12th | Death Of A Partner | Question No. 31 To 35 | Ts Grewal Solution 2023-2024

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 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)

 

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

 

The Balance Sheet of X, Y and Z as at 31st March, 2023 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, 2023. 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: 2023:  ` 24,000; 2022:  ` 16,000; 2021:  ` 20,000 and 2020:  ` 10,000 and 2019:  ` 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.

 

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

 

X, Y and Z were partners in a firm sharing profits in the ratio of 2 : 2 : 1. On 31st March, 2022, their Balance Sheet was as follows:
  

Liabilities		( `)	Assets	( `)
Trade Creditors		1,20,000	Cash at Bank	1,80,000
Bills Payable		80,000	Stock	1,40,000
General Reserve		60,000	Sundry Debtors	80,000
Capital A/cs:			Building	3,00,000
X	7,00,000		Advance to Y	7,00,000
Y	7,00,000		Profit and Loss A/c	3,20,000
Z	60,000	14,60,000
		17,20,000		17,20,000

   
Y died on 30th June, 2022. The Partnership Deed provided for the following on the death of a partner:
(i) Goodwill of the business was to be calculated on the basis of 2 times the average profit of the past 5 years. Profits for the years ended 31st March, 2022, 31st March, 2021, 31st March, 2020, 31st March, 2019 and 31st March, 2018 were  ` 3,20,000 (Loss);  ` 1,00,000;  ` 1,60,000;  ` 2,20,000 and  ` 4,40,000 respectively.
(ii) Y's share of profit or loss from 1st April, 2021 till his death was to be calculated on the basis of the profit or loss for the year ended 31st March, 2021.
You are required to calculate the following:
(a) Goodwill of the firm and Y's share of goodwill at the time of his death.
(b) Y's share in the profit or loss of the firm till the date of his death.
(c) Prepare Y's Capital Account at the time of his death to be presented to his executors. 

 

Y’s Capital  Account
Dr.					Cr.
Particulars		`	Particulars	`
Profit & Loss A/c		1,28,000	Balance b/d	7,00,000
Profit & Loss Suspense (Share of Loss)		32,000	General Reserve	24,000
Advance to Y		7,00,000	X’s Capital A/c Z ’s Capital A/c	64,000 32,000
			Y’s Executors A/c	40,000
		8,20,000		8,20,000

 

Working Notes:

WN1: Calculation of Share in General Reserve

Reserve=60,000×2/5=` 24,000

WN2: Calculation of Share in Goodwill

Goodwill=Average Profit×No. of years' Purchase=1,20,000×2=` 2,40,000

Y's share in Goodwill=2,40,000×2/5=` 96,000, should be contributed by X & Z in 2:1

Average Profit=Total Profits of past years given/Number of year =1,00,000+1,60,000+2,20,000+4,40,000−3,20,000/5=` 1,20,000

WN3: Calculation of Profit & Loss Suspense

Profit & loss Suspense (Loss)=3,20,000×2×3/5×12=` 32,000

Arun- ` 2,00,000; Bhim- ` 1,50,000 and Nakul- ` 4,50,000.

Firm closes its accounts every year on 31st March. Bhim died on 31st March, 2021. In the event of death of any partner, the Partnership provides for the following:

(i) Interest on capital will be allowed to deceased partner only from the first of day of the accounting year till the date of his death @10% p.a.

(ii) The deceased partner’s share in the Goodwill of the firm will be calculated on the basis of 2 years’ purchase of the average profit of the last three years. The profits of the firm for the last three years ended 31st March, were: 2019- ` 90,000; 2020 ` 2,00,000 and 2021- ` 1,60,000.

(iii) His share of Profits till the Date of Death: The profit of the firm for the year ended 31st March, 2021 was ` 1,60,000 before providing for interest on capital. Bhim’s Executor was paid the sum due in two equal annual instalments with interest @ 10% p.a.

Prepare Bhim’s Capital Account as on 31st March, 2021 to be presented to his executor and his Executor’s Loan Account for the year ending 31st March, 2022 and 31st March, 2023.

 

Bhim’s Capital Account
Particulars	Dr. `	Particulars	Cr. `
To Bhim’s Executors A/c	2,54,000	By Balance b/d	1,50,000
		By B’s Capital A/c (WN-2)	15,000
		By C’s Capital A/c (WN-2)	45,000
		By Interest on Capital A/c (WN-3)	15,000
		By P&L Suspense A/c	29,000
	2,54,000		2,54,000

Working notes:

WN-1 Calculation of goodwill

Average Profit = 90,000+2,00,000+1,60,000/3=1,50,000

Firm’s Goodwill = 1,50,000 × 2=3,00,000

Bhim’s Share of Goodwill = 3,00,000×1/5 = ` 60,000

Goodwill Share of Bhim’s is in Goodwill will be compensated by Arun and Nakul in 1:3

Arun = 1,05,000× 1/4 = 15,000

Nakul = 1,05,000× 3/4 = 45,000

 

WN-2 Bhim’s share of Profit till the date of death

Interest on Capital = 1,50,000×10/100=15,000

Profit After Interest on Capital = 1,60,000-15,000 =1,45,000

Bhim’s share of Profit = ` 1,45,000×1/5=29,000