Home » Class 12 Accountancy » NCERT Solutions for Class 12 Accountancy – Partnership Accounts – Chapter 3 – Reconstitution of a Partnership Firm – Retirement/Death of a partner

NCERT Solutions for Class 12 Accountancy – Partnership Accounts – Chapter 3 – Reconstitution of a Partnership Firm – Retirement/Death of a partner


Short answers : Solutions of Questions on Page Number : 217


Q1 :What are the different ways in which a partner can retire from the firm?
Answer : The following are the different ways in which a partner can retire from a firm.
i. With the consent of all other partners: A partner must take the consent of all the co-partners of the firm before his/her retirement. Thereafter, the partner can retire from the firm if and only if all the partners agree on the decision of his/her retirement.
ii) With an express agreement by all the partners: In case of written agreement among the partners a partner may retire from the firm by expressing his/her intention of leaving the firm though a notice to the other partners of the firm.
iii) By giving a written notice: If partnership among the partners is at will then a partner may retire by giving notice in writing to all the other partners informing them about his/her intention to retire.


Q2 :Write the various matters that need adjustments at the time of retirement of partner/partners.
Answer : The following are the various matters that need to be adjusted at the time of retirement of partners/partner.
1. Calculation of new gaining ratio of all the remaining partners of the firm.
2. Calculation of new ratio of the remaining partners of the firm.
3. Calculation of goodwill of the new firm and its accounting treatment.
4. Revaluation of assets and liabilities of the new firm.
5. Distribution of accumulated profits and losses and reserves among all the partners (including the retiring partner).
6. Treatment of Joint Life Policy
7. Settlement of the amount due to the retiring partner
8. Adjustment of capital accounts of the remaining partners in their new profit sharing ratio.


Q3 :Distinguish between sacrificing ratio and gaining ratio.
Answer :

Basis of Difference

Sacrificing ratio

Gaining Ratio

1. Meaning

It is the ratio in which old partners agree to
sacrifice their share of profit in favour of new
partners/partner

It is the ratio in which continuing partner acquires
the share of profit from outgoing partner/partner

2. Calculation

Sacrificing Ratio = Old Ratio – New
Ratio

Gaining Ratio = New Ratio – Old
Ratio

3. Time

It is calculated at the time of admission of new
partners/partner.

It is calculated at the time of retirement/death of old
partners/partner.

4. Objective

It is calculated to ascertain the share of profit and
loss given up by the existing partners in favour of new
partners/partner.

It is calculated to ascertain the share of profit and
loss acquired by the remaining partners (of the new
firm in case of retirement) from the retiring or
deceased partner.

5. Effect

It reduces the profit share of the existing partners.

It increases the profit share of the remaining
partners.


Q4:Why do firm revaluate assets and reassess their liabilities on retirement or on the event  of death of a partner?
Answer: At the time of retirement or death of a partner, it becomes inevitable to revalue the assets and liabilities of the firm for ascertaining their true and fair values. The revaluation is necessary as the value of assets and liabilities may increase or decrease with the passage of time. Further, it may be possible that there are certain assets and
liabilities that remained unrecorded in the books of accounts. The retiring or the deceased partner may be benefited or may bear loss due to change in the values of assets and liabilities. Therefore, the revaluation of the assets and liabilities is necessary in order to ascertain the true profit or loss that is to be divided among all thepartners in their old profit sharing ratio.


Q5: Why a retiring/deceased  partner is entitled to a share of goodwill of the firm?
Answer: Goodwill is an intangible asset of a firm that is earned by the efforts of all the partners of the firm. After the retirement or death of a partner, the fruits of the past performance and reputation will be shared only by the remaining partners. Thus the remaining partners should compensatethe retiring or the deceased partner by entitling him/her a share of
firm’s goodwill.


Short answers numerical questions long answers : Solutions of Questions on Page Number : 218


Q1 :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 Rs 1,80,000. Aparna and Sonia decided to share future in the ratio of 3:2. Pass necessary Journal entries.
Answer :

Books of Aparna, and Sonia

Journal

Date

Particulars

L.F.

Amount

Rs

Amount

Rs

Aparna’s
Capitals A/c

Dr.

18,000

Sonia’s
Capital A/c

Dr.

42,000

To
Manisha’s
Capital A/c

60,000

(Manisha’s
share of goodwill adjusted to
Aparna’s
and

Sonia’s
Capital Account in their gaining ratio )

Working Notes:

1. Manisha’s share in goodwill:

Total goodwill of the firm × Retiring Partner’s Share =

2. Gaining Ratio = New Ratio – Old Ratio

Aparna Gaining share

Gaining Ratio between Aparna and Sonia = 3 : 7

3. Aparna’s share in goodwill

Sonia’s share in goodwill


Q2 :Explain the modes of payment to a retiring partner.
Answer : The following are the modes of payment to a retiring partner.
1. If the amount due to the retiring partner is to be paid in lump sum on the day of his/her retirement then the following Journal entry need to be passed.

Retiring Partner’s Capital A/c

Dr.

To Cash/Bank A/c

(Retiring partner paid in cash)

2) If the amount due to the retiring partner is to be paid in installments then the balancing figure of his/her capital account is transferred to his/her loan account. In this case, the retiring partner receives equal installments along with the interest on the amount outstanding. The following necessary Journal entry is to be passed.

Retiring Partner’s Capital A/c

Dr.

