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Question
Arun, Varun and Karun were partners in a business sharing profits and losses in the ratio of 2 : 2: 1 respectively. Their Balance sheet as on 31st March, 2019 was as under :
| Balance Sheet as on 31st March,2019 | ||||
| Liabilities | Amount ₹ | Assets | Amount ₹ | |
| Capital Account: | Land and Building | 27,900 | ||
| Arun | 20,000 | Investment | 15,000 | |
| Varun | 20,000 | Furniture | 8,000 | |
| Karun | 10,000 | Debtors | 10,400 | 10,000 |
| Creditors | 16,000 | Less: R.D.D | 400 | |
| Bank Loan | 4,000 | Bank | 4,100 | |
| Goodwill | 5,000 | |||
| 70,000 | 70,000 | |||
On 1st July, 2019 Karun died and the following adjustments were made:
- All the debtors were considered as good.
- Bank Loan were paid off.
- Furniture was depreciated by ₹ 550.
- Investments were sold out in the Market at 10% profit.
- Goodwill of the firm was valued at ₹ 7,500. It was to be raised in the books.
- Karun was entitled to get his share in the profit up to the date of his death. Profit for 2019-2020 was estimated at ₹ 5,000.
- The amount due to Karun’s Executor was paid by NEFT.
Prepare:
- Profit and Loss Adjustment A/c.
- Partners’ Capital Account.
- Balance sheet of New Firm.
Solution
| Dr. | In the books of firm Profit & Loss adjustment A/c |
Cr. | |||
| Particulars | Amount ₹ | Amount ₹ | Particulars | Amount ₹ | Amount ₹ |
| To Furniture A/c | 550 | By R.D.D A/c | 400 | ||
|
To Profit on Revaluation transferred to |
By Investment A/c | 1,500 | |||
| Arun | 1,540 | 3,850 | By Goodwill A/c | 2,500 | |
| Varun | 1,540 | ||||
| Karun | 770 | ||||
| 4,400 | 4,400 | ||||
| Dr. | Partner's Capital A/c | Cr. | |||||
| Particulars | Arun | Varun | Karun | Particulars | Arun | Varun | Karun |
| To Karun's Executor Loan A/c | - | - | 11,020 | By Balance b/d | 20,000 | 20,000 | 10,000 |
| To Balance c/d | 21,540 | 21,540 | - | By Goodwill A/c (2:2:1) | 1,000 | 1,000 | 500 |
| By Profit & Loss suspense A/c | - | - | 250 | ||||
| By Profit & Loss Adjustment A/c | 540 | 540 | 270 | ||||
| 21,540 | 21,540 | 11,020 | 21,540 | 21,540 | 11,020 | ||
| New Balance Sheet as on 1st July 2019 |
|||||
| Liabilities | Amount ₹ | Amount ₹ | Assets | Amount ₹ | Amount ₹ |
| Partner's Capital | Land & Building | 27,900 | |||
| Arun | 21,540 | 43,080 | Furniture | 8,000 | 7,450 |
| Varun | 21,540 | Less: Depreciation | 550 | ||
| Creditors | 16,000 | Debtors | 10,400 | ||
| Bank Loan | 4,000 | - | Less: R.D.D | - | 10,400 |
| Less: Paid | 4,000 | Goodwill | 5,000 | 7,500 | |
| Add: Raised | 2,500 | ||||
| Investment | 15,000 | - | |||
| Add: Profit 10% | 1,500 | ||||
| 16,500 | |||||
| Less: Sold | 16,500 | ||||
| Profit & Loss suspense A/c | 250 | ||||
| Bank | 5,580 | ||||
| 59,080 | 59,080 | ||||
Working Note:
1)
| Dr. | Bank A/c | Cr. | |
| Particulars | Amount ₹ | Particulars | Amount ₹ |
| To Balance b/d | 4,100 | By Bank Loan A/c | 4,000 |
| To Investment A/c | 16,500 | By Karun's Executor's Loan A/c | 11,020 |
| By Balance c/d | 5,580 | ||
| 20,600 | 20,600 | ||
2)
| Dr. | Karun's Executor's Loan A/c | Cr. | |
| Particulars | Amount ₹ | Particulars | Amount ₹ |
| To Bank A/c | 11,020 | By Karun's Capital A/c | 11,020 |
| 11,020 | 11,020 | ||
3) Karun's share of Profit up to his date of death
Profit for 3 months = `5,000 xx 3/12 =1,250`
∴ Karun's share =`1,250 xx1/5=250`
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| Balance Sheet as on 31st March 2019 | |||
| Liabilities | Amount ₹ | Assets | Amount ₹ |
| Capital Account : | Land and Building | 4,00,000 | |
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Rahul, Rohit, and Ramesh are in a business sharing profits and losses in the ratio of 3: 2: 1 respectively. Their balance sheet as on 31st March 2017 was as follows.
| Balance Sheet as on 31st March 2017 | ||||
| Liabilities | Amount (₹) | Assets | Amount (₹) | |
| Capital Account: | Debtors | 1,00,000 | ||
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| Ramesh | 2,40,000 | Investment | 3,50,000 | |
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- Profit for 2017-18 was estimated at ₹ 120,000 and Ramesh share in it up to the date of his death was given to him.
