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Question
X, Y and Z were partners in a firm Z died on 31st May, 2021. His share of profit from the closure of the last accounting year till the date of death was to be calculated on the basis of the average of three completed years of profits before death. Profits for the years ended 31st March, 2019, 2020 and 2021 were ₹18,000 ₹ 19,000 and ₹ 17,000 respectively. Calculate Z's share of profit till his death and pass necessary Journal entry for the same when:
(a) Profit-sharing ratio of remaining partners does not change, and
(b) Profit-sharing ratio of remaining partners changes and new ratio being 3:2.
Solution
Journal Entries
|
No. |
Particulars |
L.F. |
Debit Amount (₹) |
Credit Amount (₹) |
|
|
(a) |
Profit & Loss Suspense A/c | Dr. |
1,000 |
|
|
|
|
To Z’s Capital A/c |
|
1,000 |
||
|
|
(Proportionate profit dispensed to deceased partner) |
|
|
||
|
(b) |
X’s Capital A/c | Dr. |
800 |
|
|
| Y’s Capital A/c | Dr. |
200 |
|
||
| To Z’s Capital A/c |
1,000 |
||||
| (Proportionate profit dispensed to deceased partner) | |||||
Working Notes:
WN1: Calculation of Z’s Share of Profit
Z's share = Firms Average profit × Z's profit share × Period of which Z remained in the business
`"Average profits" = ("Total profits")/("Number of years")`
= `(18,000 + 19,000 + 17,000)/3`
= `(54,000)/3`
= Rs. 18,000
`"Z's share" = 18,000 xx 1/3 xx 2/12 = 1,000` (to be borne by gaining partners in gaining ratio in case (b)
WN2: Calculation of Gaining Ratio
Gaining Ratio = New Ratio − Old Ratio
`"X's gain" = 3/5 - 1/3 = 4/15`
`"Y's gain" = 2/5 - 1/3 = 1/15`
Gaining ratio = 4 : 1
`"X's share" = 1,000 xx 4/5 = 800`
`"Y's share" = 1,000 xx 1/5 = 200`
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| Liabilities | Amount (₹) |
Assets | Amount (₹) |
||
|
Trade creditors |
53,000 | Bank | 60,000 | ||
| Employees' Provident Fund | 47,000 | Debtors | 60,000 | ||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
| Creditors |
24,140 |
Cash at Bank | 3,300 | ||
| Capital A/cs: |
|
Sundry Debtors |
3,045 |
|
|
| X | 12,000 |
|
Less: Provision for Doubtful Debts |
105 |
2,940 |
| Y |
9,000 |
|
Stock | 4,800 | |
| Z | 6,000 | 27,000 | Plant and Machinery | 5,100 | |
|
|
Land and Building | 15,000 | |||
|
|
|
Y's Loan |
20,000 |
||
|
51,140 |
51,140 |
||||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
| Sundry Creditors |
12,600 |
Bank | 4,100 | ||
| Provident Fund |
3,000 |
Debtors |
30,000 |
|
|
| General Reserve |
9,000 |
Less: Provision |
1,000 |
29,000 |
|
| Capital A/cs: |
|
|
|||
|
Amit |
40,000 | Stock | 25,000 | ||
|
Balan |
36,500 | Investments | 10,000 | ||
|
Chander |
20,000 |
96,500 |
Patents |
5,000 |
|
|
|
|
Machinery |
48,000 |
||
|
1,21,100 |
1,21,100 |
||||
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(iii) Patents were to be reduced by 20%.
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| Liabilities | ₹ | Assets | ₹ | ||
| Capital A/cs: | Land and Building | 4,00,000 | |||
| Kusum | 4,00,000 | Machinery | 6,00,000 | ||
| Sneh | 6,00,000 | Closing Stock | 2,00,000 | ||
| Usha | 4,00,000 | 14,00,000 | Sundry Debtors | 2,20,000 | |
| Employees' Provident Fund | 70,000 | Less: Provision for Doubtful Debts | 20,000 | ||
| Workmen Compensation Reserve | 30,000 | Cash at Bank | 2,00,000 | ||
| Sundry Creditors | 1,00,000 | 2,00,000 | |||
| 16,00,000 | 16,00,000 | ||||
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(d) The claim against Workmen Compensation Reserve was estimated at ₹ 15,000.
(e) Goodwill of the firm was valued at ₹ 2,80,000 and Kusum's share of goodwill was adjusted against the Capital Accounts of the continuing partners Sneh and Usha who have decided to share future profits in the ratio of 3 : 4 respectively.
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Prepare Revaluation Account, Capital Accounts of Partners and Balance Sheet of the new firm after Kusum's retirement.
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(a) Capital as per the last Balance Sheet.
(b) Interest on capital at 6% per annum till the date of her death.
(c) Her share of profit to the date of death calculated on the basis of average profit of last four years.
