Page 99 - MA-12

Retirement and Death of a Partner 4.29
Vicky died on 1st August, 2019. Vicky had withdrawn ` 25,000 during 2019–20. It was
agreed between his executors and the remaining partners that—
(i) Goodwill be valued at 2½ years’ purchase of average of four completed years’ profits
which were: 2015–16 ` 5,05,000; 2016–17 ` 70,000; 2017–18 ` 80,000.
(ii) Vicky‘s Share of profit from the closure of last accounting year till the date of death
be calculated on the basis of the average of three completed years’ profits before death.
(iii) Patents undervalued by ` 85,000; Machinery overvalued by ` 16,000.
(iv) Claim on account of Workmen Compensation is ` 10,000.
(v) Investments be sold for ` 21,000 and a sum of ` 24,000 be paid to Vicky’s Executors
immediately. The remainder to be paid in four equal half-yearly instalments together
with interest @ 10% p.a.
You are required:
(a) to give necessary Journal entries to be passed on Vicky’s death.
(b) to prepare the Capital Accounts of all the partners.
(c) to prepare the Balance Sheet of Micky and Ricky immediately after Vicky’s death.
(d) to prepare Vicky’s Executor’s Account till it is finally settled.

Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2019
Aug 1 Micky’s Capital A/c ...Dr. 12,500
Ricky’s Capital A/c ...Dr. 7,500
Vicky’s Capital A/c ...Dr. 5,000
To Goodwill A/c 25,000
(Being the existing goodwill written off)
Micky’s Capital A/c (` 35,000 × 5/8) ...Dr. 21,875
Ricky’s Capital A/c (` 35,000 × 3/8) ...Dr. 13,125
To Vicky’s Capital A/c (` 1,75,000 × 2/10) 35,000
(Being Vicky’s share of goodwill adjusted)
Vicky’s Capital A/c ...Dr. 5,000
To Profit and Loss Suspense A/c 5,000
(Being Vicky’s share of loss to date of death recorded)
Investment Fluctuation Reserve A/c ...Dr. 17,500
To Micky’s Capital A/c 8,750
To Ricky’s Capital A/c 5,250
To Vicky’s Capital A/c 3,500
(Being the transfer of Investment Fluctuation Reserve)
Workmen Compensation Reserve A/c ...Dr. 17,500
To Workmen Compensation Claim A/c 10,000
To Micky’s Capital A/c 3,750
To Ricky’s Capital A/c 2,250
To Vicky’s Capital A/c 1,500
(Being the transfer of Workmen Compensation Reserve)
Micky’s Capital A/c ...Dr. 2,500
Ricky’s Capital A/c ...Dr. 1,500
Vicky’s Capital A/c ...Dr. 1,000
To Advertisement Expenditure A/c 5,000
(Being the transfer of Advertisement Expenditure)