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Ram, Madhav, and Keshav are partners sharing Profit and Losses in the ratio 5:3:2 respectively. Their Balance Sheet as on 31st March 2018 was as follows.
| Balance Sheet as on 31st March 2018 | |||
| Liabilities | Amount ₹ | Assets | Amount ₹ |
| General Reserve | 25,000 | Goodwill | 50,000 |
| Creditors | 1,00,000 | Loose Tools | 50,000 |
| Unpaid Rent | 25,000 | Debtor | 1,50,000 |
| Capital Accounts | - | Live Stock | 1,00,000 |
| Ram | 100000 | Cash | 25,000 |
| Madhav | 75000 | ||
| Keshav | 50000 | ||
| 3,75,000 | 3,75,000 | ||
Keshav died on 31st July 2018 and the following Adjustment were agreed by as per partnership deed.
1. Creditors have increased by 10,000
2. Goodwill is to be calculated at 2 years purchase of average profits of 5 years.
3. The Profits of the preceding 5 years was
| 2013-14 | ₹ 90,000 |
| 2014-15 | ₹ 1,00,000 |
| 2015-16 | ₹ 60,000 |
| 2016-17 | ₹ 50,000 |
| 2017-18 | ₹ 50,000 (Loss) |
Keshav's share in it was to be given to him.
4. Loose Tools and livestock were valued at ₹ 80,000 and ₹ 1,20,000 respectively
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Revaluation A/c, Keshav’s capital A/c showing the amount payable to his executors.
Rakesh, Mahesh & Mukesh were partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1 respectively. Balance Sheet as on 31st March, 2019 as under:
| Liabilities | Amount (₹) | Assets | Amount (₹) | |
| Capital A/c: | Plant & Machinery | 40,000 | ||
| Rakesh | 30,000 | Motor Truck | 20,000 | |
| Mahesh | 20,000 | Investment | 18,000 | |
| Mukesh | 10,000 | |||
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- Goodwill of the firm valued at two times the average profits of the last five years. No Goodwill account to be shown in the books of the firm.
- Mukesh's share of profit up to his death to be calculated on the basis of average profits last two years.
- Five years Profits were - I year ₹ 6,000, II year ₹ 11,000, III year ₹ 7,000, IV year ₹ 12,000, V year ₹ 24,000 respectively.
Prepare Revaluation A/c, Partners Capital A/c and Balance Sheet as on 1 st July, 2019.
Roohi, Mona, Meena were partners in a business sharing profits and losses in the ratio of 2 : 1 : 1 respectively. Their balance sheet as on 31st March, 2019.
| Balance sheet as on 31st March, 2019 | ||||
| Liabilities | Amount (₹) | Assets | Amount (₹) | |
| Capital A/c: | Plant & Machinery | 60,000 | ||
| Roohi | 60,000 | 1,64,000 | Debtors | 50,000 |
| Mona | 70,000 | Furniture stock | 30,000 | |
| Meena | 34,000 | Bank | 60,000 | |
| Creditors | 18,000 | |||
| Bills Payable | 2,000 | |||
| General Reserve | 16,000 | |||
| 2,00,000 | 2,00,000 | |||
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Prem, Verma, Sharma, were partners sharing profits and losses in the ratio 2: 1: 1 Their Balance Sheet as on 31st March 2019 is as follows.
| Balance Sheet as on 31st March, 2019 | |||
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Creditors | 20,000 | Premises | 2,40,000 |
| Bank Loan | 90,000 | Debtors | 2,00,000 |
| Bill Payable | 10,000 | Furniture | 60,000 |
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| Prem | 2,40,000 | ||
| Verma | 2,00,000 | ||
| Sharma | 1,76,000 | ||
| 8,00,000 | 8,00,000 | ||
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- Prem’s share in the Goodwill of the firm be given him. Goodwill will be valued at three times of the average profits of the last four years. The profits were.
