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Numerical Questions
1. Aparna, Manisha and Sonia are partners sharing profits in the ratio of 3 : 2 : 1. Manisha retires and goodwill of the firm is valued at ₹ 1,80,000. Aparna and Sonia decided to share future in the ratio of 3 : 2. Pass necessary journal entries.
Journal
Date
Particulars
L.F.
Debit
Amount
₹
Credit
Amount
₹
Aparna’s Capital A/c
Dr.
18,000
Sonia’s Capital A/c
Dr.
42,000
To Manisha’s Capital A/c
60,000
(Being Manisha’s share of goodwill adjusted to Aparna and Sonia’s Capital accounts in their gaining ratio)
Working Notes:
Gain in Share
= New Share – Old Share
Aparna
{= \dfrac{3}{5} - \dfrac{3}{6}}
{= \dfrac{18 - 15}{30}}
{= \dfrac{3}{30}}
Sonia
{= \dfrac{2}{5} - \dfrac{1}{6}}
{= \dfrac{12 - 5}{30}}
{= \dfrac{7}{30}}
Gaining Ratio
{= \dfrac{3}{30}:\dfrac{7}{30}}
= 3:7
Goodwill Share:
Retiring partner Manisha
{= ₹~1,80,000 × \dfrac{2}{6}}
= ₹ 60,000
Contribution to Manisha’s Goodwill:
Aparna
{= ₹~60,000 × \dfrac{3}{10}}
= ₹ 18,000
Sonia
{= ₹~60,000 × \dfrac{7}{10}}
= ₹ 42,000
2. Sangeeta, Saroj and Shanti are partners sharing profits in the ratio of 2 : 3 : 5. Goodwill is appearing in the books at a value of ₹ 60,000. Sangeeta retires and goodwill is valued at ₹ 90,000. Saroj and Shanti decided to share future profits equally. Record necessary journal entries.
Journal
Date
Particulars
L.F.
Debit
Amount
₹
Credit
Amount
₹
Sangeeta’s Capital A/c
Dr.
12,000
Saroj’s Capital A/c
Dr.
18,000
Shanti’s Capital A/c
Dr.
30,000
To Goodwill A/c
60,000
(Being goodwill appearning in the books written-off)
Saroj’s Capital A/c
Dr.
18,000
To Sangeeta’s Capital A/c
18,000
(Being Sangeeta’s share of goodwill adjusted to Saroj’s capital acccount in his gaining ratio)
Working Notes:
Gain in Share
New Share – Old Share
Saroj
{= \dfrac{1}{2} - \dfrac{3}{10}}
{= \dfrac{5 - 3}{10}}
{= \dfrac{1}{5}}
Shanti
{= \dfrac{1}{2} - \dfrac{5}{10}}
{= \dfrac{1}{2} - \dfrac{1}{2}}
= 0
Gaining Ratio:
{= \dfrac{1}{5}:0}
= 1:0
Goodwill appearing in books
= ₹ 60,000
Goodwill not appearing in books
= ₹ 90,000
Share of goodwill appearing in the books
Sangeeta
{= ₹~60,000 × \dfrac{2}{10}}
= ₹ 12,000
Saroj
{= ₹~60,000 × \dfrac{3}{10}}
= ₹ 18,000
Shanti
{= ₹~60,000 × \dfrac{5}{10}}
= ₹ 30,000
Share of goodwill not appearing in books
Retiring partner Sangeeta
{= ₹~90,000 × \dfrac{2}{10}}
= ₹ 18,000
Contribution to Sangeeta’s Goodwill:
Saroj
{= ₹~18,000 × \dfrac{1}{1}}
= ₹ 18,000
Shanti
{= ₹~18,000 × \dfrac{0}{1}}
= ₹ 0
Note: As the gain in Shanti’s share is 0, she doesn’t have to contribute to Sangeeta’s goodwill. All of Sangeeta’s share of goodwill should be contributed by Saroj.
3. Himanshu, Gagan and Naman are partners sharing profits and losses in the ratio of 3 : 2 : 1. On March 31, 2017, Naman retires.
The various assets and liabilities of the firm on the date were as follows:
Cash ₹ 10,000, Building ₹ 1,00,000, Plant and Machinery ₹ 40,000, Stock ₹ 20,000, Debtors ₹ 20,000 and Investments ₹ 30,000.
The following was agreed upon between the partners on Naman’s retirement:
(i)
Building to be appreciated by 20%.
(ii)
Plant and Machinery to be depreciated by 10%.
(iii)
A provision of 5% on debtors to be created for bad and doubtful debts.
(iv)
Stock was to be valued at Rs. 18,000 and Investment at Rs. 35,000.
Record the necessary journal entries to the above effect and prepare the revaluation account.
Journal
Date
Particulars
L.F.
Debit
Amount
₹
Credit
Amount
₹
Building A/c
Dr.
20,000
Investment A/c
Dr.
5,000
To Revaluation A/c
25,000
(Being increase in the value of Building and Investment)
Revaluation A/c
Dr.
7,000
To Plant and Machinery A/c
4,000
To Provision for
bad and doubtful debts A/c
1,000
To Stock A/c
2,000
(Being decrease in the value of plant and machinery, provision for bad and doubtful debts and stocks)
Revaluation A/c
Dr.
18,000
To Himanshu’s Capital A/c
9,000
To Gagan’s Capital A/c
6,000
To Naman’s Capital A/c
3,000
(Being profit on revaluation transferred to all the partners’ capital accounts in their old profit sharing ratio)
Date
Particulars
J.F.
Amount
₹
Date
Particulars
J.F.
Amount
₹
To Plant and Machinery A/c
4,000
By Building A/c
20,000
To Stock A/c
2,000
By Investment A/c
5,000
To Provision for Bad Debts A/c
1,000
Profit Transferred:
To Himanshu’s Capital A/c
9,000
To Gagan’s Capital A/c
6,000
To Naman’s Capital A/c
3,000
18,000
25,000
25,000
Working Notes:
Appreciation on Revaluation:
Building
{= ₹~1,00,000 × \dfrac{20}{100}}
= ₹ 20,000
Investment
= ₹ 35,000 – ₹ 30,000
= ₹ 5,000
Total
= ₹ 20,000 + ₹ 5,000
= ₹ 25,000
Loss on Revaluation:
Plant and Machinery
{= ₹~40,000 × \dfrac{10}{100}}
= ₹ 4,000
Provision Debts
{= ₹~20,000 × \dfrac{5}{100}}
(Bad and Doubtful Debts)
= ₹ 1,000
Stock
= ₹ 20,000 – ₹ 18,000
= ₹ 2,000
Total
= ₹ 4,000 + ₹ 1,000 + ₹ 2,000
= ₹ 7,000
Total Profit
= ₹ 25,000 – ₹ 7,000
(on Revaluation)
= ₹ 18,000
Distribution of Revaluation Profit
Himanshu
{= ₹~18,000 × \dfrac{3}{6}}
= ₹ 9,000
Gagan
{= ₹~18,000 × \dfrac{2}{6}}
= ₹ 6,000
Naman
{= ₹~18,000 × \dfrac{1}{6}}
= ₹ 3,000
4. Naresh, Raj Kumar and Bishwajeet are equal partners. Raj Kumar decides to retire. On the date of his retirement, the Balance Sheet of the firm showed the following: General Reserves ₹ 36,000 and Profit and Loss Account (Dr.) ₹ 15,000.
Pass the necessary journal entries to the above effect.
Journal
Date
Particulars
L.F.
Debit
Amount
₹
Credit
Amount
₹
General Reserve A/c
Dr.
36,000
To Naresh’s Capital A/c
12,000
To Raj Kumar’s Capital A/c
12,000
To Bishwajeet’s Capital A/c
12,000
(Being General Reserves distributed equally among the partners in their old profit sharing ratio)
Naresh’s Capital A/c
Dr.
5,000
Raj Kumar’s Capital A/c
Dr.
5,000
Bishwajeet’s Capital A/c
Dr.
