000 and 2022: ` 4,40,000.

Naman’s Executor was paid the sum due immediately. Prepare Naman’s Capital Accounts to be presented to his legal heirs.

 

Answer:                   


Naman’s Capital Account

Particulars

Dr. `

Particulars

Cr. `

To Advertisement suspense A/c (WN-6)

20,000

By Balance b/d

7,00,000

To Naman’s Executors A/c

13,29,000

By Worker’s compensation reserve A/c (WN-1)

20,000

 

 

By General Reserve A/c (WN-2)

80,000

 

 

By P&L Suspense A/c (WN-3)

48,000

 

 

By Interest on Capital A/c (WN-4)

21,000

 

 

By Aman’s Capital A/c (WN-5)

3,20,000

 

 

By Raman’s Capital A/c (WN-5)

1,60,000

 

 

 

 

 

 

 

 

 

13,49,000

 

13,49,000

Working notes:

WN-1 Naman’s share of Workers’ Compensation Reserve

Naman’s Share of Profit = 50,000×2/5 = ` 20,000

 

WN-2 Naman’s share of General Reserve

Naman’s Share of Profit = 2,00,000×2/5 = ` 80,000

 

WN-3 Naman’s share of Profit till the date of death

Average Profit =5,20,000+4,40,000/2=4,80,000

Naman’s Share of Profit = 4,80,000×2×3/5×12 = ` 48,000

 

WN-4 Calculation of Interest on Capital

Naman’s Interest on Capital till the date of death = 7,00,000×12×3/100×12=21,000

 

WN-5 Calculation of goodwill

The average profits = 2,40,000+4,00,000+5,20,000 +4,40,000/4=4,00,000

Goodwill of the Firm = ` 4,00,000×3=12,00,000

Share of Naman is in Goodwill = 12,00,000 × 2/5 = 4,80,000

Goodwill Share of Naman is in Goodwill will be compensated by Aman and Raman in 2:1

Aman = 4,80,000 × 2/3 = 3,20,000

Raman = 4,80,000 × 1/3 = ,160,000

 

WN-6 Naman’s share of Advertisement Suspense A/c

Naman’s Share of Profit = 50,000×2/5 = ` 20,000

 

Question 34:


The Balance Sheet of X, Y and Z as at 31st March, 2021 was:
 

Liabilities

 ( `)

Assets

 ( `)

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, 2021. 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: 2021: 
` 24,000; 2020:  ` 16,000; 2019:  ` 20,000 and 2018:  ` 10,000 and 2017:  ` 5,000.
(b) The deceased partner to be given 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.

 

Answer:


Journal

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

(Workmen’s Compesation Reserve distributed among partners in their old ratio)

 

 

 

 

 

 

 

General Reserve A/c

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

(General Reserve distributed among partners in their old ratio)

 

 

 

 

 

 

 

X’s 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

(Advertisement suspense 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

(Z’s share of goodwill adjusted)

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

3,600

 

  To Sundry debtors A/c

Dr.

 

 

1,000

To Furniture A/c

 

 

500

To Plant and Machinery A/c

 

 

1,500

To Bills Receivable A/c

 

 

600

(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

(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

(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

(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

(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

(Amount paid to Z’s Executor)

 

 

 

 

 

 

 

 

Z’s Executor’s Account

Dr.

 

Cr.

Date

Particulars

`

Date

Particulars

`

2021

 

 

2021

 

 

July 31

Bank A/c

12,233

July 31

Z’s Capital A/c

22,233

2022

 

 

2022

 

 

Mar. 31

Balance c/d

10,667

Mar. 31

Interest (10,000 × 10% for 8 months)

667

 

 

22,900

 

 

22,900

2022

 

 

2022

 

 

July 31

Bank A/c (5,000 + 667 + 333)

6,000

Apr. 01

Balance b/d

10,667

 

 

 

July 31

Interest (10,000 × 10% for 4 months )

333

2023

 

 

2023

 

 

Mar.31

Balance c/d

5,333

Mar. 31

Interest (5,000 × 10% for 8 months)

333

 

 

11,333

 

 

11,333

2023

 

 

2023

 

 

July 31

Bank A/c (5,000 + 333 + 167)

5,500

Apr. 01

Balance b/d

5,333

 

 

 

July 31

Interest (5,000 × 10% for 4months)

167

 

 

5,500

 

 

5,500

 

 

 

 

 

 


Working Notes:

WN1 Calculation of Goodwill

Goodwill = Average Profit × Number of Year’s Purchase

Average profit = total profit of past given years/number of years

Average profit =24,000+16,000+20,000+10,000+5000/5=15,000

Goodwill = Average Profit × Number of Years’ Purchase

                   = 15,000 × 3 =
` 45,000

WN2 Adjustment of Goodwill

Old Ratio = 3 : 2 : 1

Z died.

