NOTES


CA-Foundation > Principles and Practice of Accounting > Partnership Accounts - Death of a Partner >


Partnership Accounts - Death of a Partner Notes

  1. Explain distinction between retirement and death of a partner as relating to finalisation of amount payable.

  2. 1.    The balance sheet of seed, plant and Flower as at 31st December,2016 was as under:

    Liabililties

     

    Rs.

    Assets

    Rs.

    Trade payables

     

    20,000

    Fixed Assets

    40,000

    General Reserve

     

    5,000

    Debtors

    10,000

    Capital:

     

     

    Bills receivable

    4,000

       Seed

    25,000

     

    Inventories

    16,000

       Plant

    15,000

     

    Cash at bank

    10,000

       Flower

    15,000

    55,000

     

     

     

     

    80,000

     

    80,000

    The profit sharing ratio was Seed 5/10, Plant 3/10 and Flower  2/10. On 1st may, 2017 Plant died. It was agreed that.
    a)   
    Goodwill should be valued at 3 years purchase of the average profits for 4 years. The profits were:

    2012

    Rs.10,000

        2014

    Rs.12,000

    2013

    Rs.13,000

        2015

    Rs.15,000

    b)    The deceased partner to be given share of profits upto the date of death on the basis of the previous year.
    c)   
    Fixed assets were to be depreciated by 10%. A bill for Rs.1,000 was found to be worthless. These are not to affect goodwill.
    d)   
    A sum of Rs.7,750 was to be paid immediately, the balance was to remain as a loan with the firm at 9% p.a. as interest.
    Seed and Flower agreed to share profits and losses in future in the ratio of 3:2.
    Give necessary Journal entries.
     
  3. Peter, Paul and prince were partners sharing profits and losses in the ratio 2:1:1. It was provided in the partnership deed that in the event of retirement/death of a partner he/his legal representatives would be paid:

    (i)The balance in the capital account

    (ii) His share of goodwill of the firm valued at two years purchase of normal average profits (after charging interest on fixed capital) for the last three years to 31st December  preceding the retirement or death.

    (iii) His share of profits from the beginning of the accounting year of to the date of retirement or death which shall be taken on proportionate basis of profits of the previous year as increased by 25%

    (iv) Interest on fixed capital at 10% p.a through payable to the partners will not be payable in the year of death or retirement.

    (v) All the assets are to be valued on the date of retirement or death and the profit and loss be debited/credited to the capitals accounts in the profit sharing ratio.

    Peter died on 30th September,2016. The books of accounts are closed on calendar year basis from 1st january to 31st December.

    The balance in the Fixed Capital Accounts as on 1st January,2016 were peter Rs.10,000,paaul Rs.5,000 and Prince Rs.5,000. The balance in the current account as on 1st January,2016 were Peter Rs.20,000, Paul Rs.10,000 and Prince Rs.7,000. Drawings of peter till 30th September,2016 were Rs.1,00,000, Rs.1,20,000 and Rs.1,50,000 respectively. The profits include the following abnormal items of credit:-

     

    2013

    Rs.

    2014

    Rs.

    2015

    Rs.

    Profit on sale of assets

    5,000

    7,000

    10,000

    Insurance claimed received

    3,000

    -

    12,000

      The firm has taken out a Joint Life Policy for Rs.1,00,000. Besides the partners had severally insured their lives for Rs.50,000 each, the premium in respect thereof being charged on the Profit and Loss account. The surrender value of the policies were 30% of the face value. On 30th june,2016 the firm received notice from the insurance company that the insurance premium in respect of fire policy had been undercharged to the extent of Rs.6,000 in the year 2015 and the firm has to pay immediately. The revaluation of the assets indicates an upward revision in value of assets to the extent of Rs.20,000. Prepare an account showing the amount due to Peter’s Legal representatives as on 30th September,2016 along with necessary workings.
  4. Samita, Sangita and Savita were partners sharing profits and losses in the ratio of 2:2:1. Balance Sheet as on 31st December, 2012 was as follows:

    Balance Sheet As on 31st December, 2012 

    Liabilities

    Rs.

    Assets

    Rs.