5,000
To Profit and Loss A/c
15,000
(Being the loss from the profit and loss account adjusted to the old partners accounts in their old profit sharing ratio)
Working Notes:
Recall that the debit balance of Profit and Loss represents loss. As the partners are equal partners each of them will get ⅓ of the general reserve as well as the loss.
for each partner
Share of General Reserve
{= ₹~36,000 × \dfrac{1}{3}}
= ₹ 12,000
Share of loss
{= ₹~15,000 × \dfrac{1}{3}}
= ₹ 5,000
5. Digvijay, Brijesh and Parakaram were partners in a firm sharing profits in the ratio of 2 : 2 : 1. Their Balance Sheet as on March 31, 2017 was as follows:
Liabilities
Amount
₹
Assets
Amount
₹
Creditors
49,000
Cash
8,000
Reserves
18,500
Debtors
19,000
Digvijay’s Capital
82,000
Stock
42,000
Brijesh’s Capital
60,000
Buildings
2,07,000
Prakaram’s Capital
75,500
Patents
9,000
2,85,000
2,85,000
Brijesh retired on March 31, 2017 on the following terms:
(i)
Goodwill of the firm was valued at ₹ 70,000 and was not to appear in the books.
(ii)
Bad debts amounting to ₹ 2,000 were to be written off.
(iii)
Patents were considered as valueless.
Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of Digvijay and Parakaram after Brijesh’s retirement.
Date
Particulars
J.F.
Amount
₹
Date
Particulars
J.F.
Amount
₹
To Bad Debts A/c
2,000
Loss Transferred
To Patents A/c
9,000
By Digvijay’s Capital A/c
4,400
By Brijesh’s Capital A/c
4,400
By Prakaram’s Capital A/c
2,200
11,000
11,000
Date
Particulars
J.F.
Digvijay
Amount
₹
Brijesh
Amount
₹
Parakaram
Amount
₹
Date
Particulars
J.F.
Digvijay
Amount
₹
Brijesh
Amount
₹
Parakaram
Amount
₹
To Brijesh’s Capital A/c
18,667
9,333
By Balance b/d
82,000
60,000
75,000
To Revaluation (Loss) A/c
4,400
4,400
2,200
By Digvijay’s Capital A/c
18,667
To Brijesh’s Loan A/c
91,000
By Parakaram’s Capital A/c
9,333
To Balance c/d
66,333
67,667
By Reserves A/c
7,400
7,400
3,700
89,400
95,400
79,200
89,400
95,400
79,200
Balance Sheet as on March 31, 2017
Liabilities
Amount
₹
Assets
Amount
₹
Creditors
49,000
Cash
8,000
Brijesh’s Loan
91,000
Debtors
19,000
Capital
Bad Debts
2,000
17,000
Digvijay
66,333
Stock
42,000
Parakaram
67,667
1,34,000
Building
2,07,000
2,74,000
2,74,000
Working Notes
Distribution of Reserves
Digvijay
{= ₹~18,500 × \dfrac{2}{5}}
= ₹ 7,400
Brijesh
{= ₹~18,500 × \dfrac{2}{5}}
= ₹ 7,400
Parakaram
{= ₹~18,500 × \dfrac{1}{5}}
= ₹ 3,700
Gain in Share
= New Share – Old Share
Digvijay
{= \dfrac{2}{3} - \dfrac{2}{5}}
{= \dfrac{10 - 6}{15}}
{= \dfrac{4}{15}}
Parakaram
{= \dfrac{1}{3} - \dfrac{1}{5}}
{= \dfrac{5 - 3}{15}}
{= \dfrac{2}{15}}
Gaining Ratio
{= \dfrac{4}{15}:\dfrac{2}{15}}
= 2:1
Goodwill
Goodwill Amount
= ₹ 70,000
Share of Brijesh
{= ₹~70,000 × \dfrac{2}{5}}
(retiring partner)
= ₹ 28,000
Adjustment by continuing partners
Digvijay
{= ₹~28,000 × \dfrac{2}{3}}
= ₹ 18,667
Parakaram
{= ₹~28,000 × \dfrac{1}{3}}
= ₹ 9,333
Revaluation Loss:
Bad Debts
= ₹ 2,000
Patents
= ₹ 9,000
Total
= ₹ 2,000 + ₹ 9,000
= ₹ 11,000
Revaluation Loss Distribution
Digvijay
{= ₹~11,000 × \dfrac{2}{5}}
= ₹ 4,400
Brijesh
{= ₹~11,000 × \dfrac{2}{5}}
= ₹ 4,400
Parakaram
{= ₹~11,000 × \dfrac{1}{5}}
= ₹ 2,200
6. Radha, Sheela and Meena were in partnership sharing profits and losses in the proportion of 3:2:1. On April 1, 2017, Sheela retires from the firm. On that date, their Balance Sheet was as follows:
Liabilities
Amount
₹
Assets
Amount
₹
Trade Creditors
3,000
Cash-in-Hand
1,500
Bills Payable
4,500
Cash at Bank
7,500
Expenses Owing
4,500
Debtors
15,000
General Reserve
13,500
Stock
12,000
Capitals
Factory Premises
22,500
Radha
15,000
Machinery
8,000
Sheela
15,000
Loose Tools
4,000
Meena
15,000
45,000
70,500
70,500
The terms were:
a)
Goodwill of the firm was valued at ₹ 13,500.
b)
Expenses owing to be brought down to ₹ 3,750.
c)
Machinery and Loose Tools are to be valued at 10% less than their book value.
d)
Factory premises are to be revalued at ₹ 24,300.
Prepare
1.
Revaluation account
2.
Partner’s capital accounts and
3.
Balance sheet of the firm after retirement of Sheela.
Date
Particulars
J.F.
Amount
₹
Date
Particulars
J.F.
Amount
₹
To Machinery A/c
800
By Expenses Owing A/c
750
To Loose Tools A/c
400
By Factory Premises A/c
1,800
Profit Transferred
To Meena’s Capital A/c
675
To Radha’s Capital A/c
450
To Sheela’s Capital A/c
225
1,350
2,550
2,550
Date
Particulars
J.F.
Radha
Amount
₹
Sheela
Amount
₹
Meena
Amount
₹
Date
Particulars
J.F.
Radha
Amount
₹
Sheela
Amount
₹
Meena
Amount
₹
To Sheela’s Capital A/c
3,375
1,125
By Balance b/d
15,000
15,000
15,000
To Sheela’s Loan A/c
24,450
By General Reserves A/c
6,750
4,500
2,250
By Balance b/d
19,050
16,350
By Revaluation (Profit) A/c
675
450
225
By Radha’s Capital A/c
3,375
By Meena’s Capital A/c
1,125
22,425
24,450
17,475
22,425
24,450
17,475
Balance Sheet as on April 01, 2017
Liabilities
Amount
₹
Assets
Amount
₹
Trade Creditors
3,000
Cash-in-Hand
1,500
Bills Payable
4,500
Cash at Bank
7,500
Expenses Owing
3,750
Debtors
15,000
Sheela’s Loan
24,450
Stock
12,000
Capital
Factory Premises
24,300
Radha
19,050
Machinery
8,000
Meena
16,350
35,400
Loss on Revaluation
800
7,200
Loose Tools
4,000
Loss on Revaluation
400
3,600
71,100
71,100
Working Notes
Distribution of General Reserve
Radha
{= ₹~13,500 × \dfrac{3}{6}}
= ₹ 6,750
Sheela
{= ₹~13,500 × \dfrac{2}{6}}
= ₹ 4,500
Meena
{= ₹~13,500 × \dfrac{1}{6}}
= ₹ 2,250
Gain in Share
Radha
{= \dfrac{3}{4} - \dfrac{3}{6}}
{= \dfrac{9 - 6}{12}}
{= \dfrac{3}{12}}
Meena
{= \dfrac{1}{4} - \dfrac{1}{6}}
{= \dfrac{3 - 2}{12}}
{= \dfrac{1}{12}}
Gaining Ratio of continuing partners
{= \dfrac{3}{12}:\dfrac{1}{12}}
= 3:1
Goodwill share of retirning partner Sheela
{= ₹~13,500 × \dfrac{2}{6}}
= ₹ 4,500
Contribution to Meena’s goodwill by the remaining partners
Radha
{= ₹~4,500 × \dfrac{3}{4}}
= ₹ 3,375
Meena
{= ₹~4,500 × \dfrac{3}{4}}
= ₹ 1,125
Appreciation on Revaluation
Expenses Owing
= ₹ 4,500 – ₹ 3,750
= ₹ 750
Factory Premises
= ₹ 24,300 – ₹ 22,500
= ₹ 1,800
Total
= ₹ 750 + ₹ 1,800
= ₹ 2,550
Depreciation on Revaluation
Machinery
{= ₹~8,000 × \dfrac{10}{100}}
= ₹ 800
Factory Premises
{= ₹~4,000 × \dfrac{10}{100}}
= ₹ 400
Total
= ₹ 800 + ₹ 400
= ₹ 1,200
Revaluation Profit
= ₹ 2,550 – ₹ 1,200
= ₹ 1,350
Adjustment of Revaluation Profit
Radha
{= ₹~1,350 × \dfrac{3}{6}}
= ₹ 675
Sheela
{= ₹~1,350 × \dfrac{2}{6}}
= ₹ 450
Meena
{= ₹~1,350 × \dfrac{1}{6}}
= ₹ 225
7. Pankaj, Naresh and Saurabh are partners sharing profits in the ratio of 3 : 2 : 1. Naresh retired from the firm due to his illness on Septmber 30, 2017. On that date the Balance Sheet of the firm was as follows:
Books of Pankaj, Naresh and Saurabh Balance Sheet as on September 30, 2017
Liabilities
Amount
₹
Assets
Amount
₹
General Reserve
12,000
Bank
7,600
Sundry Creditors
15,000
Debtors
6,000
Bills Payable
12,000
Provision for
400
5,600
Outstanding Salary
2,200
Doubtful debts
Provision for
6,000
Stock
9,000
Legal Damages
Furniture
41,000
Capitals:
Premises
80,000
Pankaj
46,000
Naresh
30,000
Saurabh
20,000
96,000
1,43,000
1,43,000
Additional Information
(i)
Premises have appreciated by 20%, stock depreciated by 10% and provision for doubtful debts was to be made 5% on debtors. Further, provision for legal damages is to be made for Rs. 1,200 and furniture to be brought up to ₹ 45,000.