To Retiring Partner’s Loan A/c

(Retiring partner capital account transferred to the

retiring partner’s loan account @ ——– % p.a.).

3) If the amount due to the retiring partner is to be paid partly in cash and partly in equal installments then a certain amount is paid in cash to the retiring partner on the date of the retirement and the rest amount due to him/her is transferred to his/her loan account. The following necessary Journal entry is to be passed.

Retiring Partner’s Capital A/c (with the total amount
due to the retiring partner)

Dr.

To Retiring Partner’s Loan A/c (with the amount
transferred to the partner’s loan account)

To Cash A/c (with the amount paid in cash immediately
on the date of the retirement)

(Retiring partner partly paid in cash and balance
transferred to the partner’s loan account)


Q3 :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 Rs 60,000. Sangeeta retires and goodwill is valued at Rs 90,000. Saroj and Shanti decided to share future profits equally. Record necessary Journal entries.
Answer :

Books of Saroj and Shanti

Journal

Date

Particulars

L.F.

Amount

Rs

Amount

Rs

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

(Goodwill written off)

Saroj’s
Capital A/c

Dr.

18,000

To
Sangeeta’s
Capital A/c

18,000

(Sangeeta’s
share of goodwill adjusted to
Saroj’s
Capital

Account in her gaining ratio)

Working Notes:
1. Sangeeta’s share of goodwill.
Total goodwill of the firm ´ Retiring Partner’s share

2. Gaining Ratio = New Ratio – Old Ratio
Saroj’s Gaining Share
Shanti’s Gaining Share


Q4 :How will you compute the amount payable to a deceased partner?
Answer : The legal executer of the deceased partner is entitled for the balancing figure of the deceased partner’s capital account. The balancing figure of the deceased partner’s capital account is derived after posting the below mentioned items in Step 1 and Step 2.
Step 1: The following items are posted in the debit side of the deceased partner’s capital account.
a) Credit balance of the deceased partner’s capital account and/or current account.
b) Deceased partner’s share of profit up to the date of his/her death.
c) Deceased partner’s share of goodwill.
d) Deceased partner’s share in accumulated reserves and profit account.
e) Deceased partner’s share in gain on revaluation of assets and liabilities.
f) Deceased partner’s share of Joint Life Policy.
g) Interest on capital, if any, up to the date of the death.
h) Salary or commission, if any, up to the date of the death.
Step 2: The following items are posted in the credit side of the deceased partner’s capital account.
a) Debit balance of the deceased partner’s capital account and/or current account.
b) Amount withdrawn in the form of drawings up to the date of death of the partner.
c) Interest on drawings, if any, up to the date of the death.
d) Deceased partner’s share in loss on revaluation of assets and liabilities.
e) Deceased partner’s share of loss up to the date of the death.
f) Deceased partner’s share in the accumulated losses of the firm.
The legal executor is entitled for the balancing figure that is the excess of the credit side over the debit side of the deceased partner’s capital account.

Deceased Partner’s Capital Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

Revaluation A/c (Loss)

Balance b/d

Profit and Loss Suspense A/c

(Share of loss up to the date of the death)

Profit and Loss Suspense A/c

(Share of profit up to the date of the death)

Goodwill

Accumulated Losses A/c

Reserves and Profits

Goodwill A/c (Written off)

Revaluation A/c (gain)

Partner Executor’s A/c

Joint Life Policy A/c

(Balancing Figure)

Interest on Capital A/c

Salary A/c

Commission A/c

 


Q5 :Himanshu, Gagan and Naman are partners sharing profits and losses in the ratio of 3:2:1. On March 31, 2007, Naman retires.
The various assets and liabilities of the firm on the date were as follows:
Cash Rs 10,000, Building Rs 1,00,000, Plant and Machinery Rs 40,000, Stock Rs 20,000, Debtors Rs 20,000 and Investments Rs 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 bed 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.
Answer

Books of Himanshu and Gagan

Journal

Date

Particulars

L.F.

Amount

Rs

Amount

Rs

Building A/c

Dr.

20,000

Investment A/c

Dr.

5,000

To
Revaluation A/c

Dr.

25,000

(Value of Building and
Investment increased at the time

of Naman’s
retirement)

Revaluation A/c

Dr.

7,000

To Plant
and Machinery A/c

4,000

To Provision
for Bad and Doubt Debts A/c

1,000

To Stock
A/c

2,000

(Assets revalued and
Provision for Bad and Doubtful Debts

made at the time of Naman’s retirement)

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

(Profit on revaluation transferred
to all Partners’ Capital

Accounts in their old profit
sharing ratio)

Revaluation Account

Dr.

Cr.

Particular

Amount

Rs

Particular

Amount

Rs

Plant and Machinery

4,000

Building

20,000

Stock

2,000

Investment

5,000

Provision for Bad and
Doubtful Debts

1,000

Profit transferred to
Capital Account:

Himanshu

9,000

Gagan

6,000

Naman

3,000

18,000

25,000

25,000

 


Q6 :Explain the treatment of goodwill at the time of retirement or on the event of death of a partner?
Answer : At the time of retirement or at the event of death of a partner, the goodwill is adjusted among the partners in gaining ratio with the share of goodwill of the retiring or the deceased partner. As per Para 16 of Accounting Standard 10, it is mandatory to record goodwill in the books only when consideration in money or money’s worth has been paid for it.
In case of retirement and death of a partner, goodwill account cannot be raised. There are namely two probable situations on which the treatment of goodwill rests.
1. If goodwill already appears in the books of the firm.
2. If no goodwill appears in the books of the firm.
Situation 1: If goodwill already appears in the books of the firm.
Step 1: Write off the existing goodwill
If goodwill already appears in the old balance sheet of the firm (if mentioned in the question), then first of all, this goodwill should be written off and should be distributed among all the partners of the firm including the retiring or the deceased partner in their old profit sharing ratio. The following Journal entry is passed to write off the old/existing goodwill.

