Question

X, Y and Z were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. On 31.3.2010 their Balance Sheet was as follows:

Liabilities		Amount Rs	Assets	Amount Rs
Capital Accounts:			Building	50,000
X	75,000		Patents	15,000
Y	62,000		Machinery	75,000
Z	37,500	1,75,000	Stock	37,500
Sundry Creditors		42,500	Debtors	20,000
			Cash at Bank	20,000
		2,17,500		2,17,500

Z died on 31.7.2010. It was agreed that:

(a) Goodwill be valued at 2½ year’s purchased of the average profits of the last four year which were as follows:  

Years	Profit Rs
2006 – 2007	32,500
2007 – 2008	30,000
2008 – 2009	40,000
2009 – 2010	37,500

(b) Machinery be valued at Rs 70,000; Patents at Rs 20,000 and Building at Rs 62,500.

(c) For the purpose of calculating Z’s share of profits on the year of his death the profit in 2010 − 2011 should be taken to have been accrued on the same scale as in 2009 − 2010.

(d) A sum of Rs 17,500 was paid immediately to the executors of Z the balance was paid in four half yearly installments together with interest at 12% p.a. starting from 31.1.2011.

Given necessary journal entries to record the above transaction and Z’s executor’s account till the payment of installments due on

31.1.2011

 

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
2010
July 31	X’s Capital A/c	Dr.		10,938
	Y’s Capital A/c	Dr.		6,562
	To Z’s Capital A/c				17,500
	(Z’s share of goodwill adjusted)
	Profit and Loss Suspense A/c	Dr.		2,500
	To Z’s Capital A/c				2,500
	(Z’s share of profit transferred to his capital account)
	Revaluation A/c	Dr.		5,000
	To Machinery A/c				5,000
	(Decreased in the value of machinery recorded)
	Patent A/c	Dr.		5,000
	Building A/c	Dr.		12,500
	To Revaluation A/c				17,500
	(Increase in assets recorded)
	Revaluation A/c	Dr.		12,500
	To X’s Capital A/c				6,250
	To Y’s Capital A/c				3,750
	To Z’s Capital A/c				2,500
	(Profit on revaluation transferred to partners capital)
	Z’s Capital A/c	Dr.		60,000
	To Z’s Executor				60,000
	(Amount due to Z transferred to his executors’ account)
	Z’s Executor	Dr.		17,500
	To Bank A/c				17,500
	(Z’s executor are paid cash partly)
	Interest A/c	Dr.		2,550
	To Z’s Executor				2,550
	(Interest due on Z’s executor)
	Z’s Executor	Dr.		13,175
	To Bank A/c				13,175
	(Half-yearly installment paid to Z’s Executor)

 

Z’s Capital Account
Dr.			Cr.
Particulars	Amount Rs	Particulars	Amount Rs
Z’s Executors	60,000	Balance b/d	37,500
		Profit and Loss Suspense	2,500
		Revaluation	2,500
		X’s Capital	10,938
		Y’s Capital	6,562
	60,000		60,000

Z’s Executor Account
Dr.					Cr.
Date	Particulars	Amount Rs	Date	Particulars	Amount Rs
2010			2010
Jul. 31	Bank	17,500	Jul. 31	Z’s Capital	60,000
2011			2011
Jan. 31	Bank  (10,625 + 2,550)	13,175	Jan. 31	Interest on Loan	2,550
	Balance c/d	31,875		(Rs 42,500 × 6/12 × 12/100)
		62,550			62,550