(ii)
Goodwill of the firm be valued at ₹ 42,000.
(iii)
₹ 26,000 from Naresh’s Capital account be transferred to his loan account and balance be paid through bank; if required, necessary loan may be obtained form Bank.
(iv)
Naresh share of profit till the date of retirement is to be calculated on the basis of last years’ profit, i.e., ₹ 60,000.
(v)
New profit sharing ratio of Pankaj and Saurabh is decided to be 5 : 1.
Give the necessary ledger accounts and balance sheet of the firm after Naresh’s retirement.
Date
Particulars
J.F.
Amount
₹
Date
Particulars
J.F.
Amount
₹
To Stock A/c
900
By Premises A/c
16,000
To Provision for
1,200
By Provision for
100
Legal Damages A/c
Doubtful Debts A/c
Profit transferred:
By Furniture A/c
4,000
To Pankaj’s Capital A/c
9,000
To Naresh’s Capital A/c
6,000
To Saurabh’s Capital A/c
3,000
20,100
20,100
Date
Particulars
J.F.
Pankaj
Amount
₹
Naresh
Amount
₹
Saurabh
Amount
₹
Date
Particulars
J.F.
Pankaj
Amount
₹
Naresh
Amount
₹
Saurabh
Amount
₹
To Naresh’s Capital A/c
1,000
By Balance b/d
46,000
30,000
20,000
To Naresh’s Loan A/c
26,000
By General Reserve A/c
6,000
4,000
2,000
To Bank A/c
28,000
By Revaluation (Profit) A/c
9,000
6,000
3,000
To Balance c/d
47,000
25,000
By Pankaj’s Capital A/c
14,000
61,000
54,000
25,000
61,000
54,000
25,000
Date
Particulars
J.F.
Amount
₹
Date
Particulars
J.F.
Amount
₹
To Balance b/d
7,600
By Naresh’s Capital A/c
28,000
By Balance c/d
20,400
(Bank Overdraft)
28,000
28,000
Balance Sheet as on September 30, 2017
Liabilities
Amount
₹
Assets
Amount
₹
Sundry Creditors
15,000
Debtors
6,000
Bills Payable
12,000
Provision for
300
5,700
Bank Loan
20,400
Doubtful Debts
Outstanding Salaries
2,200
Stock
8,100
Provision for Legal Damages
7,200
Furniture
45,000
Naresh’s Loan
26,000
Premises
96,000
Capitals
Pankaj
47,000
Saurabh
25,000
72,000
1,54,800
1,54,800
Working Notes
Distribution of General Reserve:
Pankaj
{= ₹~12,000 × \dfrac{3}{6}}
= ₹ 6,000
Naresh
{= ₹~12,000 × \dfrac{2}{6}}
= ₹ 4,000
Saurabh
{= ₹~12,000 × \dfrac{1}{6}}
= ₹ 2,000
Gain in Share:
Pankaj
{= \dfrac{5}{6} - \dfrac{3}{6}}
{= \dfrac{5 - 3}{6}}
{= \dfrac{2}{6}}
{= \dfrac{1}{3}}
Saurabh
{= \dfrac{1}{6} - \dfrac{1}{6}}
= 0
As there is no gain in Saurabh’s share of profits (as Saurabh’s gain in share is 0), all the good contribution towards the retirning partner Naresh’s goodwill should be borne by Pankaj only.
Goodwill Share
Naresh
{= ₹~42,000 × \dfrac{2}{6}}
(retirning partner)
= ₹ 14,000
Appreciation on Revaluation
Premises
{= ₹~80,000 × \dfrac{20}{100}}
= ₹ 16,000
Provision for doubtful debts
Old
= ₹ 400
New
= ₹~6,000 × \dfrac{5}{100}
= ₹ 300
Gain
= ₹ 400 – ₹ 300
= ₹ 100
Furniture
= ₹ 45,000 – ₹ 41,000
= ₹ 4,000
Total Appreciation
= ₹ 16,000 + ₹ 100 + ₹ 4,000
= ₹ 20,100
Depreciation on Revaluation
Stock
{= ₹~9,000 × \dfrac{10}{100}}
= ₹ 900
Legal Damages
= ₹ 1,200
Loss on Revaluation
= ₹ 900 + ₹ 1,200
= ₹ 2,100
Revaluation Profit
= ₹ 20,100 – ₹ 2,100
= ₹ 18,000
Adjustment of Revaluation Profit
Pankaj
{= ₹~18,000 × \dfrac{3}{6}}
= ₹ 9,000
Naresh
{= ₹~18,000 × \dfrac{2}{6}}
= ₹ 6,000
Saurabh
{= ₹~18,000 × \dfrac{1}{6}}
= ₹ 3,000
8. Puneet, Pankaj and Pammy are partners in a business sharing profits and losses in the ratio of 2 : 2 : 1 respectively. Their balance sheet as on March 31, 2017 was as follows:
Books of Puneet, Pankaj and Pammy Balance Sheet as on March 31, 2017
Liabilities
Amount
₹
Assets
Amount
₹
Sundry Creditors
1,00,000
Cash at Bank
20,000
Capital Accounts:
Stock
30,000
Puneet
60,000
Sundry Debtors
80,000
Pankaj
1,00,000
Investments
70,000
Pammy
40,000
2,00,000
Furniture
35,000
Reserve
50,000
Buildings
1,15,000
3,50,000
3,50,000
Mr. Pammy died on September 30, 2017. The partnership deed provided the following:
(i)
The deceased partner will be entitled to his share of profit up to the date of death calculated on the basis of previous year’s profit.
(ii)
He will be entitled to his share of goodwill of the firm calculated on the basis of 3 years’ purchase of average of last 4 years’ profit. The profits for the last four financial years are given below:
for 2013–14; ₹ 80,000; for 2014–15, ₹ 50,000; for 2015–16, ₹ 40,000; for 2016–17, ₹ 30,000.
The drawings of the deceased partner up to the date of death amounted to Rs. 10,000. Interest on capital is to be allowed at 12% per annum.
Surviving partners agreed that ₹ 15,400 should be paid to the executors immediately and the balance in four equal yearly instalments with interest at 12% p.a. on outstanding balance.
Show Mr. Pammy’s Capital account, his Executor’s account till the settlement of the amount due.
Date
Particulars
J.F.
Amount
₹
Date
Particulars
J.F.
Amount
₹
To Drawings A/c
10,000
By Balance b/d
40,000
To Pammy’s
75,400
By Profit and Loss
3,000
Executor’s A/c
(Suspense) A/c
By Puneet’s Capital A/c
15,000
By Pankaj’s Capital A/c
15,000
By Interest on Capital A/c
15,000
By Reserve A/c
15,000
85,400
85,400
Date
Particulars
J.F.
Amount
₹
Date
Particulars
J.F.
