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

Working Notes:
1. Investments Fluctuation Reserve is created to meet fall in the market value of the investments. At the time
of death of Sandeep, Investments Fluctuation Reserve is required to the extent of ` 1,350 only. Therefore,
the balance of ` 1,650 is credited to Partners’ Capital Accounts in their old profit-sharing ratio.
2. Ascertainment of Goodwill:
(i) Total profits of last 5 years = ` 28,750 + ` 35,000 + ` 22,500 + ` 20,000 + ` 25,000 = ` 1,31,250.
(ii) Average Profit = ` 1,31,250/5 = ` 26,250.
(iii) Goodwill = Average Profit × Number of Years’ Purchase
= ` 26,250 × 1 = ` 26,250.
STATEMENT SHOWING THE ADJUSTMENT FOR GOODWILL
Particulars Mandeep (`) Randeep (`) Sandeep (`)
Share of Goodwill before Sandeep’s death (equally) 8,750 8,750 8,750
Share of Goodwill after Sandeep’s death (equally)* 13,125 13,125 ...
Gain (+)/Sacrifice (–) (+)4,375 (+)4,375 (–)8,750

*Profit-sharing ratio is equal before or after the death of Sandeep, because nothing has been mentioned in respect of
new profit-sharing ratio.
Adjustment Entry: ` `
Mandeep’s Capital A/c ...Dr. 4,375
Randeep’s Capital A/c ...Dr. 4,375
To Sandeep’s Capital A/c 8,750
3. Ascertainment of Sandeep’s Share of Profit from 1st April, 2018 to 30th June, 2018:

` 22,500 + 20,000 + 25,000
`
`
(i) Average Profit of preceding three years = = ` 22,500.
3
(ii ) Profit for 3 months = ` 22,500 × 3/12 = ` 5,625.
(iii ) Sandeep’s Share of Profit = ` 5,625 × 1/3 = ` 1,875.
Master Questions

Illustration 10.
The Balance Sheet of Hari, Sonu and Zubin who were sharing profits in the ratio of 5 : 3 : 2 as at
31st March, 2020 is as below:
Liabilities ` Assets `
Creditors 50,000 Cash at Bank 40,000
Employees’ Provident Fund 10,000 Sundry Debtors 1,00,000
Profit and Loss A/c 85,000 Stock 80,000
Workmen Compensation Reserve 10,000 Fixed Assets (Tangible) 60,000
Capital A/cs: Goodwill 5,000
Hari 40,000 Advertisement Suspense A/c 5,000
Sonu 62,000
Zubin 33,000 1,35,000
2,90,000 2,90,000