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Question
X and Y are partners. The Partnership Deed provides inter alia:
(a) That the Accounts be balanced on 31st March every year.
(b) That the profits be divided as: X one-half, Y one-third and carried to a Reserve one-sixth.
(c) That in the event of the death of a partner, his Executors be entitled to be paid:
(i) The Capital to his credit till the date of death.
(ii) His proportion of profits till the date of death based on the average profits of the last three completed years.
(iii) By way of Goodwill, his proportion of the total profits for the three preceding years.
(d)
| BALANCE SHEET as at 31st March, 2019 | |||||
| Liabilities | ₹ | Assets | ₹ | ||
| Capital A/cs: | Sundry Assets | 21,000 | |||
| X | 9,000 | ||||
| Y | 6,000 | 15,000 | |||
| Reserve | 3,000 | ||||
| Creditors | 3,000 | ||||
| 21,000 | 21,000 | ||||
Profits for three years were: 2016-17 − ₹ 4,200; 2017-18 − ₹ 3,900; 2018-19 − ₹ 4,500. Y died on 1st August, 2019. Prepare necessary accounts.
Solution
Y’s Capital Account
|
Dr. |
|
Cr. |
|
|
Particulars |
Amount (₹) |
Particulars |
Amount (₹) |
|
|
|
Balance b/d |
6,000 |
|
|
|
X’s Capital A/c (Reserve) |
1,200 |
|
Y’s Executor’s A/c |
12,800 |
X’s Capital A/c (Goodwill) |
5,040 |
|
|
|
X’s Capital A/c (Profit) |
560 |
|
|
12,800 |
|
12,800 |
Working Notes:
WN 1
Old Ratio (X and Y) = `1/2 : 1/3 or 3 : 2`
WN 2
`"Y's share of reserve" = 3,000 xx 2/5 = 1,200`
WN 3 Calculation Y’s Share of Profit
`"Average profit" = ("Profit for last 3 years")/3`
`"Average profit" = (4,200 + 3,900 + 4,500)/3 = (12,600)/3 = "Rs" 4,200`
`"Y’s Share of Profit (from April 01,2019 to August 01, 2019" ) = 4,200 xx 2/5 xx 4/12 = "Rs" 560`
WN 4 Calculation of Y’s Share of Goodwill
Y’s share of Goodwill = Y’s Profit Share in last three year
Profit for last three years = 4,200 + 3,900 + 4,500 = Rs 12,600
`"Y's share of goodwill" = 12,600 xx 2/5 = "Rs" 5,040`
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Liabilities |
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||
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|
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|
Patents | 10,000 | |
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|
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|
Liabilities |
₹ |
Assets |
₹ |
||
|
Creditors |
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Building |
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||
|
Reserves |
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Machinery |
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||
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|
Capital A/cs: |
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| A |
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| C |
15,000 |
65,000 |
|||
|
87,000 |
87,000 |
||||
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|
Liabilities |
₹ |
Assets |
₹ |
||
|
Sundry Creditors |
40,000 |
Goodwill |
25,000 |
||
|
Bills Payable |
15,000 |
Leasehold |
1,00,000 |
||
|
Workmen Compensation Reserve |
30,000 |
Patents | 30,000 | ||
|
Capital A/cs: |
Machinery | 1,50,000 | |||
| R | 1,50,000 | Stock | 50,000 | ||
| S |
1,25,000 |
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| T |
75,000 |
3,50,000 |
Cash at Bank | 40,000 | |
|
4,35,000 |
4,35,000 |
||||
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|
Liabilities |
Amount (₹) |
Assets |
Amount |
||
|
Creditors |
43,000 |
Cash |
10,200 |
||
|
Bills Payable |
17,000 |
Stock |
24,500 |
||
|
General Reserve |
70,000 |
Debtors | 27,300 | ||
|
Capital A/cs: |
Land and Building | 1,40,000 | |||
| B | 40,000 | Profit and Loss A/c | 70,000 | ||
| C |
50,000 |
||||
| D |
52,000 |
1,42,000 |
|||
|
2,72,000 |
2,72,000 |
||||
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BALANCE SHEET as at 31st March, 2018
| Liabilities | Amount (₹) |
Assets | Amount (₹) |
||
| X's Capital A/c | 2,40,000 |
Machinery |
2,40,000 | ||
| Y's Capital A/c | 1,60,000 | Furniture | 1,50,000 | ||
|
Z's Capital A/c |
80,000 | 4,80,000 | Investments | 40,000 | |
| X's Current A/c | 16,000 | Stock | 64,000 | ||
| Y's Current A/c | 5,000 | Sundry Debtors | 50,000 | ||
| Reserve | 60,000 | Bills Receivable | 22,000 | ||
| Bills Payable | 34,000 | Cash at Bank | 37,000 | ||
| Sundry Creditors | 40,000 | Cash in Hand | 22,000 | ||
| Z's Current A/c | 10,000 | ||||
| 6,35,000 | 6,35,000 | ||||
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