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Question
Akshat, Javed and Gaurav are partners in a firm sharing profits in the ratio of 5 : 3 : 7. Akshat died on 31st March, 2024. Javed and Gaurav decided to share the profits in reconstituted firm in the ratio 2 : 3. The capital accounts of the partners on 31st March, 2024, before considering the firm’s goodwill were:
| Akshat | ₹ 1,66,000 |
| Javed | ₹ 66,000 |
| Gaurav | ₹ 1,41,000 |
After considering the adjustment for goodwill, Akshat’s share was determined to be ₹ 1,81,000. It was decided that this amount would be paid to Akshat’s executor immediately by the firm through a cheque, the amount being contributed by Javed and Gaurav in such a manner that their capitals would become proportionate to their new profit-sharing ratio.
You are required to pass journal entries to record:
- The adjustment for self-generated goodwill of the firm.
- Cash brought in by Javed and Gaurav to pay off Akshat’s executor.
- Payment made to Akshat’s executor.
Solution
| Journal Entries | ||||
| Sr. No. | Particulars | L.F. |
Debit (₹) |
Credit (₹) |
| 1. | Javed’s Capital A/c ...Dr. | 9,000 | - | |
| Gaurav’s Capital A/c ...Dr. | 6,000 | - | ||
| To Akshat’s Capital A/c | - | 15,000 | ||
| (Being Akshat compensated for his share of goodwill) | ||||
| 2. | Bank A/c ...Dr. | 1,81,000 | - | |
| To Javed’s Capital A/c | - | 89,200 | ||
| To Gaurav’s Capital A/c | - | 91,800 | ||
| (Being Cash brought in by Javed and Gaurav to pay off Akshat’s Executor) | ||||
| 3. | Akshat’s Executor’s A/c ...Dr. | 1,81,000 | - | |
| To Bank A/c | - | 1,81,000 | ||
| (Being Akshat’s executor paid off) | ||||
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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, 2015 was as follows:
Books of Suri, Narang and Bajaj
Balance Sheet as on April 1, 2015
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Liabilities |
Amt (Rs.) |
Assets |
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Bills Payable |
12,000 |
Freehold Premises |
40,000 |
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Sundry Creditors |
18,000 |
Machinery |
30,000 |
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Reserves |
12,000 |
Furniture |
12,000 |
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Capital Accounts: |
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Stock |
22,000 |
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Narang |
30,000 |
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Sundry Debtors |
20,000 |
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Suri |
20,000 |
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Less: Reserve |
1,000 |
19,000 |
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Bajaj |
28,000 |
88,000 |
for Bad Debt |
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Cash |
7,000 |
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1,30,000 |
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1,30,000 |
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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.
Aparna, Manisha and Sonia are partners sharing profits in the ratio of 3 : 2 : 1. Manisha retired and goodwill of the firm is valued at ₹ 1,80,000. Aparna and Sonia decided to share future profits in the ratio of 3 : 2. Pass necessary Journal entries.
X, Y and Z are partners sharing profits in the ratio of 5 : 3 : 7. X retired from the firm. Y and Z decided to share future profits in the ratio of 2 : 3. The adjusted Capital Accounts of Y and Z showed balance of ₹ 49,500 and ₹ 1,05,750 respectively. The total amount to be paid to X is ₹ 1,35,750. This amount is to be paid by Y and Z in a manner that their capitals become proportionate to their new profit-sharing ratio. Calculate the amount to be brought in or to be paid to partners.
The Balance Sheet of X, Y and Z who were sharing profits in the ratio of 5 : 3 : 2 as at 31st March, 2019 is as follows:
| Liabilities | ₹ | Assets | ₹ | |
| Creditors | 50,000 | Cash at Bank | 40,000 | |
| Employees' Provident Fund | 10,000 | Sundry Debtors | 1,00,000 | |
| Profit and Loss A/c | 85,000 | Stock | 80,000 | |
| Capital A/cs: | Fixed Assets | 60,000 | ||
| X | 40,000 | |||
| Y | 62,000 | |||
| Z | 33,000 | 1,35,000 | ||
| 2,80,000 | 2,80,000 | |||
X retired on 1st April, 2019 and Y and Z decided to share profits in future in the ratio of 3 : 2 respectively.
The other terms on retirement were:
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(b) Fixed Assets are to be depreciated to ₹ 57,500.
(c) Make a Provision for Doubtful Debts at 5% on Debtors.
(d) A liability for claim, included in Creditors for ₹ 10,000, is settled at ₹ 8,000.
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Prepare Profit and Loss Adjustment Account and Partners' Capital Accounts.
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Pass the Journal entry giving effect to the above.
A, B and C are partners sharing profit in the ratio of 2 : 2 : 1. C retired. The new Profit Sharing ratio between A and B will be:
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(ii) Accounting treatment of Goodwill
(iii) Sacrificing ratio of continuing partners
(iv) Accounting treatment of joint life policy.
Which of the above adjustments are to be done?
