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M.30                                        Management Accounting (Section B)—ISC XII

                       3.  (a)
                     Dr.                             KARAM’S CAPITAL ACCOUNT                          Cr.
                     Particulars                          `     Particulars                         `
                     To  Karam’s Executors’ A/c (Balancing Figure)      3,65,000   By  Balance b/d  1,20,000
                                                                 By  Profit and Loss Suspense A/c (WN 1)      4,000
                                                                 By  Interest on Karam’s Loan A/c      1,000*
                                                                 By  Karam’s Loan A/c             1,00,000
                                                                 By  Priya’s Capital A/c (Goodwill) (WN 2)      90,000
                                                                 By  Anna’s Capital A/c (Goodwill)  (WN 2)      30,000
                                                                 By  Priya’s Capital A/c  (` 20,000 × 3/4 )(WN 3)   15,000
                                                                 By  Anna’s Capital A/c  (` 20,000 × 1/4 )(WN 3)   5,000
                                                        3,65,000                                  3,65,000
                     *` 1,00,000 × 5/100 × 73/365 = ` 1,000.
                       Working Notes:
                     Calculations will be made from 1st April, 2020 to 12th June, 2020, i.e., for 73 days.
                      1.  Karam’s share of profit till the date of his death:

                                                  ` 30,000 + ` 70,000  + ` 80,000
                        Average Profit of last three years =              = ` 60,000
                                                             3
                         Karam’s share of profit =  ` 60,000  ¥  73  ¥  2  = ` 4,000.
                      2.  Karam’s share of Goodwill:  365  6
                        Total of Profit of last three years = ` 30,000 + ` 70,000 + ` 80,000 = ` 1,80,000
                        Firm’s Goodwill = Total Profit × No. of years’ purchase = ` 1,80,000 × 2 = ` 3,60,000
                                                        2
                         Karam’s Share of Goodwill = ` 3,60,000 ×   = ` 1,20,000, which is contributed by Priya and Anna in their
                        Gaining Ratio of 3 : 1. Thus,   6
                                                  3
                         Priya’s contribution = ` 1,20,000 ×   = ` 90,000; and
                                                  4
                                                   1
                         Anna’s contribution = ` 1,20,000 ×   = ` 30,000.
                                                  4
                      3.  Adjustment of General Reserve and Advertisement Expenditure:
                                                              `
                        General Reserve                     1,80,000
                         Less:  Advertisement Suspense A/c   1,20,000
                         Net Effect                          60,000
                                                                                            2
                         Karam’s share in net effect of General Reserve & Advertisement Expenditure = ` 60,000 ×    =  `  20,000,
                        which is contributed by Priya and Anna in their Gaining Ratio, i.e., 3 : 1.  6
                         (b)
                     Dr.                              REVALUATION ACCOUNT                             Cr.
                     Particulars                          `     Particulars                         `
                     To  Workmen Compensation Claim A/c      12,000   By  Provision for Doubtful Debts A/c      2,000
                     To  Investments A/c (WN 1)          30,000   By  Loss transferred to:
                                                                    Lokesh’s Capital A/c   20,000
                                                                    Mansoor’s Capital A/c   12,000
                                                                    Nihal’s Capital A/c   8,000    40,000
                                                         42,000                                    42,000
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