2015-16 ₹ 1,60,000 2016-17 ₹ 1,20,000 2017-18 ₹ 80,000 2018-19 ₹ 40,000 - Premises be valued at ₹ 2,80,000 and R.D.D. of ₹ 8,000 be created on debtors.
- Drawing of Prem up to the date of his death were ₹ 15000 per month.
- Interest on capital is allowed at 10% p.a. and to be charged on drawing at ₹ 4000.
- The amount due to Prem be transferred to his executors loan account.
Prepare: Prem’s Capital Account, Give working of Prem’s share in Goodwill, and Interest on capital.
M, N and O were equal partners on 31st March, 2023. Their Balance Sheet was as follows 31st March, 2023.
| Balance Sheet as on 31st March, 2023 | |||
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Capital Accounts : | Land and Building | 4,80,000 | |
| M | 6,00,000 | Furniture | 3,60,000 |
| N | 2,40,000 | Debtors | 3,60,000 |
| O | 2,40,000 | Stock | 1,20,000 |
| Sundry Creditors | 1,08,000 | Cash | 1,20,000 |
| Bills Payable | 72,000 | ||
| Bank Loan | 1,80,000 | ||
| 14,40,000 | 14,40,000 | ||
M died on 30th June, 2023 and the following adjustments were agreed as:
(1) Furniture was to be adjusted to its market price of ₹ 4,08,000.
(2) Land and Building was to be depreciated by 10%.
(3) Provide R.D.D. @ 5% on Debtors.
(4) The profit up to the date of death of M is to be calculated on the basis of last years profit which was ₹ 2, 16,000.
Prepare Profit and Loss Adjustment A/c, Partners' Capital Accounts A/c and Balance Sheet of the continuing firm.
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Answer in one sentence only:
What is New Profit Sharing Ratio?
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| Balance Sheet as on 31st March, 2023 | |||
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| General Reserve | 35,000 | Goodwill | 70,000 |
| Creditors | 1,40,000 | Loose Tools | 70,000 |
| Unpaid Rent | 35,000 | Debtors | 2,10,000 |
| Capital Accounts: | Livestock | 1,40,000 | |
| Het | 1,40,000 | Cash | 35,000 |
| Heet | 1,05,000 | ||
| Hari | 70,000 | ||
| 5,25,000 | 5,25,000 | ||
Hari died on 3lst July, 2023 and the following adjustments were agreed by as per partnership deed:
(1) Creditors have increased by ₹ 14,000.
(2) Goodwill is to be calculated at 2 years purchase of average profits of 5 years.
(3) The profits of the preceding 5 years was
| 2018-19 | ₹ 1,26,000 |
| 2019-20 | ₹ 1,40,000 |
| 2020-21 | ₹ 84,000 |
| 2021-22 | ₹ 70,000 |
| 2022-23 | ₹ 70,000 (Loss) |
Hari's share in it was to be given to him.
(4) Loose Tools and Livestock were valued at ₹ 1,12,000 and ₹ 1,68,000 respectively.
(5) R.D.D. was maintained at ₹ 14,000.
( 6) Commission ₹ 2,800 p.m. was payable to Hari. Profit for 2023-24 was estimated at ₹ 63,000 and Bari's share in it up to the date of his death was given to him.
Prepare Revaluation Ale, Bari's Capital Ale showing the amount payable to his executors.
The Balance Sheet of Karma, Punya and Bandhan who were sharing Profits and Losses in the ratio of 3 : 2 : 1 is as follows:
| Balance Sheet as on 31st March, 2022 | |||
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Bank Overdraft | 27,000 | Bank | 72,000 |
| Creditors | 1,27,500 | Debtors | 45,000 |
| Bills Payable | 60,000 | Land and Building | 60,000 |
| Bank Loan | 2,25,000 | Machinery | 1,20,000 |
| General Reserve | 40,500 | Investments | 60,000 |
| Capital Accounts: | Computers | 60,000 | |
| Karma | 30,000 | Stock | 1,35,000 |
| Punya | 30,000 | Patents | 18,000 |
| Bandhan | 30,000 | ||
| 5,70,000 | 5,70,000 | ||
Punya died on 1st October, 2022 and the following adjustments were made:
(1) Goodwill of the firm is valued at ₹ 45,000.
(2) Land & Building and Machinery were found to be undervalued by 20%.
(3) Investments are valued at ₹ 90,000.
(4) Stock to be undervalued by ₹ 7,500 and a provision of 10% as Debtors was required.
(5) Patents were valueless.
(6) Punya was entitled to share in profits up to the date of death and it was decided that he may be allowed to retain his drawings as his share of profit. Punya's drawings till date of death was ₹ 37,500.
Prepare Partner's Capital Accounts.