    Capital Accounts

     

    Plant & machinery

    41,850

    Samita

    30,000

    Investment

    22,500

    Sangita

    22,500

    Stock

    18,000

    Savita

    30,000

    Sundry Debtors          15,600

     

    Sundry Creditors

    16,500

    Less: R.D.D.                    600

    15,000

    Outstanding Expenses

    4,500

    Cash

    6,150

     

    1,03,500

     

    1,03,500

     

    Sangita died on 31st March, 2013. The following adjustments were made in the books of the firm:

    1.  R.D.D. is no longer necessary.

    2.  Investments worth Rs. 15,000 were taken over by Savita and remaining investments were sold at a profit of Rs. 1,000.

    3.  Stock was valued at Rs. 22,500 and Plant and Machinery was depreciated by 10%.

    4.  A contingent liability for compensation Rs. 535 is to be provided.

    5.  Goodwill of the firm was valued at Rs. 15,000. It should be raised and w. off

    6.  The deceased partner’s share in profit up-to the date of death was to be calculated on the basis of last year’s profit which was Rs. 12,000.

    Prepare Profit & Loss Adjustment Account, Partner’s Capital Account and Balance Sheet as on 1st April, 2013.

  5. Chaya, Maya and Ria were partners sharing profits and losses in the ratio of 4:3:3. Their Balance sheet was as follows:

     Balance Sheet as on 31/03/2012 

    Liabilities

    Rs.

    Assets

    Rs.

    Capital:

                 Chhaya

                 Maya

                 Riya

     

    35,000

    35,000

    20,000

    Sundry Assets

    Stock

    75,000

    25,000

    General Reserve

    10,000

    Sundry Debtors            30,000

     

    Profit & Loss A/c

    12,000

    (-) Res for bad debt        1,000

    29,000

    Creditors

    28,000

    Cash

    11,000

     

    1,40,000

     

    1,40,000

     

    Ria died on 31/7/12 and the following terms were agreed:

    (1)Goodwill is to be valued at two years purchase of the average profit for the last five years. Trading results were: 07-08 Rs. 6,000 (P), 08-09 Rs. 8,000 (P), 09-10 Rs. 18,000 (P), 10-11 Rs. 9,000 (L), 11-12 Rs.12,000 (P).

    (2)  Profit up-to the date of Ria’s death to be calculated on the basis of last year’s profit.

    (3)  Sundry assets to be appreciated by 10% and stock to be depreciated by Rs. 1,500.

    (4)  All the debts are good and provision for doubtful debts is no longer necessary.

    (5)  An item of Rs. 2,000 included in creditors no longer a liability and should be written off.

    (6)  Amount due to Ria is to be transferred to executor’s loan.

    Prepare : (1) Revaluation Account  (2) Ria’s Capital Account

  6. Shakti, Yukti and Mukti were partners sharing profits and losses in the proportion to their capitals. Their Balance sheet of the firm on 31st March, 2013 was as under:

    Balance Sheet as on 31/03/2013 

    Liabilities

    Rs.

    Assets

    Rs.

    Capital :

                 Shakti

                  Yukti

                  Mukti

     

    60,000

    40,000

    20,000

    Land & Building

    Investment

    80,000

    40,000

     

     

    Sundry Debtors              32,000

     

    Reserve fund

    36,000

    (-) Res for bad debt          4,000

    28,000

    Creditors

    56,000

    Stock

    36,000

     

     

    Cash

    28,000

     

    2,12,000

     

    2,12,000


    Mukti died on 01/08/13 and the following terms were agreed:

    (a)  Assets were revalued as- Land & building Rs. 88,000, Investments Rs. 36,000 and Stock Rs. 34,000.

    (b)  All debtors were good.

    (c)  Goodwill of the film valued at two times the average profit of the last 4 year’s profit.

    (d)  Mukti’s share of profit up-to his death to be calculated on the basis of average profit of the last 2 years.

    (e)  Profits for the last four years were Rs. 12,000, Rs. 24,000, Rs. 14,000 and Rs. 22,000.

    Prepare: Necessary accounts.
  7. Baburao, Jotirao and Govindrao were partners sharing profits and losses in proportion to their capitals. Position of their firm on 31st December 1989 was as follows. 

    Liabilities

    Rs.

    Assets

    Rs.

