12th | Death Of A Partner | Question No. 36 and 37 | Ts Grewal Solution 2023-2024

 Ajay, Salil and Ravi were partners in a firm sharing profits in the ratio of 5:3:2. Ajay died on 20th February,2023. The Balance Sheet of the firm on that date was as follows:

Liabilities		`	Assets	`
Creditors		19,000	Machinery	41,000
General Reserve		20,000	Furniture	6,000
Loan by Ajay		7,000	Stock	9,000
Capital Aes:			Debtors	15,000
Ajay	12,000		Cash	3,000
Salil	16,000		Profit & Loss A/c	10,000
Ravi	10,000	38,000
		84,000		84,000

According to the Partnership Deed, on the death of a partner, the executor of the deceased partner will be entitled to:

(i) Balance in Capital Account.

(ii) His share in profit/loss on revaluation of assets and reassessment of liabilities which were as follows.

   (a) Machinery is to be revalued at 45,000 and furniture at 7,000.

   (b) Provision of 10% was to be created for Doubtful Debts.

(iii) The amount payable to Ajay was transferred to his Executors' Loan Account which was to be paid later Prepare Revaluation Account, Partners' Capital Accounts, Ajay's Executors' Account and the Balance Sheet of Salil and Ravi who decided to continue the business keeping their capital balances in their new profit-sharing ratio. Any surplus or deficit was to be transferred to Current Accounts of the partners.

 

Revaluation a/c
Particulars	`	Particulars	`
Provision for Doubtful Debts	1,500	Machinery	4,000
Gain	3,500	Furniture	1,000
Capital A/cs;
Ajay - 1,750
Salil - 1,050
Ravi - 700
	5,000		5,000

 

Capital A/c
Particulars	Ajay	Salil	Ravi	Particulars	Ajay	Salil	Ravi
To Profit & Loss A/c	5,000	3,000	2,000	By Balance B/d	12,000	16,000	10,000
To Ajay’s Executor	25,750	-	-	By Revaluation A/c	1,750	1,050	700
To Balance C/d	-	20,050	12,700	By General Reserve	10,000	6,000	4,000
				By Loan by Ajay	7,000	-	-
	30,750	23,050	14,700		30,750	23,050	14,700
To Salini’s Current A/c	-	400	-	By Balance B/d	-	20,050	12,700
To Balance C/d	-	19,650	13,100	By Ravi’s Current A/c	-	-	400
	-	20,050	13,100		-	20,050	13,100

 

Ajay's Executors' Account
Particulars	`	Particulars	`
To Balance C/d	25,750	By Ajay’s Capital A/c	25,750
	25,750		25,750

 

Balance Sheet
Liabilities		`	Assets	`
Creditors		19,000	Machinery	45,000
Ajay's Executors' Account		25,750	Furniture	7,000
Salil’s Current A/c		400	Stock	9,000
Capital Aes:			Debtors (15,000-1,500)	13,500
			Cash	3,000
Salil	19,650		Ravi’s Current A/c	400
Ravi	13,100	32,750
		77,900		77,900

 

Working Note:

Total adjusted Capital of remaining partner 20,050+12,700=32,750

Rearranged in New Profit sharing Raio 3:2

Salil’s Capital=32,750×3/5=19,650

Ravi’s Capital=32,750×2/5=13,100

 

	Salil	Ravi
adjusted Capital	20,050	12,700
Less : New Capital	19,650	13,100
Capital adjusted through current account	400	400
Treatment	Debited	Credited

 

 

 Ramesh, Suresh and Dinesh were partners sharing profits and losses in the ratio of 3:2:1.Dinesh died on 1st May, 2022 on which date the capitals of Ramesh, Suresh and Dinesh after all necessary adjustments stood at 1,20,000, 80,000 and 50,000 respectively. Ramesh and Suresh decide to carry on the business for 8 months without settling the account of Dinesh. During the period of 8 months ended 31st December, 2022, profit of Rs. 40,000 is earned by the firm.

State which of the two options available with Dinesh's Executor under Section 37 of the Indian Partnership Act, 1932 should be exercised.

Also calculate the total amount payable to Dinesh's Executor if Ramesh and Suresh clear the dues of Dinesh on 31st December, 2022.

Remaining partners Continued Business without any agreement therefore according to Section 37 of the Indian Partnership Act, 1932 executor of deceased partner can opt any of the option either of two Interest in capital or share of profit whichever is higher

 

Dinesh's Executor has the following options:

(i) Interest @ 6% p.a. on balance amount =50,000×6/100×8/12 =72,000;

OR

(ii) Share in profit earned proportionate to his amount outstanding to total capital 50,000/2,50,000* ×40,000 =8,000

*2,50,000 =1,20,000 + 80,000+50,000

Dinesh's Executor should exercise option (i) ,

Total amount payable to Dinesh's Executor = 50,000 +8,000=58,000