Amount
₹
2017-18
2017-18
Sep 30
To Bank A/c
15,400
Sep 30
By Pammy’s Capital A/c
75,400
Mar 31
To Balance c/d
63,600
Mar 31
By Interest A/c
3,600
79,000
79,000
2018-19
2018-19
Sep 30
To Bank A/c
22,200
Apr 01
By Balance b/d
63,600
(15,000 + 3,600 + 3,600)
Sep 30
By Interest A/c
3,600
Mar 31
To Balance c/d
47,700
Mar 31
By Interest A/c
2,700
69,900
69,900
2019-20
2019-20
Sep 30
To Bank A/c
20,400
Apr 01
By Balance b/d
47,700
(15,000 + 2,700 + 2,700)
Sep 30
By Interest A/c
2,700
Mar 31
To Balance c/d
31,800
Mar 31
By Interest A/c
1,800
52,200
52,200
2020-21
2020-21
Sep 30
To Bank A/c
18,600
Apr 01
By Balance b/d
31,800
(15,000 + 1,800 + 1,800)
Sep 30
By Interest A/c
1,800
Mar 31
To Balance c/d
15,900
Mar 31
By Interest A/c
900
34,500
34,500
2021-22
2021-22
Sep 30
To Bank A/c
16,800
Apr 01
By Balance b/d
15,900
(15,000 + 900 + 900)
Sep 30
By Interest A/c
900
16,800
16,800
Working Notes
a. The deceased partner Pammy’s share of profit:
Profit Share
= Previous Year’s Profit × Proportionate Period × Profit Sharing Ratio
{= ₹~30,000 × \dfrac{6}{12} × \dfrac{1}{5}}
= ₹ 3,000
b. The deceased Partner Pammy’s share of Goodwill:
The average profit is calculated based on the previous four years proft as follows:
Average Profit
{= \dfrac{₹~80,000 + ₹~50,000 + ₹~40,000 + ₹~30,000}{4}}
{= \dfrac{₹~2,00,000}{4}}
= ₹ 50,000
As given in the problem, the goodwill of the firm is calculated on the basis of 3 year’s purchase of average of last 4 years’ profit.
∴ Goodwill
= Average Profit × No. of Years of Purchase
= ₹ 50,000 × 3
= ₹ 1,50,000
Pammy’s share
{= ₹~1,50,000 × \dfrac{1}{5}}
= ₹ 30,000
c. Gain in share for continuing partners:
Gain in Share
= New Ratio – Old Ratio
Puneet
{= \dfrac{2}{4} - \dfrac{2}{5}}
{= \dfrac{10 - 8}{20}}
{= \dfrac{2}{20}}
{= \dfrac{1}{10}}
Pankaj
{= \dfrac{2}{4} - \dfrac{2}{5}}
{= \dfrac{10 - 8}{20}}
{= \dfrac{2}{20}}
{= \dfrac{1}{10}}
∴ Gaining Ratio
{= \dfrac{1}{10}:\dfrac{1}{10}}
= 1:1
d. Contribution to Pammy’s share goodwill by the continuing partners Puneet and Pankaj in their gaining ratio:
Contribution by Puneet
{= ₹~30,000 × \dfrac{1}{2}}
= ₹ 15,000
Contribution by Pankaj
{= ₹~30,000 × \dfrac{1}{2}}
= ₹ 15,000
e. Interest on Capital from April 1, 2017 to September 30, 2017
Duration
= 6 months
Interest
{= ₹~40,000 × \dfrac{6}{12} × \dfrac{12}{100}}
= ₹ 2,400
f. Reserves
Pammy’s Share
{= ₹~50,000 × \dfrac{1}{5}}
= ₹ 10,000
g. Outstanding Amount:
Amount to be paid to Pammy
= Capital + Profit + Goodwill + Interest on Capital + Reserve
= ₹ 40,000 + ₹ 3,000 + ₹ 30,000 + ₹ 2,400 + ₹ 10,000
= ₹ 85,400
Amount already paid
= ₹ 15,400
Amount yet to be paid
= ₹ 85,400 – ₹ 15,400
= ₹ 60,000
h. Installment amount:
No. of Installments
= 4
Amount paid in each installment
{= \dfrac{₹~60,000}{4}}
= ₹ 15,000
i. Interest on Outstanding Amount (every 6 months)
Year
Outstanding
Amount
₹
Calculation
of
Interest
Interest
Amount
₹
2017-18
60,000
{= 60,000 × \dfrac{6}{12} × \dfrac{12}{100}}
3,600
2018-19
45,000
{= 45,000 × \dfrac{6}{12} × \dfrac{12}{100}}
2,700
2019-20
30,000
{= 30,000 × \dfrac{6}{12} × \dfrac{12}{100}}
1,800
2020-21
60,000
{= 15,000 × \dfrac{6}{12} × \dfrac{12}{100}}
900
Note to Students/Learners: Place the cursor over the numbers in the Pammy’s Executor’s Account table. The tool tip will appear indicating what that number designates. For example, consider the text (15,000 + 900 + 900). If you place the cursor on the number “15,000”, the tool tip “4th Installment” will appear. If you place the cursor on the 1st “900”, the tool tip “Interest calculated on Mar 31, 2020” will appear and if you please the cursor over the second “900”, the tool tip “Interest calculated on Sep 30, 2021” will appear. Hope this will make the understanding of the solution more clear.
9. Following is the Balance Sheet of Prateek, Rockey and Kushal as on March 31, 2017.
Books of Prateek, Rockey and Kushal Balance Sheet as on March 31, 2017
Liabilities
Amount
₹
Assets
Amount
₹
Sundry Creditors
16,000
Bills Receivable
16,000
General Reserve
16,000
Furniture
22,600
Capital Accounts:
Stock
20,400
Prateek
30,000
Sundry Debtors
22,000
Rockey
20,000
Cash at Bank
18,000
Kushal
20,000
70,000
Cash in Hand
3,000
1,02,000
1,02,000
Rockey died on June 30, 2017. Under the terms of the partnership deed, the executors of a deceased partner were entitled to:
a)
Amount standing to the credit of the Partner’s Capital account.
b)
Interest on capital at 5% per annum.
c)
Share of goodwill on the basis of twice the average of the past three years’ profit and
d)
Share of profit from the closing date of the last financial year to the date of death on the basis of last year’s profit.
Profits for the year ending on March 31, 2015, March 31, 2016 and March 31, 2017 were ₹ 12,000, ₹ 16,000 and ₹ 14,000 respectively.
Profits were shared in the ratio of capitals.
Pass the necessary journal entries and draw up Rockey’s capital account to be rendered to his executor.
Journal
Date
Particulars
L.F.
Debit
Amount
₹
Credit
Amount
₹
2017
Jun 30
Interest on Capital A/c
Dr.
250
Profit and Loss (Suspense) A/c
Dr.
1,000
General Reserve A/c
Dr.
4,571
To Rockey’s Capital A/c
5,821
(Being Interest on Capital, Profit and share of reserves credited to the deceased partner Rocky’s Capital account)
Jun 30
Prateek’s Capital A/c
Dr.
4,800
Kushal’s Capital A/c
Dr.
3,200
To Rockey’s Capital A/c
8,000
(Being Rockey’s share of goodwill adjusted to Prateek and Kushal’s capital accounts in their gaining ratio i.e. 3:2)
Jun 30
Rockey’s Capital A/c
Dr.
33,821
To Rockey’s Executor’s A/c
33,821
(Being Rockey’s final capital account transferred to his executor’s account)
Date
Particulars
J.F.
Amount
₹
Date
Particulars
J.F.