    Capital A/c

    Baburao

    Jotirao

    Govindrao

    Reserve Fund

    Sundry Creditors

     

    80,000

    60,000

    60,000

    15,000

    50,000

    Plant and Machinery

    Building

    Debtors

    Stock

    40,000

    60,000

    50,000

    1,15,000

     

     

    2,65,000

     

    2,65,000

     

    Baburao died on 31st August 1990 who had appointed his son Ganpat as nominee who is willing to keep the amount due to him as loan in the partnership of Jotirao and Govindrao. 

    a.  The goodwill of the firm is fixed at Rs. 20,000 and Baburao’s Share in the same is to be adjusted in the capital accounts of Jotirao and Govindrao who are going to share as 3:2 in future.

    b.  Building is valued at 80% of its books value.

    c.  Plant & Machinery be depreciated by Rs. 2,000.

    d.  The deceased partner’s share in the profit from the date of last balance sheet to the date of death is to be fixed on the basis of average profit of last four years is Rs. 12,000.

    Prepare: Profit and Loss Adjustment A/c Partner’s Capital A/c and Balance Sheet as on that date.

  8. Supriya, Surekha and Sujata were partners sharing P & L in the ratio of 2:2:1 respectively.

    Their Balance Sheet as on 31st March, 2012 was as follows:

                    Balance Sheet as on 31st March 2012

    Liabilities

    Amount

    (Rs.)

    Assets

    Amount

    (Rs.)

    Capital A/c’s

     

    Land & Building

    50,000

    Supriya

    40,000

    Stock

    30,000

    Surekha

    40,000

    Debtors   37,500

    35,000

    Sujata

    20,000

    (-) R.D.D   2,500

     

     

     

    Furniture

    10,000

    Reserve Fund

    10,000

    Cash at Bank

    5,000

    Creditors

    16,000

     

     

    Outstanding Expenses

    4,000

     

     

     

    1,30,000

     

    1,30,000

    Sujata died on 1st July, 2012 and the adjustments were agreed to as per the deed as follows:

    Land and building to be valued at Rs. 60,000 and all debtors were good.

    Stock be depreciated by 10%.

    The drawing of sujata up to the date of her death amounted to Rs. 2,000.

    Interest on capital was to be allowed at 10% p.a.

    The deceased partners share of goodwill is to be valued at 2 years purchase of average profit of last 3 years

    The profits were:

    2009-10 = Rs. 15,000; 2010-11 = Rs. 17,000; 2011-12 = Rs. 13,000

    The deceased partner’s share of profit up to the date of her death should be based on average profit of the last two years

    You are required to prepare:

    Profit and Loss Adjustment account

    Sujata’s Capital Account showing the balance payable to her Executor’s Loan Account.

    Working notes for calculation of (a) Goodwill and (b) Profit till the date of Sujata’s death.

  9. Asha, Lata and Nisha were partners in a firm sharing profits and losses in the ratio of 6:4:2 Resp. On 31st December, 1991 their Balance sheet was as follows.

    Liabilities

    Rs.

    Assets

     

    Rs.

    Creditors

    10,000

    Cash

     

    1,000

    Bills Payable

    3,000

    Bills Receivable

     

    4,000

    General Reserve

    12,000

    Debtors

    60,000

     

    Capital A/c:

     

    Less : R. B. D.

    4,000

    56,000

    Asha

    60,000

    Investments

     

    50,000

    Lata

    40,000

    Land and Buildings

     

    34,000

    Nisha

    20,000

     

     

     

     

    1,45,000

     

     

    1,45,000

    On 30th June, 1992 Nisha died and it was agreed that.

    a.    Assets were revalued at: Land & Building Rs. 40,000, Investment at Rs. 47,200.

    b.    All debtors were recoverable.

    c.Goodwill of the firm shall be valued at twice of average profit of last 4 years. Profit for last 4 years: 1988 – Rs. 90,000 89 – Rs. 90,000 90 – Rs. 80,000 91 – Rs. 1,00,000. The goodwill A/c is to be raised.

    d.    Nisha’s share of profit to the date of her death was to be calculated on the basis of AP of last 2 years.

    Prepare: Profits & Loss Adj. A/c & Capital A/C & Balance Sheet of Asha & Lata.

  10. The following was the Balance Sheet of M/s Bharat Trading Company:

    Balance Sheet as on 30th September, 2007

    Liabilities

    Rs.

    Assets

    Rs.

    Creditors

    60,000

    Cash on hand

    8,000

    General Reserve

    64,000

    Stock

    57,000

    Capital :

     

    Debtors

    51,000

       Nanda

    60,000

    Motor Truck

    84,000

       Manda

    40,000

    Building

    64,000

       Kunda

    40,000

     

     

     

    2,64,000

     

    2,64,000

    Kunda died on 1st January, 2008.

