Death2022-2023 - commercemine

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.

(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.

(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

Ts Grewal Solution 2022-2023

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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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commercemine

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’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

Question 32:

Answer:

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