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Question
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 | |||
Meena died on 1st July, 2019:
- Plant & machinery was to be revalued at ₹ 70,000 and RDD is to be created of ₹ 2,000.
- The drawings of Meena up to the date of her death amounted to ₹ 10,000.
- Charge interest on drawings ₹ 1,000.
- Her share of goodwill should be calculated at three year purchase of the profits for the last four years which were: I year ₹ 1,50,000, II year ₹ 1,30,000, III year ₹ 70,000. IV ₹ 50,000.
- The deceased partners' share of profit up to the date is to be calculated on the basis of average profit of last two years. (Ill & IV year)
Prepare Profit and Loss Adjustment account, Partners Capital Accounts and Balance Sheet of the continuing firm, give working note on share of profit and goodwill.
Solution
| Dr. | Revaluation Account | Cr. | ||
| Particulars | Amount (₹) | Particulars | Amount (₹) | |
| To RDD A/c | 2,000 | By Plant & Machinery A/c |
10,000 | |
| To Profit (Transfer to Partners Capital A/c) |
||||
| Roohi | 4,000 | 8,000 | ||
| Mona | 2,000 | |||
| Meena | 2,000 | |||
| 10,000 | 10,000 | |||
| Dr. | Partner's Capital Accounts | Cr. | |||||
| Particulars | Roohi (₹) | Mona (₹) | Meena (₹) | Particulars | Roohi (₹) | Mona (₹) | Meena (₹) |
| To Drawing A/c | 10,000 | By Balance b/d | 60,000 | 70,000 | 34,000 | ||
| To Interest on Drawing A/c | 1,000 | By General Reserve A/c | 8,000 | 4,000 | 4,000 | ||
| To Meena's Executors Loan A/c | 1,07,750 | By Revaluation A/c (Profit) | 4,000 | 2,000 | 2,000 | ||
| To Balance c/d | 72,000 | 76,000 | By Goodwill A/c | 75,000 | |||
| By Profit & Loss Suspense A/c | 3,750 | ||||||
| 72,000 | 76,000 | 1,18,750 | 72,000 | 76,000 | 1,18,750 | ||
| Balance Sheet as on 1st April, 2019 | ||||
| Liabilities | Amount (₹) | Assets | Amount (₹) | |
| Creditors | 18,000 | Plant & Machinery | 60,000 | 70,000 |
| Bills Payable | 2,000 | Add: Appreciation | 10,000 | |
| Capital A/c: | Debtors | 50,000 | 48,000 | |
| Roohi | 72,000 | Less: R.D.D. | 2,000 | |
| Mona | 76,000 | Furniture | 30,000 | |
| Meena's Representative's Loan A/c | 1,07,750 | Bank | 50,000 | |
| Profit and Loss Suspense A/c (₹ 3,750 - 1,000 Int.) | 2,750 | |||
| Goodwill | 75,000 | |||
| 2,75,750 | 2,75,750 | |||
Working Notes:
1. Calculation of Share of Profit:
Profit of Current Year = Average of the profit of Last 2 years
= `(70,000 + 50,000)/2`
= `(1,20,000)/2`
= ₹ 60,000
Profit for proportionate period from 1st April, 2019 to 1st July, 2019
= `60,000 xx 3/12` = ₹ 15,000
Meena's share in proportionate profit = `15,000 xx 1/4` = ₹ 3,750
2. Valuation of Goodwill:
Total profit of 4 year = 1,50,000 + 1,30,000 + 70,000 + 50,000
Average Profit = `(4,00,000)/4` = ₹ 1,00,000
Goodwill = Average Profit × No. of Year Purchases
= 1,00,000 × 3
= ₹ 3,00,000
Meena's share in goodwill = `3,00,000 xx 1/4`
= ₹ 75,000
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| Balance Sheet as on 31st March 2017 | ||||
| Liabilities | Amount (₹) | Assets | Amount (₹) | |
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Virendra, Devendra, and Narendra were partners sharing Profit and Losses in the ratio of 3:2:1. Their Balance Sheet as on 31st March 2019 was as follows.
| Balance Sheet as on 31st March 2019 | |||
| Liabilities | Amount ₹ | Assets | Amount ₹ |
| Bank Loan | 25,000 | Furniture | 50,000 |
| Creditors | 20,000 | Land & Building | 50,000 |
| Bills Payable | 5,000 | Motor Car | 20,000 |
| Reserve Fund | 30,000 | Sundry Debtors | 50,000 |
| Capital Account: | Bills Receivable | 20,000 | |
| Virendra | 90,000 | Investments | 50,000 |
| Devendra | 60,000 | Cash at Bank | 20,000 |
| Narendra | 30,000 | ||
| 2,60,000 | 2,60,000 | ||
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4. His share of Goodwill should be calculated at two years purchase of the profits of the last four years for the year ended 31st March were as follows -
| 2016 | ₹ 40,000 |
| 2017 | ₹ 60,000 |
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| Balance Sheet as on 31st March, 2019 | ||||
| Liabilities | Amount (₹) | Assets | Amount (₹) | |
| Capital Accounts: | Land and Building | 80,000 | ||
| Anil | 60,000 | Motor Lorry | 40,000 | |
| Sunil | 40,000 | Debtors | 32,000 | 28,000 |
| Mohit | 20,000 | Less: R.D.D. | (4,000) | |
| Creditors | 50,000 | Furniture | 36,000 | |
| Outstanding Salary | 6,000 | Bank | 28,000 | |
| Reserve fund | 36,000 | |||
| 2,12,000 | 2,12,000 | |||
Mohit died on 1st August. 2019 and the following adjustments were made:
(1) Assets to be revalued as under:
| Land and Building | ₹ 88,000 |
| Motor Lorry | ₹ 36,000 |
| Furniture | ₹ 34,000 |
(2) All debtors were good.
(3) Goodwill of the firm valued at two times the average profit of lost 4 years' profit.
(4) Mohit's share of profit is to be calculated on the basis of average profit of the last three years.
(5) Profit for four years 1st year ₹ 12,000, 2nd year ₹ 24,000, 3rd year ₹ 14,000, 4th year ₹ 22,000.
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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:
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- Bank Loan were paid off.
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- 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.
A person who died is known as ______.
Answer in one sentence only:
What is New Profit Sharing Ratio?
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.
Suresh, Naresh and Paresh were equal partners. On 31st March, 2019 their Balance sheet was as follows:
| Balance Sheet as on 31st March, 2019 | |||
| Liabilities | Amount (₹) |
Assets | Amount (₹) |
| Capital Accounts: | Land and Building | 2,00,000 | |
| Suresh | 2,50,000 | Furniture | 1,50,000 |
| Naresh | 1,00,000 | Debtors | 1,50,000 |
| Paresh | 1,00,000 | Cash | 1,00,000 |
| Sundry creditors | 1,50,000 | ||
| 6,00,000 | 6,00,000 | ||
Suresh died on 30th June, 2019 and the following adjustments were agreed as:
- Furniture was to be adjusted to its market price of ₹ 1,70,000.
- Land and building was to be depreciated by 10%.
- Provide R.D.D. at 5% on debtors.
- The profit up to the date of death of Suresh is to be calculated on the basis of average profit of last year which was ₹ 90,000.
Prepare:
- Profit and loss adjustment account.
- Partners’ capital account.
- Balance sheet of the continuing firm.
