Page 163 - DEBKVOL-1

Chapter 7 Death of a Partner 7.5
.
Dr. C’S EXECUTORS’ ACCOUNT Cr.
Date Particulars ` Date Particulars `

2017 2017
Aug. 1 To Bank A/c 21,000 Aug. 1 By C’s Capital A/c 1,21,000
2018 2018
Jan. 31 To Bank A/c 30,000 Jan. 31 By Interest A/c 5,000
(` 25,000 + ` 5,000) (` 1,00,000 × 10/100 × 6/12)
Jan. 31 To Balance c/d 75,000
1,26,000 1,26,000
2018 2018
March 31 To Balance c/d 76,250 Feb. 1 By Balance b/d 75,000
March 31 By Interest A/c 1,250
(` 75,000 × 10/100 × 2/12)
76,250 76,250

Working Notes:
1. Calculation of Goodwill: `
(a) Total profits for past 4 years 2,80,000
(b) Average profit (` 2,80,000/4) 70,000
(c) Goodwill (` 70,000 × 2½) 1,75,000
(d ) C’s share (` 1,75,000 × 2/10) 35,000
2. C’s share of profit to the date of death = ` 75,000 × 4/12 × 2/10 = ` 5,000.
Illustration 4.
The Balance Sheet of X, Y and Z who are sharing profits in the ratio of 2 : 3 : 1, as at 31st March,
2018 is given below:

Liabilities ` Assets `
X’s Capital A/c 2,00,000 Goodwill 24,000
Y’s Capital A/c 4,00,000 Land and Building 5,00,000
Z’s Capital A/c 6,00,000 12,00,000 Investments 1,00,000
Workmen Compensation Reserve 40,000 (Market Value ` 92,000)
Investments Fluctuation Reserve 20,000 Stock 1,60,000
Provision for Doubtful Debts 20,000 Debtors 6,00,000
Creditors 7,20,000 Bank 5,92,000
Advertising Suspense A/c 24,000
20,00,000 20,00,000
Z died on 1st April, 2018 and X and Y decided to share future profits and losses in the ratio
of 3 : 2 and 50% of the amount payable to Z is to be paid immediately and the balance in two
equal instalments together with interest @ 10% p.a.
Other Information:
(i) Goodwill is to be valued at two years’ purchase of average profits of last three completed
years. The profits were—2015–16 ` 90,000; 2016–17 ` 1,80,000 and 2017–18 ` 2,70,000.
(ii) Land and Building was found undervalued by ` 50,000 and Stock was found overvalued
by ` 16,000.
(iii) Provision for Doubtful Debts is to be made equal to 5% of the Debtors.
(iv) Claim on account of Workmen Compensation is ` 16,000.
Pass necessary Journal entries and prepare the necessary Ledger Accounts and the Balance
Sheet of the new firm.