    You are required to show the Capital Account of all partners and also Kunda’s Executor’s Account after taking into consideration the following information:

    a)    Kunda was entitled to receive her capital and her share in the reserves, if any, standing on the date of the last Balance Sheet.

    b)    Her share of profit till the date of her death was to be calculated on the basis of the average of the profits for the last three years.

    c)    Goodwill was to be valued as equal to the profit for the last three preceeding years and Kunda’s share in it was to be credited to her Capital Account.

    d)    The Goodwill Account was to be written off immediately.

    e)    Profits for the last three years were :

              2004-05: Rs.64,000; 2005-06 : Rs.65,000; 2006-07 : Rs.63,000.

    f)     The partners shared profits and losses in the ratio of 2 : 1 : 1.

  11. Ambalal, Babulal and Kaluram sharing profits and losses as 7 : 5 : 4 had the following Balance Sheet :

    Balance Sheet as on 31st December, 2007

    Liabilities

    Rs.

    Assets

    Rs.

    Bills Payable

    2,350

    Cash at Bank

    21,850

    Creditors

    5,450

    Bills Receivable

    950

    Loan

    14,200

    Debtors

    16,250

    Reserve Fund

    16,000

    Stock

    9,550

    Capitals :

     

    Furniture

    2,000

      Ambalal

    22,000

    Machinery

    6,800

      Babulal

    16,000

    Building

    30,600

      Kaluram

    12,000

     

     

     

    88,000

     

    88,000

    Kaluram died on 1st April, 2008 and the following adjustments were agreed as per deed :

    a)     Goodwill is to be valued at two times the average profit for the last four years which were :

    2004- Rs.6,400: 2005 – Rs.4,000; loss, 2006 – Rs.17,600 : 2007 – Rs.20,000.

    b)     Kaluram’s share in the profits up to the date of his death is to be calculated on the basis of the average for the last three years.

    c)    Buildings and Machinery are to be revalued at Rs.44,000 and Rs.5,400 respectively.

    d)    Kaluram is entitled to a salary of Rs.700 a month.

    e)    Interest on capital is to be 10% p.a.

    f)     Kaluram’s drawings from 1st January, 2006 upto his death were Rs.600 p.m.

    Prepare:

    I.      Kalkuram’s capital Account showing the amount payable to his executors.

    II.    Give the working for deceased partner’s share of profit & the share of goodwill. 

  12. Rekha, Mukta and Seema were partners in a firm sharing profits & losses in the ratio of 3 : 2 : 1 respectively. On 31st Dec, 2007 their Balance Sheet was as follows :

    Balance Sheet as at 31st December, 2007

    Liabilities

    Rs.

    Assets

     

    Rs.

    Creditors

    30,000

    Cash

     

    3,000

    Bills Payable

    9,000

    Bills Receivable

     

    12,000

    General Reserve

    36,000

    Debtors

    1,80,000

     

    Capitals :

     

    Less:- R. B.D. 

    12,000

    1,68,000

       Rekha

    1,80,000

    Investment

     

    1,50,000

       Mukta

    1,20,000

    Land and Buildings

     

    1,02,000

       Seema

    60,000

     

     

     

     

    4,35,000

     

     

    4,35,000

    On 30th June, 2008; Seema died and it was agreed that:

    a)     The assets be revalued as: Land & Building: Rs.1,20,000, Investment: Rs.1,41,600.

    b)    All debtors were good.

    c)    Goodwill of the firm is to be raised at Rs.60,000.

    d)    Seema;s share of profit to the date of her death was to be calculated on the basis of average profit of last two years. Profit were : 2004 – Rs.,160,000; 2005 – Rs.2,00,000.

    Prepare: P & L Adj. A/c, Partner’s Capital A/c & Balance Sheet of the new firm.

  13. Gopal, Ganesh and Girish were partners in a business sharing profit and losses in the ratio of 2:1:1 resp. Their Balance Sheet as on 31st December, 1986 was as follows.

    Liabilities

    Rs.

    Rs.

    Assets

    Rs.