All Partners’ Capital A/c

Dr.

To Goodwill A/c

(Goodwill written of among all the partners in their

old ratio)

Step 2: Adjusting goodwill through partner’s capital account.
After writing off the old goodwill, the goodwill need to be adjusted through the partner’s capital account with the share of the goodwill of the retiring or the deceased partner. The following Journal entry is passed.

Remaining Partner’s Capital A/c

Dr.

To Retiring/Deceased Partner’s Capital A/c

(Gaining Partner’s Capital A/c is debited in their

gaining share and retiring/deceased partner’s capital

account in credited for their share of goodwill)

Situation 2: If no goodwill appears in the books of the firm.
As no goodwill appears in the books of the firm, so the goodwill is adjusted through the partner’s capital account with the share of the goodwill of the retiring or the deceased partner. The following Journal entry is passed.

Remaining Partner’s Capital A/c

Dr.

To Retiring/Deceased Partner’s Capital A/c

(Gaining partner’s capital account is debited in their
gaining

share and retiring/deceased partner’s capital account
in

credited for their share of goodwill)

 


Q7: 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 Rs 36,000 and Profit and Loss Account (Dr.) Rs 15,000.
Pass the necessary journal entries to the above effect.
Answer :

Books of Naresh and Bishwajeet

Journal

Date

Particulars

L.F.

Amount

Rs

Amount

Rs

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

(General Reserve distributed
among old partner in old 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

(Debit balance of Profit and
Loss Account written off)

 


Q8:Discuss the various methods of computing the share in profits in the event of death of a partner.
Answer : In case of death of a partner during the year, his/her executer is entitled for share of profit up to the date of death of the partner.
The share of profit can be calculated by one of the two methods.
1) On time basis: Under this method, profit up to the date of the death of the partner is calculated on the basis of the last year’s/years’ profit or average profit of last few years. In this approach, it is assumed that the profit will be uniform throughout the current year. The deceased partner will be entitled for the share of the profit proportionately up to the date of his/her death.

Share of Deceased Partner in Profit =

Example- A, B and C are equal partners. The profit of the firm for the years 2008, 2009 and 2010 are Rs 10,00,000, Rs 7,00,000 and Rs 13,00,000 respectively. C dies on April 30, 2011. The share of C in the firm’s profit will be calculated on the basis of average profit of last three years. Firm closes its books every year on December 31.

In this case, C’s share in the profits will be calculated for four months, i.e. from January 01, 2011 to April 30, 2011.

2) On the sale basis: Under this method, profit is calculated on the basis of last year’s sale. In this situation, it is assumed that the net profit margin of the current year’s sale is similar to that of the last year’s.

Share of Deceased Partner’s Profit = ×Sales from the beginning of the current year up to the date of death × Share of deceased partner

Example- X Y and Z are equal partners. The last year’s sales and profit were Rs 25,00,000 and Rs 2,50,000. Z died on the April 30, 2011. Sales of the current year till the date of Z’s death amounts to Rs 12,00,000. Firm closes its books on December 31 every year.


Q9: 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, 2007 was as follows:

Liabilities

Amount

Rs

Assets

Amount

Rs

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

Parakaram’s
Capital

75,500

Patents

9,000

2,85,000

2,85,000

Brijesh retired on March 31, 2007 on the following terms:
(i) Goodwill of the firm was valued at Rs 70,000 and was not to appear in the books.
(ii) Bad debts amounting to Rs 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.
Answer:

Books of Digvijay and Parakaram

Revaluation
Account

Dr.

Cr.

Particular

Amount

Rs

Particular

Amount

Rs

Bad Debts

2,000

Patents

9,000

Loss transferred to Capital
Account:

Digvijay

4,400

Brijesh

4,400

Parakaram

2,200

11,000

11,000

Partners’ Capital Account

Dr.

Cr.

Particularss

Digvijay

Brijesh

Parakaram

Particularss

Digvijay

Brijesh

Parakaram

Brijesh’s Capital A/c

18,667

9,333

Balance b/d

82,000

60,000

75,500

Revaluation (Loss)

4,400

4,400

2,200

Digvijay’s Capital A/c

18,667

Brijesh’s Loan

91,000

Parakaram’s Capital A/c

9,333

Balance c/d

66,333

67,667

Reserves

7,400

7,400

3,700

89,400

95,400

79,200

89,400

95,400

79,200

Balance Sheet as on March 31, 2007

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

49,000

Cash

8,000

Brijesh’s
Loan

91,000

Debtors

19,000

Less:
Bad Debts

2,000

17,000

Digvijay’s
Capital A/c

66,333

Stock

42,000

Parakaram’s
Capital A/c

67,667

Buildings

2,07,000

2,74,000

2,74,000

Note: As sufficient balance is not available to pay
the amount due to Brijesh, the balance of his Capital Account transferred to
his Loan Account.Working Note:

1. Brijesh’s Share of Goodwill
Total goodwill of the firm ´ Retiring Partner’s Share
2. Gaining Ratio = New Ratio – Old Ratio

Digvijay’s Share

Parakaram’s Share

Gaining ratio between Digvijay and Parakaram = 4 : 2 or 2 : 1


Q10: Radha,  Sheela and Meena were in partnership sharing profits and losses in the proportion of 3:2:1. On April 1, 2007, Sheela retires from the firm. On that date,  their Balance Sheet was as follows:

Liabilities

Amount

Rs

Assets

Amount

Rs

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

Losse Tools

4,000

Meena

15,000

45,000

 

 

70,500

70,500

 

 

 

 

 

The terms were:
a) Goodwill of the firm was valued at Rs 13,000.
b) Expenses owing to  be brought down to Rs 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 Rs 24,300.
Prepare:
1. Revaluation  account

2. Partner’s  capital accounts and
3. Balance sheet of the firm after retirement of Sheela.
Answer:

Books of Radha and Meena

 

Revaluation
Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Machinery

800

Expenses Owing

750

Loose Tools

400

Factory Premises

1,800

Profit transferred to
Capital Account:

Meena

675

Radha

450

Sheela

225

1,350

2,550

2,550

Parters’ Capital Account

Dr.

Cr.

Particulars

Radha

Sheela

Meena

Particulars

Radha

Sheela

Meena

Sheela’s Capital A/c

3,250

1,083

Balance b/d

15,000

15,000

15,000

Sheela’s Loan A/c

24,283

General Reserve

6,750

4,500

2,250

Balance c/d

19,175

16,392

Revaluation (Profit)

675

450

225

Radha’s Capital A/c

3,250

Meena’s Capital A/c

1,083

22,425

24,283

17,475

22,425

24,283

17,475

Balance Sheet as on April 01, 2007

 

Liabilities

Amount

Rs

Assets

Amount

Rs

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

24,283

Stock

12,000

Factory
Premises

24,300

Capitals:

Machinery

8,000

Radha

19,175

Less: 10%

(800)

7,200

Meena

16,392

35,567

Loose
Tools

4,000

Less: 10%

(400)

3,600

71,100

71,100

 

 

 

 

 

Working Notes:

1) Sheela’s share of goodwill

Total goodwill of the firm × Retiring Partner’s share 

2) Gaining Ratio = New Ratio − Old Ratio

Radha’s Share 

Meena’s Shares

Gaining Ratio between Radha and Meena = 6 : 2 or 3 : 1


Q11: 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 that date the Balance Sheet of the firm was as follows:

Books of Pankaj, Naresh and Saurabh

Balance Sheet as on March 31, 2007

Liabilities

Amount Rs

Assets

Amount Rs

General Reserve

12,000

Bank

7,600

Sundry Creditors

15,000

Debtors

6,000

Bills Payable

12,000

Less: Provision for Doubtful Debt

(400)

5,600

Outstanding Salary

2,200

Provision for Legal Damages

6,000

Stock

9,000

Capitals:

Furniture

41,000

Pankaj

46,000

Premises

80,000

Naresh

30,000

Saurabh

20,000

96,000

1,43,200

1,43,200

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 Rs 45,000*.

(The amount of Rs 450 that is being given in the book for furniture is a mistake, as it should be Rs 45,000)
(ii) Goodwill of the firm be valued at Rs 42,000.

(iii) Rs 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 from Bank.
(iv) 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.
Answer: 

Revaluation Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Stock

900

Premises

16,000

Provision for Legal Damages

1,200

Provision for Doubtful Debts

100

Profit transferred to Capital:

Furniture

4,000

Pankaj

9,000

Naresh

6,000

Saurabh

3,000

18,000

20,100

20,100

Parters’ Capital Accounts

Dr.

Cr.

Particulars

Pankaj

Naresh

Saurabh

Particulars

Pankaj

Naresh

Saurabh

Naresh’s Capital A/c

14,000

Balance b/d

46,000

30,000

20,000

Naresh’s Loan A/c

26,000

General Reserve

6,000

4,000

2,000

Bank

28,000

Revaluation (Profit)

9,000

6,000

3,000

Balance c/d

47,000

25,000

Pankaj’s Capital A/c

14,000

61,000

54,000

25,000

61,000

54,000

25,000

Bank Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

7,600

Naresh’s Capital A/c

28,000

Bank Loan (Balancing Figure)

20,400

28,000

28,000

Balance Sheet as on March 31, 2007

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

15,000

Debtors

6,000

Bills Payable

12,000

Less: Provision for Doubtful Debts

300

5,700

Bank Loan/overdraft

20,400

Stock

8,100

Outstanding Salaries

2,200

Furniture

45,000

Provision for Legal Damages

7,200

Premises

96,000

Naresh’s Loan

26,000

Capitals:

Pankaj

47,000

Saurabh

25,000

72,000

1,54,800

1,54,800

 


Q12:  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, 2007 was as follows:

Books of Puneet, Pankaj and Pammy

Balance Sheet as on March 31, 2007

Liabilities

Amount

Rs

Assets

Amount

Rs

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, 2007. 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 2003–04; Rs 80,000; for 2004–05, Rs 50,000; for 2005–06, Rs 40,000; for 2006–07, Rs 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 Rs 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.