New Ratio (X and Y) = 3 : 1 and

Gaining Ratio = 3 : 2

Z’s Share in Goodwill = 45,000×1/6=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 of Goodwill = 7,500×3/5=4,500

Y’s Share of Goodwill = 7,500×2,5=3,000



WN3 Calculation Z’s Share of Profit

Profit for 2021 (Immediate Previous Year) =
` 24,000

Z’s Profit Share = 24,000×1/6×4/12=1,333


WN4
 

Revaluation Account

Dr.

 

Cr.

Particulars

`

Particulars

`

Sundry Debtors

1,000

Stock

1,000

Furniture

500

Building

5,000

Plant and Machinery

1,500

 

 

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

2,400

 

 

 

6,000

 

6,000

 

 

 

 

 

Question 35:


X, Y and Z were partners in a firm sharing profits and losses in the 5 : 4 : 3. Their Balance Sheet on 31st March, 2021 was as follows:
 

Liabilities

 ( `)

Assets

 ( `)

Creditors

2,00,000

Building

2,00,000

Employees' Provident Fund

1,50,000

Machinery

3,00,000

General Reserve

36,000

Furniture

1,10,000

Investment Fluctuation Reserve

14,000

Investment

(Market value  ` 86,000)

1,00,000

Capital A/cs:

 

Debtors

80,000

  X

3,00,000

 

Cash at Bank

1,90,000

  Y

 2,50,000

 

Advertisement Suspense 

1,20,000

  Z

1,50,000

7,00,000

 

 

 

11,00,000

 

11,00,000

 

 

 

 

   
X died on 1st October, 2021 and Y and Z decide to share future profits in the ratio of 7 : 5. It was agreed between his executors and the remaining partners that:
(i) Goodwill of the firm be valued at 2 ½  years' purchase of average of four completed years' profit which were:

Year

2018

2019

2020

2021

Profits ( `)

1,70,000

1,80,000

1,90,000

1,80,000

(ii) X's share of profit from the closure of last accounting year till date of death be calculated on the basis of last years' profit.
(iii) Building undervalued by  ` 2,00,000; Machinery overvalued by 
` 1,50,000 and Furniture overvalued by  ` 46,000.
(iv) A provision of 5% be created on Debtors for Doubtful Debts.
(v) Interest on Capital to be provided at 10% p.a.
(vi) Half of the net amount payable to X's executor was paid immediately and the balance was transferred to his loan account which was to be paid later.
Prepare Revaluation Account, X's Capital Account and X's Executor's Account as on 1st October, 2021.

 

Answer:


Revaluation Account

Dr.

 

Cr.

Particulars

`

Particulars

`

Machinery

1,50,000

Building

2,00,000

Furniture

46,000

 

 

Provision for Doubtful Debts

4,000

 

 

 

 

 

 

 

2,00,000

 

2,00,000

 

 

 

 

 

 

 

 

 

 

X’s Capital  Account

 

Dr.

 

Cr.

 

Particulars

`

Particulars

`

 

Advertisement Suspense A/c

50,000

Balance b/d

3,00,000

 

X’s Executors A/c

5,05,000

General Reserve

15,000

 

 

 

Y’s Capital A/c

1,12,500

 

 

 

Z’s Capital A/c

75,000

 

 

 

Profit & Loss Suspense

37,500

 

 

 

Interest on Capital

15,000

 

 

 

 

 

 

 

5,55,000

 

5,55,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

X’s Executors  Account

Dr.

 

Cr.

Particulars

`

Particulars

`

Bank A/c

2,52,500

X’s Capital A/c

5,05,000

X’s Executors  Loan Account

2,52,500

 

 

 

 

 

 

 

57,000

 

57,000

 

 

 

 

 

 

 

 

 

 

Working Notes:

WN1: Calculation of Share in General Reserve

Reserve=36,000×5/12=
` 15,000


WN2: Calculation of Interest on Capital

Interest on capital=3,00,000×10×6/100×12=
` 15,000


WN3: Calculation of Profit & Loss Suspense

Profit & Loss Suspense=1,80,000×5×6/12×12=
` 37,500


WN4: Calculation of Share in Goodwill

Gaining Ratio = New Ratio - Old Ratio

Y's Gain = 7/12−4/12=7−4/12=3/12

Z's Gain = 5/12−3/12=5−3/12=2/12

Goodwill=Average Profit×No. of years' Purchase               

=1,80,000×2.5=` 4,50,000

X's share in Goodwill = 4,50,000×5/12=`1,87,500, 

`1,87,500 should be contributed by Y & Z in gaining ratio i.e. 3:2

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Class 12 / Volume – I

Chapter 1 – Death of a Partner

 

Question No. 1 To 5
Question No. 5 To 10
Question No. 11 To 15
Question No. 16 To 20
Question No. 21 To 25
Question No. 26 To 30
Question No. 31 To 35
Question No. 36 To 38

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