Page 109 - ISCDEBK-12

Death of a Partner 5.7
Z died on 30th September, 2018 and X and Y decided to share future profits and losses in
the ratio of 3 : 2 and 50% of the amount payable to legal representatives of Z is to be paid
immediately and the balance in two equal instalments together with interest @ 10% p.a.
Other Information:

(i) Goodwill is to be valued at 2 years’ purchase of average profits of last three completed
years. The profits were—2015–16 ` 90,000; 2016–17 ` 1,80,000; 2017–18 ` 2,70,000.
(ii) Land and Building was found undervalued by ` 1,70,000 and Stock was found overvalued
by ` 16,000.
(iii) Provision for Doubtful Debts is to be made equal to 5% of the Debtors.
(iv) Claim on account of Workmen Compensation is ` 16,000.

(v) Profit for the current year is to be valued on the basis of last year’s profit.
Prepare necessary Ledger Accounts and Balance Sheet of the new firm.

Solution:
Dr. REVALUATION ACCOUNT Cr.
Particulars ` Particulars `
To Stock A/c 16,000 By Land and Building A/c 1,70,000
To Provision for Doubtful Debts A/c 10,000
To Gain (Profit) on Revaluation transferred to:
X’s Capital A/c 48,000
Y’s Capital A/c 72,000
Z’s Capital A/c 24,000
1,70,000 1,70,000

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.
Particulars X (`) Y (`) Z (`) Particulars X (`) Y (`) Z (`)
To Goodwill A/c 8,000 12,000 4,000 By Balance b/d 2,00,000 4,00,000 6,00,000
To Y’s Capital A/c 36,000 ... ... By X’s Capital A/c ... 36,000 60,000
To Z’s Capital A/c 60,000 ... ... By Revaluation A/c 48,000 72,000 24,000
To Adv. Susp. A/c 8,000 12,000 4,000 By Work. Com. Res. A/c 8,000 12,000 4,000
To Z’s Capital A/c 22,500 ... ... By Inv. Fluc. Res. A/c 4,000 6,000 2,000
To Z’s Executor’s A/c ... ... 7,04,500 By X’s Capital A/c ... ... 22,500
To Balance c/d 1,25,500 5,02,000 ... (Share of Profit)
2,60,000 5,26,000 7,12,500 2,60,000 5,26,000 7,12,500

Dr. Z’S EXECUTOR’S ACCOUNT Cr.
Particulars ` Particulars `

To Bank A/c 3,52,250 By Z’s Capital A/c 7,04,500
To Balance c/d 3,52,250
7,04,500 7,04,500