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Question
A, B and C were partners in a firm sharing profits in the ratio of 5 : 3 : 2. On 31st March, 2018, their Balance Sheet was as follows:
|
Liabilities |
₹ |
Assets |
₹ |
||
|
Creditors |
11,000 |
Building |
20,000 |
||
|
Reserves |
6,000 |
Machinery |
30,000 |
||
| A's Loan A/c | 5,000 | Stock | 10,000 | ||
|
Capital A/cs: |
Patents | 11,000 | |||
| A |
25,000 |
Debtors | 8,000 | ||
| B | 25,000 | Cash | 8,000 | ||
| C |
15,000 |
65,000 |
|||
|
87,000 |
87,000 |
||||
A died on 1st October, 2018. It was agreed among his executors and the remaining partners that:
(i) Goodwill to be valued at 212 years' purchase of the average profit of the previous 4 years, which were 2014-15: ₹ 13,000; 2015-16: ₹ 12,000; 2016-17: ₹ 20,000 and 2017-18: ₹ 15,000.
(ii) Patents be valued at ₹ 8,000; Machinery at ₹ 28,000; and Building at ₹ 25,000.
(iii) Profit for the year 2017-18 be taken as having accrued at the same rate as that of the previous year.
(iv) Interest on capital be provided @ 10% p.a.
(v) Half of the amount due to A to be paid immediately to the executors and the balance transferred to his (Executors') Loan Account.
Prepare A's Capital Account and A's Executors' Account as on 1st October, 2018.
Solution
A’s Capital Account
|
Dr. |
|
Cr. |
|||
|
Particulars |
Amount (₹) |
Particulars |
Amount (₹) |
||
|
Bank A/c |
28,450 |
Balance b/d |
25,000 |
||
|
A’s Executors A/c |
28,450 |
Reserve (WN1) |
3,000 |
||
|
|
|
B’s Capital A/c (Goodwill) |
11,250 |
||
|
|
|
C ’s Capital A/c (Goodwill) |
7,500 |
||
|
|
|
Profit & Loss Suspense |
3,750 |
||
|
|
|
Interest on Capital (WN2) |
1,250 |
||
| A's Loan A/c (WN6) | 5,150 | ||||
|
|
56,900 |
|
56,900 |
||
A’s Executors Account
|
Dr. |
|
Cr. |
|||
|
Particulars |
Amount (₹) |
Particulars |
Amount (₹) |
||
|
Bank A/c |
28,450 |
A’s Capital A/c |
56,900 |
||
|
A’s Executors Loan Account |
28,450 |
|
|
||
|
|
56,900 |
|
56,900 |
||
Working Notes:
WN1: Calculation of Share in Reserve
`"Reserve" = (6,000 xx 50)/10 = "Rs" 3,000`
WN2: Calculation of Interest on Capital
`"Interest on Capital" = (25,000 xx 10 xx 6)/100 xx 12 = "Rs" 1,250`
WN3: Calculation of Profit & Loss Suspense
`"Profit & loss suspense" = (15,000 xx 5 xx 6)/10 xx 12 = "Rs" 3,750`
WN4: Calculation of Share in Revaluation Profit/Loss
`"Revaluation" = "Nil" (-3,000 - 2,000 + 5,000)`
WN5: Calculation of Share in Goodwill
`"Goodwill" = "Average profit" xx "No. of Years purchase"`
= `15,000 xx 2.5`
= `"Rs" 37,500`
`"A's share in goodwill" = 37,500 xx 5/10 = "Rs" 18,750`
`"A's share of goodwill will be brought by B & C in" 3 : 2`
`"B's Capital will be debited by" 18,750 xx 3/5 = 11,250`
`"C's Capital will be debited by" 18,750 xx 2/5 = 7,500`
`"Average profit" = "Total profits of past year's given"/"Number of year's"`
= `(13,000 + 12,000 + 20,000 + 15,000)/4`
= `"Rs" 15,000`
WN6 : Loan Amount to be transferred to A's capital A/c
`"A's Loan" = "Rs" 5,000`
`"Interest on loan till the date of death" = "Rs" (5,000 xx 6/100 xx 6/12) = "Rs" 150`
`"Total of loan amount transferred to A's Capital A/c" = "Rs" (5,000 + 150) = "Rs" 5,150`
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Assets | Amount (₹) |
||
|
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Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
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|
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|
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||||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
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|
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|
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| A |
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|
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
|
Sundry Creditors |
2,50,000 |
Building |
2,60,000 |
||
|
Reserve Fund |
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||
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|
8,00,000 |
8,00,000 |
||||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
|
Sundry Creditors |
2,70,000 |
Cash in Hand |
42,500 |
||
|
General Reserve |
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||
|
Capital A/cs: |
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| A |
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|
7,90,000 |
7,90,000 |
||||
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|
Liabilities |
₹ |
Assets |
₹ |
||
|
Creditors |
10,000 |
Plant and Machinery |
40,000 |
||
|
General Reserve |
30,000 |
Furniture |
15,000 |
||
|
Capital A/cs: |
Investments | 20,000 | |||
| Sunny |
30,000 |
Debtors | 20,000 | ||
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| Rupesh |
20,000 |
80,000 |
25,000 | ||
|
1,20,000 |
1,20,000 |
||||
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|
Liabilities |
₹ |
Assets |
₹ |
||
|
Trade Creditors |
40,000 |
Building |
2,00,000 |
||
|
General Reserve |
45,000 |
Plant and Machinery |
80,000 |
||
|
Capital A/cs: |
Stock | 35,000 | |||
| Akhil |
1,95,000 |
Debtors | 80,000 | ||
| Nikhil | 1,20,000 | Cash at Bank | 85,000 | ||
| Sunil |
80,000 |
3,95,000 |
|||
|
4,80,000 |
4,80,000 |
||||
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