Amount
₹
2017
2017
Apr 1
To Rockey’s Executor’s A/c
33,821
Apr 1
By Balance b/d
20,000
By Interest on Capital A/c
250
By Profit and Loss
1,000
(Suspense) A/c
By General Reserve A/c
4,571
By Prateek’s Capital A/c
4,800
By Kushal’s Capital A/c
3,200
33,821
33,821
Working Notes:
a. Profit Sharing Ratio
Profit Sharing Ratio
= 30,000 : 20,000 : 20,000
= 3 : 2 : 2
b. Interest on Rockey’s Capital
Time Period
= 3 months
Interest
{= ₹~20,000 × \dfrac{3}{12} × \dfrac{5}{100}}
= ₹ 250
c. Goodwill
Average Profit
{= \dfrac{₹~12,000 + ₹~16,000 + ₹~14,000}{3}}
{= \dfrac{₹~42,000}{3}}
= ₹ 14,000
Goodwill
= 2 × ₹ 14,000
= ₹ 28,000
Rockey’s Share
{= ₹~28,000 × \dfrac{2}{7}}
= ₹ 8,000
Rockey’s share of goodwill will be contributed by the continuing partners Prateek and Kushal in their gaining ratio. As there is no change in their profit sharing ratio, the gaining ratio will be equal to their profit sharing ratio i.e. 3:2. So, the goodwill contribution will be as follows:
Prateek
{= ₹~8,000 × \dfrac{3}{5}}
= ₹ 4,800
Kushal
{= ₹~8,000 × \dfrac{2}{5}}
= ₹ 3,200
d. General Reserves:
Rockey
{= ₹~16,000 × \dfrac{2}{7}}
= ₹ 4,571
e. Rockey’s Profit a period of 3 months
Profit Share
= Previous Year’s Profit × Proportionate Period × Profit Sharing Ratio
{= ₹~14,000 × \dfrac{3}{12} × \dfrac{2}{7}}
= ₹ 1,000
10. Narang, Suri and Bajaj are partners in a firm sharing profits and losses in proportion of \dfrac{1}{2}, \dfrac{1}{6} and \dfrac{1}{3} respectively. The Balance Sheet on April 1, 2015 was as follows:
Books of Narang, Suri and Bajaj Balance Sheet as on April 1, 2015
Liabilities
Amount
₹
Assets
Amount
₹
Bills Payable
12,000
Freehold Premises
40,000
Sundry Creditors
18,000
Machinery
30,000
Reserves
12,000
Furniture
12,000
Capital Accounts:
Stock
22,000
Narang
30,000
Sundry Debtors
20,000
Suri
30,000
Reserves for
1,000
19,000
Bajaj
28,000
88,000
Bad Debt
Cash
7,000
1,30,000
1,30,000
Bajaj retires from the business and the partners agree to the following:
a)
Freehold premises and stock are to be appreciated by 20% and 15% respectively.
b)
Machinery and furniture are to be reduced by 10% and 7% respectively.
c)
Bad Debts reserve is to be increased to ₹ 1,500.
d)
Goodwill is valued at ₹ 21,000 on Bajaj’s retirement.
e)
The continuing partners have decided to adjust their capitals in their new profit sharing ratio after retirement of Bajaj. Surplus/deficit, if any, in their capital accounts will be adjusted through current accounts.
Prepare necessary ledger accounts and draw the Balance Sheet of the reconstituted firm.
Date
Particulars
J.F.
Amount
₹
Date
Particulars
J.F.
Amount
₹
To Machinery A/c
3,000
By Freehold Premises A/c
8,000
To Furniture A/c
840
By Stock A/c
3,300
To Reserve for Bad Debts A/c
500
Capitals:
To Narang’s Capital A/c
3,480
To Suri’s Capital A/c
1,160
To Bajaj’s Capital A/c
2,320
6,960
11,300
11,300
Date
Particulars
J.F.
Narang
Amount
₹
Suri
Amount
₹
Bajaj
Amount
₹
Date
Particulars
J.F.
Narang
Amount
₹
Suri
Amount
₹
Bajaj
Amount
₹
To Bajaj’s Capital A/c
5,250
1,750
By Balance b/d
30,000
30,000
28,000
To Bajaj’s Loan A/c
41,320
By Reserve A/c
6,000
2,000
4,000
To Balance c/d
34,230
31,410
By Revaluation (Profit) A/c
3,480
1,160
2,320
By Narang’s Capital A/c
5,250
By Suri’s Capital A/c
1,750
39,480
33,160
41,320
39,480
33,160
41,320
To Suri’s Current A/c
15,000
By Balance b/d
34,230
31,410
To Balance c/d
49,230
16,410
By Narang’s Current A/c
15,000
49,230
31,410
49,230
31,410
Books of Narang, Suri and Bajaj Balance Sheet as on April 1, 2015
Liabilities
Amount
₹
Assets
Amount
₹
Bill Payable
12,000
Freehold Premises
48,000
Sundry Creditors
18,000
Machinery
27,000
Bajaj’s Loan
41,320
Furniture
12,000
Suri’s Current A/c
15,000
Depreciation
840
11,160
Capitals:
Sundry Debtors
20,000
Narang
49,230
Reserve for
1,500
18,500
Suri
16,410
65,640
Bad Debts
Cash
7,000
Narang’s Current A/c
15,000
1,23,080
1,23,080
Working Notes
a. Profit Sharing Ratio
Old
{= \dfrac{1}{2} : \dfrac{1}{6} : \dfrac{1}{3}}
= 3 : 1 : 2
New
3 : 1
As both Narang and Suri are sharing the profits in the same ratio as before, their gaining ratio will also be same as their profit sharing ratio i.e. 3 : 2
b. Share of reserves among all the partners:
Reserves Amount
= ₹ 12,000
Share of Narang
{= ₹~12,000 × \dfrac{3}{6}}
= ₹ 6,000
Share of Suri
{= ₹~12,000 × \dfrac{1}{6}}
= ₹ 2,000
Share of Bajaj
{= ₹~12,000 × \dfrac{2}{6}}
= ₹ 4,000
c. Appreciation on Revaluation
Freehold Premises
{= ₹~40,000 × \dfrac{20}{100}}
= ₹ 8,000
Stock
{= ₹~22,000 × \dfrac{15}{100}}
= ₹ 3,300
Total
= ₹ 11,300
d. Depreciation on Revaluation
Machinery
{= ₹~30,000 × \dfrac{10}{100}}
= ₹ 3,000
Furniture
{= ₹~12,000 × \dfrac{7}{100}}
= ₹ 840
Bad Debts
= ₹ 1,500 – ₹ 1,000
= ₹ 500
Total
= ₹ 4,340
e. Revaluation Profit distribution:
Revaluation Profit
= ₹ 11,300 – ₹ 4,340
= ₹ 6,960
Narang
{= ₹~6,960 × \dfrac{3}{6}}
= ₹ 3,480
Suri
{= ₹~6,960 × \dfrac{1}{6}}
= ₹ 1,160
Bajaj
{= ₹~6,960 × \dfrac{2}{6}}
= ₹ 2,320
f. Goodwill:
Goodwill amount
= ₹ 21,000
Goodwill share of Bajaj
{= ₹~21,000 × \dfrac{2}{6}}
= ₹ 7,000
Contribution to Bajaj’s goodwill by the continuing partners Narang and Suri in their gaining ratio i.e. 3 : 2:
Narang
{= ₹~7,000 × \dfrac{3}{5}}
= ₹ 4,200
Suri
{= ₹~7,000 × \dfrac{2}{5}}
= ₹ 2,800
Narang and Suri decided to adjust their capitals in their profit sharing ratio i.e. 3 : 1.
g. Capital Adjustments:
Total Capital
= Narang’s Capital + Suri’s Caital
= ₹ 30,000 + ₹ 30,000
= ₹ 60,000
Narang’s New Capital
{= ₹~60,000 × \dfrac{3}{4}}
= ₹ 45,000
Narang’s Old Capital
= ₹ 30,000
Additional Capital to be brought in
= ₹ 45,000 – ₹ 30,000
= ₹ 15,000
Suri’s New Capital
{= ₹~60,000 × \dfrac{1}{4}}
= ₹ 15,000
Suri’s Old Capital
= ₹ 30,000
Capital to be withdrawn
= ₹ 45,000 – ₹ 30,000
= ₹ 15,000
11. The Balance Sheet of Rajesh, Pramod and Nishant who were sharing profits in proportion to their capitals stood as on March 31, 2015:
Books of Rajesh, Pramod and Nishant Balance Sheet as on March 31, 2015
Liabilities
Amount
₹
Assets
Amount
₹
Bills Payable
6,250
Factory Building
12,000
Sundry Creditors
10,000
Debtors
10,500
General Reserves
2,750
Provision for
500
10,000
Capital Accounts:
doubtful debts
Rajesh
20,000
Bills Receivable
7,000
Pramod
15,000
Stock
15,500
Nishant
15,000
50,000
Plant and Machinery
11,500
Bank Balance
13,000
69,000
69,000
Pramod retired on the date of Balance Sheet and the following adjustments were made:
a)
Stock is to be reduced by 10%.
b)
Factory buildings were appreciated by 12%.
c)
Provision for doubtful debts be created up to 5%.
d)
Provision for legal charges to be made at ₹ 265.
e)
The goodwill of the firm be fixed at ₹ 10,000.
f)
The capital of the new firm be fixed at ₹ 30,000. The continuing partners decide to keep their capitals in the new profit sharing ratio of 3 : 2.
