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

BALANCE SHEET as at 30th September, 2018
Liabilities ` Assets `
X’s Capital A/c 1,25,500 Land and Building 6,70,000
Y’s Capital A/c 5,02,000 Investments 92,000
Z’s Executors’ A/c 3,52,250 Stock 1,44,000
Creditors 7,20,000 Debtors 6,00,000
Workmen Compensation Claim 16,000 Less: Provision for Doubtful Debts 30,000 5,70,000
Bank ` (5,92,000 – 3,52,250) 2,39,750
17,15,750 17,15,750

Working Notes:
1. Calculation of Gain/(Sacrifice) of Share:
New Share Old Share Difference
X 3/5 2/6 3/5 – 2/6 = 8/30 (Gain)
Y 2/5 3/6 2/5 – 3/6 = – 3/30 (Sacrifice)
2. Calculation of Goodwill:
`
` 90 000, + 180 000, , + ` 270 000, ,
(i) Average Profit = = ` 1,80,000
3
(ii) Firm’s Goodwill = ` 1,80,000 × 2 = ` 3,60,000.
Z’s share in goodwill = ` 3,60,000 × 1/6 = ` 60,000. In this question Y is also sacrificing his 3/30 share of
profit. He should also be compensated by ` 36,000 (i.e., ` 3,60,000 × 3/30).
3. Excess Investments Fluctuation Reserve and Workmen Compensation Reserve have been transferred
directly to Partners’ Capital Accounts.
4. As per the terms, 50% of the amount payable to Z is to be paid immediately. Since, Z has died, 50% of the
amount due to Z will be paid to his executors.
5. Z‘s Share of Profit till the date of death = ` 2,70,000 × 6/12 × 1/6 = ` 22,500, it should be adjusted through
X’s Capital Account (being a gaining partner).
Illustration 5.
A, B and C were partners sharing profits and losses in the ratio of 5 : 3 : 2. On 31st March,
2018, their Balance Sheet stood as under:
Liabilities ` Assets `
Sundry Creditors 1,55,000 Goodwill 25,000
Workmen Compensation Reserve 10,000 Leasehold 1,00,000
Reserve Fund 20,000 Patents 30,000
Capital A/cs: Machinery 1,50,000
A 1,50,000 Stock 50,000
B 1,25,000 Debtors 1,40,000
C 75,000 3,50,000 Cash at Bank 40,000
5,35,000 5,35,000
C died on 1st August, 2018. It was agreed that:
(i) Goodwill of the firm is to be valued at 2½ years’ purchase of the average of annual
profits of the last 4 years. The profits for the four preceding years were ` 65,000,
` 60,000, ` 80,000 and ` 75,000.
(ii) Machinery be valued at ` 1,40,000. Patents be valued at ` 40,000. Leasehold be valued
at ` 1,25,000 on 1st August, 2018.