(d) Her share of goodwill to be determined on the basis of three years' purchase of the average profit of last four years. The profits of last four years were:
| Year | 2010-11 | 2011-12 | 2012-13 | 2013-14 |
| Profit (₹ ) | 30,000 | 50,000 | 40,000 | 60,000 |
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Prepare Momita's Capital Account to be presented to her executors.
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|
Liabilities |
₹ |
Assets |
₹ |
||
|
Creditors |
11,000 |
Building |
20,000 |
||
|
Reserves |
6,000 |
Machinery |
30,000 |
||
| A's Loan A/c | 5,000 | Stock | 10,000 | ||
|
Capital A/cs: |
Patents | 11,000 | |||
| A |
25,000 |
Debtors | 8,000 | ||
| B | 25,000 | Cash | 8,000 | ||
| C |
15,000 |
65,000 |
|||
|
87,000 |
87,000 |
||||
A died on 1st October, 2018. It was agreed among his executors and the remaining partners that:
(i) Goodwill to be valued at 212 years' purchase of the average profit of the previous 4 years, which were 2014-15: ₹ 13,000; 2015-16: ₹ 12,000; 2016-17: ₹ 20,000 and 2017-18: ₹ 15,000.
(ii) Patents be valued at ₹ 8,000; Machinery at ₹ 28,000; and Building at ₹ 25,000.
(iii) Profit for the year 2017-18 be taken as having accrued at the same rate as that of the previous year.
(iv) Interest on capital be provided @ 10% p.a.
(v) Half of the amount due to A to be paid immediately to the executors and the balance transferred to his (Executors') Loan Account.
Prepare A's Capital Account and A's Executors' Account as on 1st October, 2018.
A, B and C are partners in a firm sharing profits in the proportion of 3 : 2 : 1. Their Balance Sheet as at 31st March, 2018 stood as follows:
|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
|
Sundry Creditors |
2,70,000 |
Cash in Hand |
42,500 |
||
|
General Reserve |
1,20,000 |
Cash at Bank |
2,14,500 |
||
|
Capital A/cs: |
Debtors | 1,63,000 | |||
| A |
2,00,000 |
Stock | 17,500 | ||
| B | 1,20,000 | Investment | 1,32,500 | ||
| C |
80,000 |
4,00,000 |
Building | 2,10,000 | |
| B's Loan | 10,000 | ||||
|
7,90,000 |
7,90,000 |
||||
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(a) The capital to his credit at the time of his death and interest thereon @ 10% per annum.
(b) His proportionate share of General Reserve.
(c) His share of profit for the intervening period will be based on the sales during that period. Sales from 1st April, 2018 to 30th June, 2018 were as ₹ 12,00,000. The rate of profit during past three years had been 10% on sales.
(d) Goodwill according to his share of profit to be calculated by taking twice the amount of profits of the last three years less 20%. The profit of the previous three years were: 1st Year: ₹ 82,000; 2nd year: ₹ 90,000; 3rd year ₹ 98,000.
(e) The investments were sold at par and his executors were paid out in full.
Prepare B's Capital Account and his Executors' Account.
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|
Liabilities |
₹ |
Assets |
₹ |
||
|
Creditors |
10,000 |
Plant and Machinery |
40,000 |
||
|
General Reserve |
30,000 |
Furniture |
15,000 |
||
|
Capital A/cs: |
Investments | 20,000 | |||
| Sunny |
30,000 |
Debtors | 20,000 | ||
| Honey | 30,000 | Stock | 20,000 | ||
| Rupesh |
20,000 |
80,000 |
25,000 | ||
|
1,20,000 |
1,20,000 |
||||
Honey died on 31st December, 2014. The Partnership Deed provided that the representatives of the deceased partner shall be entitled to:
(a) Balance in the Capital Account of the deceased partner.
(b) Interest on Capital @ 6% per annum up to the date of his death.
(c) His share in the undistributed profits or losses as per the Balance Sheet.
(d) His share in the profits of the firm till the date of his death, calculated on the basis of rate of net profit on sales of the previous year. The rate of net profit on sales of previous year was 20%. Sales of the firm during the year till 31st December, 2014 was ₹ 6,00,000.
Prepare Honey's Capital Account to be presented to his executors.
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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 |
Debtors | 40,000 | ||
| T |
75,000 |
3,50,000 |
Cash at Bank | 40,000 | |
|
4,35,000 |
4,35,000 |
||||
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(a) Goodwill be valued at 212 years' purchase of average of last 4 years' profits which were:
2014-15: ₹ 65,000; 2015-16: ₹ 60,000; 2016-17: ₹ 80,000 and 2017-18: ₹ 75,000.
(b) Machinery be valued at ₹ 1,40,000; Patents be valued at ₹ 40,000; Leasehold be valued at ₹ 1,25,000 on 1st August, 2018.
(c) For the purpose of calculating T's share in the profits of 2018-19, the profits in 2018-19 should be taken to have accrued on the same scale as in 2017-18.