Pass journal entries and prepare the balance sheet of the reconstituted firm after transferring the balance in Pramod’s Capital account to his loan account.
Journal
Date
Particulars
L.F.
Debit
Amount
₹
Credit
Amount
₹
2017
Mar 31
Revaluation A/c
Dr.
1,840
To Stock A/c
1,550
To Reserve for Doubtful Debts A/c
25
To Reserve for Legal Charges A/c
265
(Being depreciation in the assets and liabilities on revaluation)
Mar 31
Factory Building A/c
Dr.
1,840
To Revaluation A/c
1,440
(Being factory building appreciated on revaluation)
Mar 31
Rajesh’s Capital A/c
Dr.
160
Pramod’s Capital A/c
Dr.
120
Nishant’s Capital A/c
Dr.
120
To Pramod’s Capital A/c
400
(Being Pramod’s share of goodwill adjusted to the capital accounts of Rajesh and Nishant as per their gaining ratio i.e 2:1
Mar 31
Reserve Fund A/c
Dr.
2,000
To Rajesh’s Capital A/c
1,100
To Pramod’s Capital A/c
825
To Nishant’s Capital A/c
825
(Being reserve fund distributed among all the partners in their profit sharing ratio)
Mar 31
Pramod’s Capital A/c
Dr.
18,705
To Pramod’s Loan A/c
18,705
Being Pramod’s Capital transferred to his loan account
Mar 31
Rajesh’s Capital A/c
Dr.
940
Nishan’t Capital A/c
Dr.
2,705
To Bank A/c
3,645
(Being partners’ excess capitals withdrawn by them)
Date
Particulars
J.F.
Rajesh
Amount
₹
Pramod
Amount
₹
Nishant
Amount
₹
Date
Particulars
J.F.
Rajesh
Amount
₹
Pramod
Amount
₹
Nishant
Amount
₹
To Revaluation (Loss) A/c
160
120
120
By Balance b/d
20,000
15,000
15,000
To Pramod’s Capital A/c
2,000
1,000
By Reserve Fund
1,100
825
825
To Pramod’s Loan A/c
18,705
By Rajesh’s Capital A/c
2,000
To Bank A/c
940
2,705
By Nishant’s Capital A/c
1,000
To Balance b/d
18,000
12,000
21,100
18,825
15,825
21,100
18,825
15,825
Date
Particulars
J.F.
Amount
₹
Date
Particulars
J.F.
Amount
₹
To Balance b/d
13,000
By Rajesh’s Capital A/c
940
By Nishant’s Capital A/c
2,705
By Balance c/d
9,355
13,000
13,000
Balance Sheet as on March 31, 2015
Liabilities
Amount
₹
Assets
Amount
₹
Bills Payable
6,250
Plant and Machinery
11,500
Sundry Creditors
10,000
Debtors
10,500
Reserve for Legal Charges
265
Provision for
525
9,975
Pramod’s Loan
18,705
Bad Debts
Capital Accounts:
Bills Receivable
7,000
Rajesh
18,000
Stock
15,500
Nishant
12,000
30,000
Depreciation
1,550
13,950
Factory Building
12,000
Depreciation
1,440
13,440
Bank Balance
9,355
65,220
65,220
Working Notes:
a. Profit Sharing Ratio:
Profit Sharing Ratio
= 20,000 : 15,000 : 15,000
= 4 : 3 : 3
b. Gaining Ratio:
Gain in Share
= New Share – Old Share
Rajesh
{= \dfrac{3}{5} = \dfrac{4}{10}}
{= \dfrac{6 - 4}{10}}
{= \dfrac{2}{10}}
Nishant
{= \dfrac{2}{5} = \dfrac{3}{10}}
{= \dfrac{4 - 3}{10}}
{= \dfrac{1}{10}}
Gaining Ratio
{= \dfrac{2}{10} : \dfrac{1}{10}}
= 2 : 1
c. Appreciation on Revaluation
Factory Building
{= ₹~12,000 × \dfrac{12}{100}}
= ₹ 1,440
d. Depreciation on Revaluation
Stock
{= ₹~15,500 × \dfrac{10}{100}}
= ₹ 1,550
Provision for doubtful debts
{= ₹~10,500 × \dfrac{5}{100}}
= ₹ 525
Provision for doubtful debts already in place
= ₹ 500
Additional provision on doubtful debts
= ₹ 525 – ₹ 500
= ₹ 25
Reserve for Legal Charges
= ₹ 265
Total
= ₹ 1,550 + ₹ 525 + ₹ 25 + ₹ 265
= ₹ 1,840
e. Adjustment of Revaluation Loss
Loss on Revaluation
= Total Loss – Total Profit
= ₹ 1,840 – ₹ 1,440
= ₹ 400
Rajesh’s Share
{= ₹~400 × \dfrac{4}{10}}
= ₹ 160
Pramod’s Share
{= ₹~400 × \dfrac{3}{10}}
= ₹ 120
Nishant’s Share
{= ₹~400 × \dfrac{3}{10}}
= ₹ 120
f. Distribution of General Reserves to all the partners:
Rajesh’s Share
{= ₹~2,750 × \dfrac{4}{10}}
= ₹ 1,100
Pramod’s Share
{= ₹~2,750 × \dfrac{3}{10}}
= ₹ 825
Nishant’s Share
{= ₹~2,750 × \dfrac{3}{10}}
= ₹ 825
g. Adjustment of Pramod’s Goodwill to Rajesh and Nishant’s capital accounts in their gaining ratio
Pramod’s share of Goodwill
{= ₹~10,000 × \dfrac{3}{10}}
= ₹ 3,000
Adjustment to Rajesh’s Capital A/c
{= ₹~3,000 × \dfrac{2}{3}}
= ₹ 2,000
Adjustment to Nishant’s Capital A/c
{= ₹~3,000 × \dfrac{1}{3}}
= ₹ 1,000
h. New Capitals (₹ 30,000 total capital in the profit sharing ratio of 3 : 2 among Rajesh and Nishant) and the surplus/deficit adjustment
New Capital of Rajesh
{= ₹~30,000 × \dfrac{3}{5}}
= ₹ 18,000
Old Capital of Rajesh
= ₹ 20,000
Excess of Rajesh’s Capital
= ₹ 20,000 – ₹ 18,000
= ₹ 2,000
New Capital of Nishant
{= ₹~30,000 × \dfrac{2}{5}}
= ₹ 12,000
Old Capital of Nishant
= ₹ 15,000
Excess of Nishant’s Capital
= ₹ 15,000 – ₹ 12,000
= ₹ 3,000
12. Following is the Balance Sheet of Jain, Gupta and Malik as on March 31, 2016.
Books of Jain, Gupta and Malik Balance Sheet as on March 31, 2016
Liabilities
Amount
₹
Assets
Amount
₹
Sundry Creditors
19,800
Land and Building
26,000
Telephone Bills
300
Bonds
14,370
Outstanding
Cash
5,500
Accounts Payable
8,950
Bills Receivable
23,450
P&L A/c
16,750
Sundry Debtors
26,700
Capitals :
Stock
18,100
Jain
40,000
Office Furniture
18,250
Gupta
60,000
Plants and Machinery
20,230
Malik
20,000
1,20,000
Computers
13,200
1,65,800
1,65,800
The partners have been sharing profits in the ratio of 5:3:2. Malik decides to retire from business on April 1, 2016 and his share in the business is to be calculated as per the following terms of revaluation of assets and liabilities :
Stock, ₹ 20,000; Office furniture, ₹ 14,250; Plant and Machinery ₹ 23,530; Land and Building ₹ 20,000.
A provision of ₹ 1,700 to be created for doubtful debts. The goodwill of the firm is valued at ₹ 9,000.
The continuing partners agreed to pay Rs.16,500 as cash on retirement of Malik, to be contributed by continuing partners in the ratio of 3:2. The balance in the capital account of Malik will be treated as loan.
Prepare Revaluation account, capital accounts, and Balance Sheet of the reconstituted firm.
Date
Particulars
J.F.
Amount
₹
Date
Particulars
J.F.
Amount
₹
To Office Furniture A/c
4,000
By Stock A/c
1,900
To Land and Building
6,000
By Plant and Machinery
3,300
To Provision for
1,700
Loss Transferred:
doubtful debts
By Jain’s Capital A/c
3,250
By Gupta’s Capital A/c
1,950
By Malik’s Capital A/c
1,300
6,500
11,700
11,700
Date
Particulars
J.F.