Answer:

Pammy’s Capital Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Drawings

10,000

Balance b/d

40,000

Pammy Executor’s A/c

75,400

Profit and Loss (Suspense)

3,000

Puneet’s Capital A/c

15,000

Pankaj’s Capital A/c

15,000

Interest on Capital

2,400

Reserve

10,000

85,400

85,400

Pammy’s Executor Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

2007-08

2007-08

Sep. 30

Bank

15,400

Sep. 30

Pammy’s Capital A/c

75,400

Mar. 31

Balance c/d

63,600

Mar. 31

Interest

3,600

79,000

79,000

2008-09

2008-09

Sep. 30

Bank

22,200

April 01

Balance b/d

63,600

(15,000+3,600+3,600)

Sep. 30

Interest

3,600

Mar. 31

Balance c/d

47,700

Mar. 31

Interest

2,700

69,900

69,900

2009-10

2009-10

Sep. 30

Bank

20,400

April 01

Balance b/d

47,700

Mar. 31

Balance c/d

31,800

Sep. 30

Interest

2,700

Mar. 31

Interest

1,800

52,200

52,200

2010-11

2010-11

Sep. 30

Bank

18,600

April 01

Balance b/d

31,800

(15,000+1,800+1,800)

Sep. 30

Interest

1,800

Mar. 31

Balance c/d

15,900

Mar. 31

Interest

900

34,500

34,500

2011-12

2011-12

Sep. 30

Bank

16,800

April 01

Balance b/d

15,900

(15,000+900+900)

Sep. 30

Interest

900

16,800

16,800

Working Notes:

1) Pammy’s Share of Profit
Previous Year’s Profit ´ Proportionate Period ´ Share of Deceased Partner 

2) Pammy’s Share of Goodwill

Goodwill of the firm = Average Profit ´ Numbers of Year’s Purchase

Average Profit

Goodwill of the firm = 50,000 ´ 3 = Rs 1,50,000

3) Gaining Ratio = New Ratio – Old Ratio

Puneet’s Share

Pankaj’s Share  
Gaining Ratio between Puneet and Pankaj = 2 : 2 or 1 : 1
4) Interest on Capital for 6 months, i.e. from April 1, 2007 to September 30, 2007

Amount of Capital ´ Rate of Interest ´ Period 

5) Interest Amount
The firm closes its books every year on March 31, while installments to Pammy’s Executor are paid on September 30 every year.
Amount outstanding on 30 September = 75,400 – 15,400 = Rs 60,000

Calculation of interest:

Periods    Amount
Outstanding
Yearly Interest For 6 month
 2007-08  60,000    
 2008-09  45,000    
 2009-10  30,000    
 2010-11  15,000    

Q13:  Narang, Suri and Bajaj are partners in a firm sharing profits and losses in proportion of 1/2 , 1/6 and 1/3 respectively. The Balance Sheet on April 1, 2007 was as follows:

Books of Suri, Narang and Bajaj

 

Balance Sheet as on April 1, 2007

 

Liabilities

Amount

Rs

Assets

Amount

Rs

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

20,000

Less: Reserve

1,000

19,000

Bajaj

28,000

88,000

for 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 depreciated by 10% and 7% respectively.
c) Bad Debts reserve is to be increased to Rs 1,500.
d) Goodwill is valued at Rs 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.
Answer:

 

Revaluation Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Machinery

3,000

Freehold Properties

8,000

Furniture

840

Stock

3,300

Reserve for Bad debts

500

Capitals:

Narang

3,480

Suri

1,160

Bajaj

2,320

6,960

11,300

11,300

Partners’ Capital Account

Dr.

Cr.

Particulars

Narang

Suri

Bajaj

Particulars

Narang

Suri

Bajaj

Bajaj’s Capital A/c

5,250

1,750

Balance b/d

30,000

30,000

28,000

Bajaj’s Loan

41,320

Reserves

6,000

2,000

4,000

Revaluation (Profit)

3,480

1,160

2,320

Balance c/d

34,230

31,410

Narang’s Capital A/c

5,250

Suri’s Capital A/c

1,750

39,480

33,160

41,320

39,480

33,160

41,320

Suri’s Current A/c

15,000

Balance b/d

34,230

31,410

Narang’s Current A/c

15,000

Balance c/d

49,230

16,410

49,230

31,410

49,230

31,410

Balance Sheet as on April 01, 2007

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Bills Payable

12,000

Free hold Premises

48,000

Sundry Creditors

18,000

Machinery

27,000

Bajaj’s Loan

41,320

Furniture

11,160

Suri’s Current

15,000

Stock

25,300

Capital Account:

Sundry Debtors

20,000

Narang

49,230

Less: Reserve for Bad Debt

1,500

18,500

Suri

16,410

65,640

Cash

7,000

Narang’s Current Account

15,000

1,51,960

1,51,960

Working Notes:
 1. Bajaj Share in Goodwill = Total Goodwill of the firm ´ Retiring Partner’s Share =   
2. Gaining Ratio = New Ratio – Old Ratio

Gaining Ratio between Narang and Suri = 3:1
3. Calculation of New Capitals of the existing partners.

