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5.6 Double Entry Book Keeping (Section A)—ISC XII

(iii) That in the event of death of a partner, her executors will be entitled to the following:
(a) Capital to her credit at the date of death.
(b) Proportionate profit to date of death based on the average profits of the last three
completed years.
(c) Share of Goodwill based on three years’ purchases of the average profits for the
three preceding completed years.
Profits for the three years were: 2005—` 42,000; 2006—` 39,000 and 2007—` 45,000.
On 31st December, 2007, Anita’s Capital stood at ` 60,000 and firm’s General Reserve
stood at ` 30,000. Anita expired on 1st May, 2008.
From the above, prepare Anita’s Executors’ Account as would appear in the firm’s ledger
transferring the amount to her Loan Account with proper working notes. (ISC 2009)
Solution:
Dr. ANITA’S EXECUTORS’ ACCOUNT Cr.
Particulars ` Particulars `
To Anita’s Executors’ Loan A/c 1,28,000 By Anita’s Capital A/c 60,000
By General Reserve A/c (` 30,000 × 2/5) 12,000
By Bina’s Capital A/c (Goodwill) (WN 2) 50,400
By Profit and Loss Suspense A/c (WN 3) 5,600
1,28,000 1,28,000

Working Notes:
1. Reserves, Goodwill and Share in Profit up to 1st May, 2008 will be shared in the ratio of 3 : 2.
2. Goodwill is valued as follows:
(` 42 ,000 + ` 39 ,000 + ` 45 ,000 )
= × 3 = ` 1,26,000
3
Anita’s Share = ` 1,26,000 × 2/5 = ` 50,400.
3. Anita’s Share in Profit up to 1st May, 2008: `
(i) Average Profit of last 3 years 42,000
(ii) Profit for 4 months 14,000
(iii) Anita’s Share (2/5 of ` 14,000) 5,600
Illustration 4.
The Balance Sheet of X, Y and Z who are sharing profits in the ratio of
2 : 3 : 1, as at 31st March, 2018 is given below:
Liabilities ` Assets `
X’s Capital A/c 2,00,000 Goodwill 24,000
Y’s Capital A/c 4,00,000 Land and Building 5,00,000
Z’s Capital A/c 6,00,000 Investments 1,00,000
Workmen Compensation Reserve 40,000 (Market Value ` 92,000)
Investments Fluctuation Reserve 20,000 Stock 1,60,000
Provision for Doubtful Debts 20,000 Debtors 6,00,000
Creditors 7,20,000 Bank 5,92,000
Advertisement Suspense A/c 24,000
20,00,000 20,00,000