Jain
Amount
₹
Gupta
Amount
₹
Malik
Amount
₹
Date
Particulars
J.F.
Jain
Amount
₹
Gupta
Amount
₹
Malik
Amount
₹
To Revaluation (Loss) A/c
3,250
1,950
1,300
By Balance b/d
40,000
60,000
20,000
To Malik’s Capital A/c
1,125
675
By Accumulated Profits A/c
8,375
5,025
3,350
To Cash A/c
16,500
By Jain’s Capital A/c
1,125
To Mali’s Loan A/c
7,350
By Gupta’s Capital A/c
675
To Balance c/d
53,900
69,000
By Cash A/c
9,900
6,600
58,275
71,625
25,150
58,275
71,625
25,150
Balance Sheet as on March 31, 2016
Liabilities
Amount
₹
Assets
Amount
₹
Sundry Creditors
1,800
Stock
18,100
Telephone Bills
300
Appreciation
1,900
20,000
Outstanding
Bonds
14,370
Accounts Payable
8,950
Cash
5,500
Malik’s Loan
7,350
Bills Receivables
23,450
Partners’ Capitals:
Sundry Debtors
26,700
Jain
53,900
Provision for
1,700
25,000
Gupta
69,000
1,22,900
Bad Debts
Land and Buildings
26,000
Depreciation
6,000
20,000
Office Furniture
18,250
Depreciation
4,000
14,250
Plants and Machinery
20,230
Appreciation
3,300
23,530
Computers
13,200
1,59,300
1,59,300
a. Adjustment of goodwill share of the retiring partner to the continuing partners capital accounts in their gaining ratio
As the continuing partners share the prfits in the same ratio as before, their gaining ratio will be same as their new profit sharing ratio i.e. 5 : 3
Gain in share
= New Share – Old Share
Malik’s share of goodwill
{= ₹~9,000 × \dfrac{2}{10}}
= ₹ 1,800
Jain’s contribution to Malik’s share of goodwill
{= ₹~1,800 × \dfrac{5}{8}}
= ₹ 1,125
Gupta’s contribution to Malik’s share of goodwill
{= ₹~1,800 × \dfrac{3}{8}}
= ₹ 675
b. Distribution of accumulated profits:
Jain’s Share
{= ₹~16,750 × \dfrac{5}{10}}
= ₹ 8,375
Gupta’s Share
{= ₹~16,750 × \dfrac{3}{10}}
= ₹ 5,025
Malik’s Share
{= ₹~16,750 × \dfrac{2}{10}}
= ₹ 3,350
c. Appreciation on Revaluation:
Stock
= ₹ 20,000 – ₹ 18,100
= ₹ 1,900
Plant and Machinery
= ₹ 23,530 – ₹ 20,230
= ₹ 3,300
Total
= ₹ 1,900 + ₹ 3,300
= ₹ 5,200
c. Depreciation on Revaluation:
Office Furniture
= ₹ 18,250 – ₹ 14,250
= ₹ 4,000
Land and Building
= ₹ 26,000 – ₹ 20,000
= ₹ 6,000
Provision for Doubtful Debts
= ₹ 1,700
Total
= ₹ 4,000 + ₹ 6,000 + ₹ 1,700
= ₹ 11,700
d. Transferring Revaluation Loss to the partners’ capital accounts in their profit sharing ratio:
Loss
= Total Loss = Total Profit
= ₹ 11,700 – ₹ 5,200
= ₹ 6,500
Jain’s share
{= ₹~6,500 × \dfrac{5}{10}}
= ₹ 3,250
Gupta’s share
{= ₹~6,500 × \dfrac{3}{10}}
= ₹ 1,950
Gupta’s share
{= ₹~6,500 × \dfrac{2}{10}}
= ₹ 1,300
13. Arti, Bharti and Seema are partners sharing profits in the proportion of 3:2:1 and their Balance Sheet as on March 31, 2016 stood as follows :
Books of Arti, Bharti and Seema Balance Sheet as on March 31, 2016
Liabilities
Amount
₹
Assets
Amount
₹
Bills Payable
12,000
Buildings
21,000
Creditors
14,000
Cash in Hand
12,000
General Reserve
12,000
Bank
13,700
Capitals:
Debtors
12,000
Arti
20,000
Bills Receivable
4,300
Bharti
12,000
Stock
1,750
Seema
8,000
40,000
Bills Receivable
4,300
78,000
78,000
Bharti died on June 12, 2016 and according to the deed of the said partnership, her executors are entitled to be paid as under :
(a)
The capital to her credit at the time of her death and interest thereon @ 10% per annum.
(b)
Her proportionate share of reserve fund.
(c)
Her share of profits for the intervening period will be based on the sales during that period, which were calculated as ₹ 1,00,000. The rate of profit during past three years had been 10% on sales.
(d)
Goodwill according to her share of profit to be calculated by taking twice the amount of the average profit of the last three years less 20%. The profits of the previous years were :
2013
– ₹ 8,200
2014
– ₹ 9,000
2015
– ₹ 9,800
The investments were sold for Rs.16,200 and her executors were paid out. Pass the necessary journal entries and write the account of the executors of Bharti.
Books of Arti and Seema Journal
Date
Particulars
L.F.
Debit
Amount
₹
Credit
Amount
₹
2016
Jun 12
Interest on Capital A/c
Dr.
240
General Reserves A/c
Dr.
4,000
Profit and Loss (Suspense) A/c
Dr.
3,333
To Bharti’s Capital A/c
7,573
(Being Interest on capital, profit and reserves credited to Bhart’s capital account)
Jun 12
Arti’s Capital A/c
Dr.
3,600
Seema’s Capital A/c
Dr.
1,200
To Bharti’s Capital A/c
4,800
(Being Bharti’s share of goodwill adjusted to the other partners’ capital accounts in their gaining ratio)
Jun 12
Bharti’s Capital A/c
Dr.
24,373
To Bharti’s Executor’s A/c
24,373
(Being Bharti’s capital account transferred to her executor’s account)
Jun 12
Bank A/c
Dr.
16,200
To Investment A/c
13,250
To Profit on Sale of Investment A/c
2,950
(Being investment sold for profit and amount is deposited in the bank)
Jun 12
Bharti’s Executor’s A/c
Dr.
24,373
To Bank A/c
24,374
(Being Bharti’s executor paid through bank)
Date
Particulars
J.F.
Amount
₹
Date
Particulars
J.F.
Amount
₹
2016
2016
Jun 12
To Bharti’s
24,373
Mar 31
By Balance b/d
12,000
Executor’s A/c
By Interest on Capital A/c
240
By Profit and Loss
3,333
(Suspense) A/c
By General Reserve A/c
4,000
By Arti’s Capital A/c
3,600
By Seema’s Capital A/c
1,200
24,373
24,373
Date
Particulars
J.F.
Amount
₹
Date
Particulars
J.F.
Amount
₹
2016
2016
Jun 12
To Bank A/c
24,373
Jun 12
By Bharti’s Capital A/c
24,373
24,373
24,373
Working Notes:
a. Interest on Capital for the effective period
Effective Period
= 73 days
Interest
{= ₹~12,000 × \dfrac{10}{100} × \dfrac{73}{365}}
= ₹ 240
b. Distribution of reserve fund to all the partners in their old profit sharing ratio i.e. 3:2:1
Bharti
{= ₹~12,000 × \dfrac{2}{6}}
= ₹ 4,000
c. Share of profit based on sales done last year during that period (from last accounting period upto the date of Bharti’s death):
Total Sales
= ₹ 1,00,000
Profit on Sales
{= ₹~1,00,000 × \dfrac{10}{100}}
= ₹ 10,000
Bharti’s share
{= ₹~10,000 × \dfrac{2}{6}}
= ₹ 3,333
d. Bharti’s goodwill and adjustment of Bharti’s goodwill to the other partners’ capital accounts:
Note that as the continuing partners continue to share the profits in their old profit sharing ratio, their gaining ratio will be same as their profit sharing ratio i.e. 3:1
Average Profit (of last 3 years)
{= \dfrac{₹~8,200 + ₹~9,000 + ₹~9,800}{3}}
{= \dfrac{₹~27,000}{3}}
= ₹ 9,000
Goodwill
= 2 × (Average profit – 20% of average profit)
{= 2 × (₹~9,000 - ₹~9,000 × \dfrac{20}{100})}
= 2 × (₹ 9,000 – ₹ 1,800)
= 2 × ₹ 7,200
= ₹ 14,400
Bharti’s goodwill share
{= ₹~14,400 × \dfrac{2}{6}}
= ₹ 4,800
Adjustment to Bharti’s goodwill
from Arti’s capital
{= ₹~4,800 × \dfrac{3}{4}}
= ₹ 3,600
from Seema’s capital
{= ₹~4,800 × \dfrac{1}{4}}
= ₹ 1,200
14. Nithya, Sathya and Mithya were partners sharing profits and losses in the ratio of 5:3:2. Their Balance Sheet as on March 31, 2015 was as follows :
Books of Nithya, Sathya and Mithya Balance Sheet at March 31, 2015
Liabilities
Amount
₹
Assets
Amount
₹
Creditos
14,000
Investments
10,000
Reserve Fund
6,000
Goodwill
5,000
Capitals:
Premises
20,000
Nithya
30,000
Patents
6,000
Sathya
30,000
Machinery
30,000
Mithya
20,000
80,000
Stock
13,000
Debtors
8,000
Bank
8,000
1,00,000
1,00,000
Mithya dies on August 1, 2015. The agreement between the executors of Mithya and the partners stated that :
(a)
Goodwill of the firm be valued at {2\dfrac{1}{2}} times the average profits of last four years. The profits of four years were : in 2011-12, ₹ 13,000; in 2012-13, ₹ 12,000; in 2013-14, ₹ 16,000; and in 2014-15, ₹ 15,000.