(d) A sum of ₹ 21,000 to be paid immediately to the Executors of T and the balance to be paid in four equal half-yearly instalments together with interest @ 10% p.a.
Pass necessary Journal entries to record the above transactions and T's Executors' Account.
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
|
Bills Payable |
2,000 |
Cash at Bank |
5,800 |
||
|
Employees' Provident Fund |
5,000 |
Bills Receivable |
800 |
||
|
Workmen Compensation Reserve |
6,000 |
Stock | 9,000 | ||
| General Reserve | 6,000 | Sundry Debtors | 16,000 | ||
| Loans | 7,100 | Furniture | 2,000 | ||
|
Capital A/cs: |
Plant and Machinery | 6,500 | |||
| X | 22,750 | Building | 30,000 | ||
| Y |
15,250 |
Advertising Suspense | 6,000 | ||
| Z |
12,000 |
50,000 |
|||
|
76,100 |
76,100 |
||||
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(b) The deceased partner to be given share of profits till the date of death on the basis of profits for the previous year.
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Give Journal entries and show the Z's Executors' Account till it is finally settled.
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| Liabilities | Amount (₹) |
Assets | Amount (₹) |
||
| Sundry Creditors | 18,000 | Goodwill | 12,000 | ||
| Investments Fluctuation Reserve | 7,000 | Patents | 52,000 | ||
| Workmen Compensation Reserve | 7,000 | Machinery | 62,400 | ||
| Capital A/cs: | Investment | 6,000 | |||
| X | 1,35,000 | Stock | 20,000 | ||
| Y | 95,000 | Sundry Debtors | 24,000 | ||
|
Z |
74,000 | 3,04,000 | Less: Provision for Doubtful Debts | 4,000 | 20,000 |
| Loan to Z | 1,000 | ||||
| Cash at Bank | 600 | ||||
| Profit and Loss A/c | 1,50,000 | ||||
| Z's Drawings | 12,000 | ||||
| 3,36,000 | 3,36,000 | ||||
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Show Revaluation Account, Capital Accounts of Partners and the Balance Sheet of the new firm.
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Find New Profit-sharing Ratio:
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X and Y are partners sharing profits in the ratio of 2 : 1. On 31st March, 2019, their Balance Sheet showed General Reserve of ₹ 60,000. It was decided that in future they will share profits and losses in the ratio of 3 : 2. Pass necessary Journal entry in each of the following alternative cases:
(i) When General Reserve is not to be shown in the new Balance Sheet.
(ii) When General Reserve is to be shown in the new Balance Sheet.
A, B and C were partners in a firm sharing profits in the ratio of 3 : 2 : 1. Their Balance Sheet as on 31st March, 2015 was as follows:
| Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
|
| Creditors | 50,000 | Land | 50,000 | |
| Bills Payable | 20,000 | Building | 50,000 | |
| General Reserve | 30,000 | Plant | 1,00,000 | |
| Capital A/cs: | Stock | 40,000 | ||
| A | 1,00,000 | Debtors | 30,000 | |
| B | 50,000 | Bank | 5,000 | |
| C | 25,000 | 1,75,000 | ||
| 2,75,000 | 2,75,000 | |||
From 1st April, 2015, A, B and C decided to share profits equally. For this it was agreed that:
(i) Goodwill of the firm will be valued at ₹ 1,50,000.
(ii) Land will be revalued at ₹ 80,000 and building be depreciated by 6%.
(iii) Creditors of ₹ 6,000 were not likely to be claimed and hence should be written off.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the reconstituted firm.
Atul and Neera were partners in firm sharing profits in the ratio of 3: 2. They admitted Mitali as a new partner. Goodwill of the firm was valued at ₹ 2,00,000. Mitali brings her share of a goodwill premium of ₹ 20,000 in cash, which is entirely credited to Atul's Capital Account. Calculate the new profit sharing ratio.
A and B share profits in the ratio of 2 : 1. C is admitted with `1/4` share in profits. C acquires `3/4` of his share from A and `1/4` of his share from B. The new ratio will be:
A, B, C, D are in partnership sharing profits and losses in the ratio of 9 : 6 : 5 : 5. E joins the partnership for 20% share. A. B, C and D would in future share profits among themselves as `3/10 : 4/10 : 2/10 : 1/10`. The new profit sharing ratio will be:
Some adjustments are to be made at the time of the retiring partner.
(i) New profit sharing ratio of continuing partners
(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?
X, Y and Z were partners in a firm. The firm closes its books on 31st March every year. On 31st December 2021, X died. The partnership deed provided that the share of deceased partner in the profit of the firm till the date of his death will be calculated on the basis of last year's profit. The profit for the year ended 31.3.2021 was ₹ 6,00,000. Calculate X's share in the profit of the firm till the date of his death and pass the necessary journal entry for the same in the books of the firm.