    S. Creditors

     

    3,000

    Land & Buildings

    6,000

    General Reserve

     

    1,600

    Sundry Debtors

    5,000

    Capital A/c

     

     

    Stock

    4,000

    Gopal

    6,000

     

    Bank

    5,000

    Ganesh

    5,000

     

     

     

    Girish

    4,400

    15,400

     

     

     

     

    20,000

     

    20,000

    Gopal dies on 1st April, 1987.

    a.   The partnership Deed provided that A) the deceased partner’s share of profit upto date of his death should be based on the average profits of the last two years. B) his share of goodwill should be calculated at three years purchase of the average of the profits for the last four years profits which were : 1983 – Rs. 16,000/-, 1984 – Rs. 12,000, 1985- Rs. 8,000/- 1986 Rs. 4,000/-

    b.   Land and Building was to be revalued at Rs. 7,000/- and R. D. D. was to be created at Rs. 200/-

    c.   Interest on Capital was to be allowed at 10% p.a. and charged interest on Drawings Rs. 100/-

    d.   The drawings of Gopal upto the date of his death amounted to Rs. 1,000/-

    Prepare:

    a)   Profit and Loss Adjustment A/c.

    b)   Give working of share of profit and share of goodwill of Gopal.

    c)   Gopal’s Capital A/c showing amount payable to his executors.

  14. The Balance Sheet of Mohan, Subhash & Babi as on 31st December, 2011 was as under. They were sharing profits and losses in the ratio of 2:1:1.

    Balance Sheet as on 31st December 2011

    Liabilities

    Amount

    Assets

    Amount

    Capital

     

    Investments

    20,000

    Mohan

    25,000

    Buildings

    33,000

    Subhash

    15,000

    Debtors

    12,000

    Babi

    15,000

    Stock

    28,000

    Creditors

    30,000

    Cash

    8,000

    Reserve

    16,000

     

     

     

    1,01,000

     

    1,01,000

    Babi died on 1st July, 2012 and partnership deed provided that in the event of death of the partner his executor will be entitled to be paid out.

    1)    Capital to the credit at the date of last balance sheet.

    2)    Proportion of reserves.

    3)    Proportion of goodwill to be calculated twice the average profits of last three years.

    4)    His proportion of profits to the date of death based on the average profits of last 3 years plus 20%.

    5)    The net profits for last 3 years Rs. 18,000; Rs. 18,000; Rs. 16,500.

    6)    Babi had withdrawn Rs. 6,000 to the date of her death.

    7)    The investments were sold at par and the amount was paid off Babi’s executor and the balance was transferred to loan A/c.

    Prepare:

    Babi’s Capital A/c only.

  15. Vishnu, Prabhakar and Krishna were partners in a business sharing profits and losses in the ratio of 3:1:1 respectively. Their Balance Sheet as on 31st March, 2012 was as follows:

    Balance Sheet as on 31st March, 2012

    Liabilities

    Amount

    Assets

    Amount

    Capital

     

    Plant and Machinery

    35,000

    Vishnu

    40,000

    Stock

    25,000

    Prabhakar

    30,000

    Debtors

    20,000

    Krishna

    25,000

    Cash

    30,000

    Creditors

    5,000

     

     

    Reserve Fund

    10,000

     

     

     

    1,10,000

     

    1,10,000

    Krishna died on 1st October, 2012 and the partnership deed provided that:

    1)    The deceased partner to be given his share of profit to the date of death on the basis of the profits of the previous year.

    2)    His share of goodwill will be calculated on two years purchase of average profit of the last 4 years. The net profit for last 4 years were - Rs. 70,000; Rs. 55,000; Rs. 45,000; Rs. 30,000

    3)    Plant and Machinery to be valued at Rs. 40,000. Reserve for doubtful debts of Rs. 2,000 to be created.

    4)    The drawings of Krishna upto the death amounted to Rs. 20,000.

    5)    Interest on capital at 10% p.a. is to allowed and 6% p.a. to be charged on drawings. Both the interest be calculated for 6 months.

    Prepare:

    Krishna’s capital A/c and P/L Adjustment A/c 

  16. Minaxi, Ramesh and Poonam were partners sharing profits and losses in the proportion to their capitals. Their Balance Sheet of the firm on 31st March, 2012 was as under:

    Balance Sheet as on 31st March, 2012

    Liabilities

    Amount

    Assets

    Amount

    Amount

    Capital

     

     

     

    40,000

    Minaxi

    30,000

    Investment

     

    20,000

    Ramesh

    20,000

    Debtors

    16,000

     

    Poonam

    10,000

    Less: R.D.D.