(b)
The patents are to be valued at ₹ 8,000, Machinery at ₹ 25,000 and Premises at ₹ 25,000.
(c)
The share of profit of Mithya should be calculated on the basis of the profit of 2014-15.
(d)
₹ 4,200 should be paid immediately and the balance should be paid in 4 equal half-yearly instalments carrying interest @ 10%.
Record the necessary journal entries to give effect to the above and write the executor’s account till the amount is fully paid. Also prepare the Balance Sheet of Nithya and Sathya as it would appear on August 1, 2015 after giving effect to the adjustments.
Journal
Date
Particulars
L.F.
Debit
Amount
₹
Credit
Amount
₹
2015
Aug 1
Nithya’s Capital A/c
Dr.
2,500
Sathya’s Capital A/c
Dr.
1,500
Mithya’s Capital A/c
Dr.
1,000
To Goodwill A/c
5,000
(Being goodwill in the books written off amongh all the partners)
Aug 1
Patents A/c
Dr.
2,000
Premises A/c
Dr.
7,000
To Revaluation A/c
7,000
(Being increase in the value of patents and premises after revaluation)
Aug 1
Revaluation A/c
Dr.
5,000
To Machinery A/c
5,000
(Being increase in the value of machinery after revaluation)
Aug 1
Revaluation A/c
Dr.
2,000
To Nithya’s Capital A/c
1,000
To Sathya’s Capital A/c
600
To Mithya’s Capital A/c
400
(Being profit on revalution of assets transferred to partners capital accounts)
Aug 1
Reserve Fund A/c
Dr.
6,000
To Nithya’s Capital A/c
3,000
To Sathya’s Capital A/c
1,800
To Nithya’s Capital A/c
1,200
(Being Reserve Fund transferred to all the partners’ capital accounts in their profit sharing ratio)
Aug 1
Nithya’s Capital A/c
Dr.
4,375
Sathya’s Capital A/c
Dr.
2,625
To Mithya’s Capital A/c
7,000
(Being share Mithya’s goodwill adjusted to the continuing partners’s capital accounts in their gaining ratio)
Aug 1
Profit and Loss (Suspense) A/c
Dr.
1,000
To Mithya’s Capital A/c
1,000
(Being profit from the beginning of the accounting period till the date of Mithya’s death is credited to his capital account)
Aug 1
Mithya’s Capital A/c
Dr.
28,600
To Mithya’s Executioner’s A/c
28,600
(Being Mithya’s capital amount tranferred to his executioner’s account)
Aug 1
Mithya’s Executioner’s A/c
Dr.
4,200
To Cash A/c
4,200
(Being cash paid to Mithya’s executioner)
Date
Particulars
J.F.
Amount
₹
Date
Particulars
J.F.
Amount
₹
2015
2015
Aug 1
To Bank A/c
4,200
Aug 1
By Mithya’s Capital A/c
28,600
 
2016
2016
Jan 31
To Bank A/c
24,400
Jan 31
By Interest A/c
1,220
(6,100 + 1,220)
{(24,400 × \dfrac{10}{100} × \dfrac{6}{2})}
Mar 31
To Balance c/d
18,605
Mar 31
By Interest A/c
305
{(18,300 × \dfrac{10}{100} × \dfrac{2}{12})}
30,125
30,125
2016
2016
Jul 31
To Bank A/c
7,015
Apr 01
By Balance b/d
18,605
(6,100 + 305 + 610)
Jul 31
By Interest A/c
610
{(18,300 × \dfrac{10}{100} × \dfrac{4}{12})}
 
2017
2017
Jan 31
To Bank A/c
6,710
Jan 31
By Interest A/c
610
(6,100 + 610)
{(12,200 × \dfrac{10}{100} × \dfrac{6}{100})}
Mar 31
To Balance c/d
6,202
Mar 31
By Interest A/c
102
{(6,100 × \dfrac{10}{100} × \dfrac{2}{12})}
19,927
19,927
2017
2017
Jul 31
To Bank A/c
6,405
Apr 01
By Balance c/d
6,202
(6,100 + 102 + 203)
Jul 31
By Interest A/c
203
{(6,100 × \dfrac{10}{100} × \dfrac{4}{12})}
6,405
6,405
Working Notes:
a. Writing off existing goodwill by ditributing it among all the partners in their old profit sharing ratio:
Nithya’s share
{= ₹~5,000 × \dfrac{5}{10}}
= ₹ 2,500
Sathya’s share
{= ₹~5,000 × \dfrac{3}{10}}
= ₹ 1,500
Mithya’s share
{= ₹~5,000 × \dfrac{2}{10}}
= ₹ 1,000
b. Increase in the value of the assets on revaluation:
Patents
= ₹ 8,000 – ₹ 6,000
= ₹ 2,000
Premises
= ₹ 25,000 – ₹ 20,000
= ₹ 5,000
Total
= ₹ 2,000 + ₹ 5,000
= ₹ 7,000
c. Decrease in the value of the assets on revaluation:
Machinery
= ₹ 30,000 – ₹ 25,000
= ₹ 5,000
d. Profit on Revaluation:
Revaluation Profit
= ₹ 7,000 – ₹ 5,000
= ₹ 2,000
e. Distribution of revaluation profit among all the partners in their old profit sharing ratio i.e. 5:3:2
Nithya
{= ₹~2,000 × \dfrac{5}{10}}
= ₹ 1,000
Sathya
{= ₹~2,000 × \dfrac{3}{10}}
= ₹ 600
Mithya
{= ₹~2,000 × \dfrac{2}{10}}
= ₹ 400
f. Adjustment of Mithya’s share of goodwill among the continuing partners’ capital accounts in their gaining ratio:
As both Nithya and Sathya continue to share the profit and losses in their old profit sharing ratio i.e. 5:3, their gaining ratio will also be same as their new profit sharing ration i.e. 5:3
Average Profits
{\dfrac{₹~13,000 + ₹~12,000 + ₹~16,000 + ₹~15,000}{4}}
= ₹ 14,000
Goodwill
= {2\dfrac{1}{2}} times average profit
{= ₹~14,000 × \dfrac{5}{2}}
= ₹ 35,000
Mithya’s share of goodwill
{= ₹~35,000 × \dfrac{2}{10}}
= ₹ 7,000
Adjustment to Nithya’s capital
{= ₹~7,000 × \dfrac{5}{8}}
= ₹ 4,375
Adjustment to Sathya’s capital
{= ₹~7,000 × \dfrac{3}{8}}
= ₹ 2,625
g. Distribution of reserves among all the partners:
Nithya
{= ₹~6,000 × \dfrac{5}{10}}
= ₹ 3,000
Sathya
{= ₹~6,000 × \dfrac{3}{10}}
= ₹ 1,800
Mithya
{= ₹~6,000 × \dfrac{2}{10}}
= ₹ 1,200
h. Mithya’s share of profit for the proportionate period (From April 1 to August 1):
Effective period
= 4 months
Total Profit
= ₹ 15,000
Mithya’s share
{= ₹~15,000 × \dfrac{4}{12}}
= ₹ 5,000