Balance in Narang’s Capital

=

34,230

Balance in Suri’s Capital

=

31,410

Total Capital of the New firm after revaluation of assets and

liabilities and adjustment of  Goodwill and Reserves

=

Rs 65,640

Based on new profit sharing ratio of 3:1

NOTE:
i. In the given Question Suri’s Capital is Rs 30,000 instead of Rs 20,000.
ii. Due to insufficient balance in Bajaj’s Capital Account, the amount due to Bajaj is transferred to his Loan Account.


Q14: The Balance Sheet of Rajesh, Pramod and Nishant who were sharing profits in proportion to their capitals stood as on March 31,
2007:

Books of Rajesh, Pramod and Nishant

 

Balance
Sheet as on March 31, 2007

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Bills
Payable

6,250

Factory
Building

12,000

Sundry
Creditors

10,000

Debtors

10,500

Reserve
Fund

2,750

Less: Reserve

500

10,000

Capital
Accounts:

Bills
Receivable

7,000

Rajesh

20,000

Stock

15,500

Pramod

15,000

Plant
and Machinery

11,500

Nishant

15,000

50,000

Bank
Balance

13,000

 

69,000

69,000

 

 

 

 

 Pramod retired on the date of Balance Sheet and the following adjustments were made:
a) Stock was valued  at 10% less than the book value.
b) Factory buildings were appreciated by 12%.
c) Reserve for  doubtful debts be created up to 5%.
d) Reserve for  legal charges to be made at Rs 265.
e) The goodwill of  the firm be fixed at Rs 10,000.
f) The capital of  the new firm be fixed at Rs 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.
Answer:

Journal

 

Date

Particulars

L.F.

Amount

Rs

Amount

Rs

2007

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

(Assets and Liabilities are revalued)

Mar. 31

Factory Building A/c

Dr.

1,440

To Revaluation A/c

1,440

( Factory Building appreciated)

Mar. 31

Rajesh’s Capital A/c

Dr.

160

Pramod’s Capital A/c

Dr.

120

Nishant’s Capital A/c

Dr.

120

To Revaluation A/c

400

(Loss on Revaluation adjusted to Partners’ Capital Account)

Mar. 31

Rajesh’s Capital A/c

Dr.

2,000

Nishant’s Capital A/c

Dr.

1,000

To Pramod Capital’s A/c

3,000

(Pramod’s share of goodwill adjusted to Rajesh’s and Nishant’s Capital Account in their gaining ratio)

Mar. 31

Reserve Fund A/c

Dr.

2,750

To Rajesh’s Capital A/c

1,100

To Pramod’s Capital A/c

825

To Nishant’s Capital A/c

825

(Reserve Fund distributed all the partners)

Mar. 31

Pramod’s Capital A/c

Dr.

18,705

To Pramod’s Loan A/c

18,705

(Pramod’s Capital transferred to his Loan Account)

Mar. 31

Rajesh’s Capital A/c

Dr.

940

Nishant’s Capital A/c

Dr.

2,705

To Rajesh’s Current A/c

940

To Nishant’s Current A/c

2,705

(Excess in Capital Account is transferred to Current Account)

Parters’ Capital Account

Dr.

Cr.

Particulars

Rajesh

Pramod

Nishant

Particulars

Rajesh

Pramod

Nishant

Revaluation (Loss)

160

120

120

Balance b/d

20,000

15,000

15,000

Pramod’s Capital A/c

2,000

1,000

Reserve Fund

1,100

825

825

Pramod’s Loan A/c

18,705

Rajesh’s Capital A/c

2,000

Rajesh’s Current A/c

940

Nishant’s Capital A/c

1,000

Nishant’s Current A/c

2,705

Balance c/d

18,000

12,000

21,100

18,825

15,825

21,100

18,825

15,825

Balance Sheet as on March 31, 2007

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Bills Payable

6,250

Plant and Machinery

11,500

Sundry Creditors

10,000

Debtors

10,500

Reserve for Legal Charges

265

Less: Reserve

(525)

9,975

Pramod’s Loan

18,705

Bills Receivable

7,000

Current Account:

Stock

15,500

Rajesh

940

Less: 10% Depreciation

(1,550)

13,950

Nishant

2,705

3,645

Capital Account:

Factory Building

12,000

13,440

Rajesh

18,000

Add: 12% Appreciation

1,440

Nishant

12,000

30,000

Bank Balance

13,000

68,865

68,865

Working Notes:

1) Pramod’s share of goodwill = Total goodwill of the firm × Retiring Partner’s Share = 

2) Gaining Ratio = New Ratio − Old Ratio

Gaining Ratio between Rajesh and Nishant = 2:1

NOTE: In the above solution, in order to adjust the capital of remaining partners in the new firm according to their new profit sharing ratio, the surplus or the deficit of Capital Account is transferred to their Current Account. But, in order to match the answer with that of given in the book, the surplus or the deficit amount of the Partners’ Capital Account, will either be withdrawn or brought in by the old partners. This treatment will be shown in the Partners’ Capital itself and no need to transfer the surplus or deficit capital balance to their Current Accounts. The following Journal entry is passed to record the withdrawal of surplus capital by the partners.
If existing partners withdraw their excess capita
Journal entry

Rajesh’s Capital A/c

Dr.

940

Nishant’s
Capital A/c

Dr.

