Page 160 - DEBKVOL-1

7.2 Double Entry Book Keeping—CBSE XII

Solved Questions

Illustration 1.
Priya, Riya and Siya are partners sharing profits in the ratio of 4 : 3 : 1 respectively. It is provided
in the Partnership Deed that on the death of any partner, her share of goodwill was to be valued at
half of the profits credited to her account during the four previous completed years.
Riya died on 1st January, 2012. The firm’s profits for the last four years were: 2008—` 1,20,000;
2009—` 80,000; 2010—` 40,000 and 2011—` 80,000. Determine the amount that should be
credited to Riya in respect of her share of Goodwill. On the date of Riya’s death, one of the
old Debtors whose account was closed last year by transfering his debt amounting to ` 8,000
to Bad Debts Account, has now promised to pay the amount fully.
Pass necessary Journal entries for the above mentioned transactions at the time of Riya’s
death. (AI 2012 C)

Solution:
Firm’s total profits for last four years = ` 1,20,000 + ` 80,000 + ` 40,000 + ` 80,000 = ` 3,20,000

3
Riya’s share of last four years’ profit = ` 3,20,000 × = ` 1,20,000
8
1
Riya’s share of Goodwill = ` 1,20,000 × = ` 60,000.
2

JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2012
Jan. 1 Priya’s Capital A/c (` 60,000 × 4/5) ...Dr. 48,000
Siya’s Capital A/c (` 60,000 × 1/5) ...Dr. 12,000
To Riya’s Capital A/c 60,000
(Being Riya’s share of goodwill adjusted)
Note: No accounting entry will be passed for the promise made by a debtor whose account was closed last year by
transferring his debts amounting to ` 8,000 to Bad Debts Account, since it is an event and not a transaction.
There is another view that promise to pay be recognised as income (Bad Debts Recovered) and debtors
be increased by ` 8,000. In that case, following entries would also be passed in addition to above entry:
` `
Debtors A/c ...Dr. 8,000
To Bad Debts Recovered A/c 8,000
Bad Debts Recovered A/c ...Dr. 8,000
To Revaluation A/c 8,000
Revaluation A/c ...Dr. 8,000
To Priya’s Capital A/c 4,000
To Riya’s Capital A/c 3,000
To Siya’s Capital A/c 1,000