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Question
A, B and C were partners sharing profits in the ratio of 3 : 2 : 1. The firm closes its books on 31st March every year. B died on 30th June, 2018. On his death, Goodwill of the firm was valued at ₹ 6,00,000. B's share in profit or loss till the date of death was to be calculated on the basis of previous year's profit which was ₹ 15,00,000 (Loss). Pass necessary Journal entries for goodwill and his share of loss.
Solution
In the books of the A, B and C
Journal
|
Date |
Particulars |
|
L.F. |
Debit (₹) |
Credit (₹) |
|
2018 |
|
|
|
|
|
|
June 30 |
A’s Capital A/c (2,00,000 × 3/4) |
Dr. |
|
1,50,000 |
|
|
|
C’s Capital A/c (2,00,000 × 1/4) |
Dr. |
|
50,000 |
|
|
|
To B’s Capital A/c (WN1) |
|
|
|
2,00,000 |
|
|
(Being B’s share of goodwill adjusted in gaining ratio 3 : 1) |
|
|
|
|
|
|
B’s Capital A/c (WN2) |
Dr. |
|
1,25,000 |
|
|
|
To Profit & Loss Suspense A/c |
|
|
|
1,25,000 |
|
|
(Being B’s Share of loss debited to his Capital) |
|
|
|
|
Working Notes:
1. Calculation of B’s Share of Goodwill
| Goodwill | = | ₹ 6,00,000 |
| B’s Share of Goodwill | = | ₹ (6,00,000 × 2/6) = ₹ 2,00,000 |
2. Calculation of B’s Share of Loss till the date of his death i.e. 30th June, 2018
| Previous year’s loss | = | ₹ 15,00,000 |
| B’s share of loss till the date of death | = | Previous year’s loss × B’s Share of Loss × Months till the date of his death/12 |
| = | ₹ (15,00,000 × 2/6 × 3/12) | |
| = | ₹ 1,25,000 |
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||
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|
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Amount (₹) |
Assets |
Amount (₹) |
||
|
Sundry Creditors |
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||
|
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||
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|
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||||
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|
Liabilities |
₹ |
Assets |
₹ |
||
|
Creditors |
10,000 |
Plant and Machinery |
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||
|
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15,000 |
||
|
Capital A/cs: |
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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 | |||
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1,95,000 |
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80,000 |
3,95,000 |
|||
|
4,80,000 |
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||||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
|
Creditors |
2,00,000 |
Building |
2,00,000 |
||
|
Employees' Provident Fund |
1,50,000 |
Machinery |
3,00,000 |
||
|
General Reserve |
36,000 |
Furniture | 1,10,000 | ||
| Investment Fluctuation Reserve | 14,000 | Investment (Market value ₹ 86,000) | 1,00,000 | ||
|
Capital A/cs: |
Debtors | 80,000 | |||
| X |
3,00,000 |
Cash at Bank | 1,90,000 | ||
| Y | 2,50,000 | Advertisement Suspense | 1,20,000 | ||
| Z |
1,50,000 |
7,00,000 |
|||
|
11,00,000 |
11,00,000 |
||||
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| Year | 2014-15 | 2015-16 | 2016-17 | 2017-18 |
| Profits (₹) | 1,70,000 | 1,80,000 | 1,90,000 | 1,80,000 |
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| Liabilities | Amount (₹) |
Assets | Amount (₹) |
|
| Capital A/cs: | Fixed Assets | 6,00,000 | ||
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