2,705

To Bank A/c

3,645

(Surplus Capital withdrawn)

Balance Sheet as on March 31, 2007

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Bills Payable

6,250

Plant and Machinery

11,500

Sundry Creditors

10,000

Debtors

10,500

Reserve for Legal Charges

265

Less:
Reserve

(525)

9,975

Pramod’s
Loan

18,705

Bills Receivable

7,000

Capital:

Stock

15,500

Rajesh

18,000

Less:
10% Depreciation

(1,550)

13,950

Nishant

12,000

30,000

 

Factory Building

12,000

Add:
12% Appreciation

1,440

13,440

Bank Balance

9,355

65,220

65,220


Q15: Following is the Balance Sheet of Jain, Gupta and Malik as on March 31, 2002.

Books of Jain, Gupta and Malik

Balance Sheet as on March 31, 2002

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

19,800

Land and Building

26,000

Telephone Bills Outstanding

300

Bonds

14,370

Accounts Payable

8,950

Cash

5,500

Accumulated Profits

16,750

Bills Receivable

23,450

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, 2002 and his share in the business is to be calculated as per the following terms of revaluation of assets and liabilities : Stock, Rs 20,000; Office furniture, Rs 14,250; Plant and Machinery Rs 23,530; Land and Building Rs 20,000.
A provision of Rs 1,700 to be created for doubtful debts. The goodwill of the firm is valued at Rs 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.

Answer:

In the books of Jain and Gupta

Revaluation Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Office Furniture

4,000

Stock

1,900

Land and Building

6,000

Plant and Machinery

3,300

Provision for Doubtful Debts

1,700

Loss transferred to

Jain’s Capital A/c

3,250

Gupta’s Capital A/c

1,950

Malik’s Capital A/c

1,300

6,500

11,700

11,700

Partners’ Capital Account

Dr.

Cr.

Particulars

Jain

Gupta

Malik

Particulars

Jain

Gupta

Malik

Revaluation (Loss)

3,250

1,950

1,300

Balance b/d

40,000

60,000

20,000

Malik’s Capital

1,125

675

Accumulated Profits

8,375

5,025

3,350

Cash

16,500

Jain’s Capital A/c

1,125

Malik’s Loan

7,350

Gupta’s Capital A/c

675

Balance c/d

53,900

69,000

Cash

9,900

6,600

58,275

71,625

25,150

58,275

71,625

25,150

Balance Sheet

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

19,800

Stock (18,100 + 1,900)

20,000

Telephone Bills Outstanding

300

Bonds

14,370

Accounts Payable

8,950

Cash

5,500

Malik’s Loan

7,350

Bills Receivable

23,450

Sundry Debtors

26,700

Partners’ Capital:

Less: Provision for Bad Debts

1,700

25,000

Jain

53,900

Land and Building (26,000 – 6,000)

20,000

Gupta

69,000

1,22,900

Office Furniture (18,250 – 4,000)

14,250

Plant and Machinery (20,230 + 3,300)

23,530

Computers

13,200

1,59,300

1,59,300

Working Note:

1) Malik’s share of goodwill = Total Goodwill × Retiring Partner Share =

2) Gaining Ratio = New Ratio – Old Ratio

Gaining Ratio between Jain and Gupta = 10:6 or 5:3

 


Q16: ArtiBharti and Seema are partners sharing profits in the proportion of 3:2:1 and their Balance Sheet as  on March 31, 2003 stood as follows:

Books of Arti,
Bharti and Seema

 

Balance
Sheet as on March 31, 2003

 

Liabilities

Amount

Rs

Assets

Amount

Rs

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

Investment

13,250

 

78,000

78,000

 

 

 

 

Bharti died on June 12, 2003 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 Rs 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:
2001 – Rs 8,200
2002 – Rs 9,000
2003 – Rs 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.
Answer:

 Books of Arti and Seema

 

Journal

Date

Particulars

L.F.

Amount

Rs

Amount

Rs

2003

June 12

Interest on Capital A/c

Dr.

240

General Reserve A/c

Dr.

4,000

Profit and Loss (Suspense)
A/c

Dr.

3,333

To Bharti’s Capital A/c

7,573

(Profit, interest and
general reserve are in credited to

Bharti’s
Capital account)

June 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

(Bharti’s
share of goodwill adjusted to Arti’s and

Seema’s
Capital Account in their gaining ratio, 3:1)

June 12

Bharti’s
Capital A/c

Dr.

24,373

To Bharti’s Executor’s A/c

24,373

(Bharti’s
capital account is transferred to her executor’s

account)

June 12

Bank A/c

Dr.

16,200

To
Investment A/c

13,250

To Profit
on Sale of Investment

2,950

(Investment sold)

June 12

Bharti’s
Executor A/c

Dr.

24,373

To Bank A/c

24,373

(Bharti
Executor paid)

Bharti’s Capital Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

2003

2003

June 12

Bharti’s
Executor’s A/c

24,373

Mar. 31

Balance b/d

12,000

June 12

Interest on Capital

240

Profit and Loss (Suspense)

3,333

General Reserve

4,000

Arti’s
Capital A/c

3,600

Seema’s
Capital A/c

1,200

24,373

24,373

Bharti’s Executor’s Account

 

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

2003

2003

June 12

Bank

24,373

June 12

Bharti’s
Capital A/c

24,373

24,373

24,373

Working Notes:

1. Bharti’s share of profit = Profit is 10% of sales

Sales during the last year for that period were Rs 1,00,000

If sales are Rs 1,00,000, then the profit is Rs 10,000

2. Bharti’s Share of Goodwill

Goodwill of the firm = Average Profit × Number of Years Purchase

Or, 9,000 − 20% of 9,000 = 9,000 − 1,800 = Rs 7,200

Goodwill of the firm = 7,200 × 2 = Rs 14,400

3. Gaining Ratio = New Ratio − Old Ratio

Gaining ratio between Arti and Seema = 3:1

4. Interest on Capital for 73 days, i.e. from April 1, 2003 to June 12, 2003

Interest on capital = Amount of Capital × Ratio of Interest × Period


Q17: Nithya, Sathya and Mithya were partners sharing profits and losses in the ratio of 5:3:2. Their Balance Sheet as on December 31, 2002 was as follows:

Books of Nithya, Sathya and Mithya

Balance Sheet at December 31, 2002

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

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 May 1, 2002. The agreement between the executors of Mithya and the partners stated that:

(a) Goodwill of the firm be valued at  times the average profits of last four years. The profits of four years were : in 1998, Rs 13,000; in 1999, Rs 12,000; in 2000, Rs 16,000; and in 2001, Rs 15,000.

(b) The patents are to be valued at Rs 8,000, Machinery at Rs 25,000 and Premises at Rs 25,000.

(c) The share of profit of Mithya should be calculated on the basis of the profit of 2002.

(d) Rs 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 May 1, 2002 after giving effect to the adjustments.
Answer:

 

 Books of Nithya and Sathya

Journal

Date

Particulars

L.F.

Amount

Rs

Amount

Rs

2002

May 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

(Goodwill written off among all the partners)

May 1

Patents A/c

Dr.

2,000

Premises A/c

Dr.

5,000

To Revaluation A/c

7,000

(Increase in the value of patents and premises)

May 1

Revaluation A/c

Dr.

5,000

To Machinery A/c

5,000

(Decrease in the value of machinery)

May 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

(Profit on revaluation of assets and liabilities transferred

to Partners’ Capital Account)

May 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 Mithya’s Capital A/c

1,200

(Reserve Fund transferred to Partners’ Capital Account)

May 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

(Mithya’s share of goodwill adjusted to Nithya’s and

Sathya’s Capital Account in their gaining ratio, 5:3)

May 1

Profit and Loss A/c (Suspense)

Dr.

1,000

To Mithya’s Capital A/c

1,000

(Profit till date of death credited to Mithya’s Capital

Account)

May 1

Mithya’s Capital A/c

Dr.

28,600

To Mithya Executors A/c

28,600

(Mithya’s Capital Account transferred to her executor

account)

May 1

Mithya Executor’s A/c

Dr.

4,200

To Cash A/c

4,200

(Cash paid to Mithya’s executor)

Mithya Executor’s Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

2002

2002

May 01

Bank

4,200

May 01

Mithya’s Capital A/c

28,600

Oct. 31

Bank (6,100 + 1220)

7,320

Oct. 31

Interest

1,220

Dec. 31

Balance c/d

18,605

Dec. 31

Interest {915 × (2/6)}

305

30,125

30,125

2003

2003

Apr 30

Bank (6,100 + 915)

7,015

Jan. 01

Balance b/d

18,605

Oct 31

Bank (6,100 + 610)

6,710

Apr. 30

Interest {915 × (4/6)}

610

Dec 31

Balance c/d

6202

Oct. 31

Interest

610

Dec. 31

Interest {305 × (2/6)}

102

19,927

19,927

2004

2004

Apr 30

Bank (6,100 + 305)

6,405

Jan. 01

Balance b/d

6,202

Apr 30

Interest {305 × (2/6)}

203

6,405

6,405

Balance Sheet

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

14,000

Investments

10,000

Mithya’s Executor’s Loan A/c

24,400

Premises

25,000

Partners’ Capital A/c

Machinery

25,000

Nithya

27,125

Stock

13,000

Sathya

28,275

55,400

Debtors

8,000

Patents

8,000

Bank (8,000 – 4,200)

3,800

Profit and Loss (Suspense)

1,000

93,800

93,800

Working Notes:

1.

Partners’ Capital Account

Dr.

Cr.

Particulars

Nithya

Sathya

Mithya

Particulars

Nithya

Sathya

Mithya

Goodwill

2,500

1,500

1,000

Balance b/d

30,000

30,000

20,000

Mithya’s Capital A/c

4,375

2,625

Revaluation A/c

1,000

600

400

Mithya’s Executor’s A/c

28,600

Reserve Fund

3,000

1,800

1,200

Balance c/d

27,125

28,275

Profit and Loss A/c (Suspense)

1,000

Nithya’s Capital A/c

4,375

Sathya’s Capital A/c

2,625

34,000

32,400

29,600

34,000

32,400

29,600

2. Mithya’s Share of Profit:

Previous year’s profit × Proportionate Period × Share of Profit 

3. Mithya’s share of Goodwill

Goodwill of a firm = Average Profit × Number of Year’s Purchase


4. Gaining Ratio = New Ratio – Old Ratio

Gaining Ratio between Nithya and Sathya = 5:3

5.

Calculation of Interest

Period

Amount Outstanding

Interest

For two months

May 01, 02 to Oct.31, 03

24,400

 

Nov 01, 02 to Apr.30, 03

18,300

 

305

May 01, 03 to Oct.31, 03

12,200

 

Nov. 01, 03 to Apr. 30, 04

6,100