    2,000

    14,000

    Creditors

    28,000

    Debtors

     

    18,000

    Reserve

    18,000

    Bank

     

    14,000

     

    1,06,000

     

     

    1,06,000

    Poonam died on 1st August, 2012 and the following adjustments were made

    a.    Assets revalued as under – Land and Building Rs. 44,000; Investments Rs. 18,000; Stock Rs. 17,000

    b.    All debtors were good.

    c.    Goodwill of the firm valued at two times the average profits of the last 4 years. No goodwill account to be shown in the books of the firm.

    d.    Poonam’s share of profit upto her death to be calculated on the basis of average profits of last 2 years.

    e.    Profits were Rs. 6,000; Rs. 12,000; Rs. 7,000; Rs. 11,000

    Prepare:

    1)   Profits and Loss Adjustment A/c

    2)   Balance Sheet as on 1st August, 2012

  17. Following is the Balance Sheet of Black, Brown and White as on 31st March -

    Liabilities

    Rs.

    Assets

    Rs.

    Capital A/c’s;

     

     

    Plant and Machinery

    1,00,000

    Black

    1,00,000

     

    Stock

    40,000

    Brown

    50,000

     

    Sundry Debtors

    60,000

    White

    50,000

    2,00,000

    Cash at Bank

    50,000

    Reserve Fund

     

    32,000

    Cash in Hand

    2,000

    Sundry Creditors

     

    20,000

     

     

    Total

    2,52,000

    Total

    2,52,000

    White died on 30th June. Under the Partnership Deed, the Executors of a Deceased Partner were entitled to -

    (a) Amount standing to the credit of the Partner’s Capital Account.

    (b) Interest on Capital at 5% p.a.

    (c) Share of Goodwill on the basis of twice the average of the past three years’ profits.

    (d) Share of Profits from the closing of last financial year to the date of death, on the basis of the last year’s profits.

    White’s Share of Goodwill will be adjusted to the accounts of Black and Brown who will maintain a Profit-Sharing Ratio of 2:1 in the new Firm. They decide not to raise any Goodwill Account.

    Profits for 2005, 2006 and 2007 were Rs. 80,000 Rs. 90,000 and Rs. 1,00,000 respectively. Profits were shared in the ratio of capitals.

    Pass the necessary Journal Entries and draw up White’s Account to be rendered to his Executors.

  18. Akash, Badri and Charu were Partners of a Firm, sharing Profits and Losses in the ratio of 3:4:3. The Balance Sheet of the Firm as at 31st March 2017 as under:

    Capital and Liabilities

    Rs.

    Properties and Assets

    Rs.

    Capital Accounts: Akash

    48,000

    Non-Current Assets: Fixed Assets

    1,00,000

    Badri

    64,000

    Current Assets:

     

    Charu

    48,000

    Stock

    30,000

    Reserve

    20,000

    Debtors

    60,000

    Current Liabilities: Creditors

    40,000

    Cash & Bank

    30,000

    Total

    2,20,000

    Total

    2,20,000

    The Firm had taken a Joint Life Policy for Rs. 1,00,000. The premium periodically paid was charged to P&L A/c. Partner Charu died on 30th September 2017. It was agreed between the surviving Partners, and the legal representatives of Charu that -

    1. Goodwill of the Firm will be taken at Rs. 60,000.

    2. Fixed Assets will be written down by Rs. 20,000.

    3. In lieu of profits, Charu should be paid at the rate of 25% p.a. on his Capital as on 31st March 2017.

    Policy Money was received and the legal heirs were paid off. The Profits for the year-ended 31st March 2018 after charging Depreciation of Rs. 10,000 (Depreciation up to 30th September was agreed to be Rs. 6,000) were Rs. 48,000.

    Partners Drawings Accounts showed balances as under: (1) Akash - Rs. 18,000 (drawn evenly over the year), (2) Badri - Rs. 24,000 (drawn evenly over the year), and (3) Charu - Rs. 20,000 (upto date of death)

    On the basis of the above figures, indicate the entitlement of the legal heirs of Charu, assuming that they had not been paid anything other than the share in the Joint Life Policy.

  19. Ramu, Shamu and Raju were Partners sharing profits and losses in the ratio of 3:2:2. Their Balance Sheet as on 01.01.2017 was as follows -

    Capital and Liabilities

    Rs.

    Properties and Assets

    Rs.

    Capital Accounts

     

     

    Non-Current Assets: Fixed Assets

     

    Ramu

    30,000

     

    Current Assets:

    80,000

    Shamu

    20,000

     

    Stock

    15,000

    - Raju

    20,000

    70,000

    Debtors

    12,000

    Reserves

     

    14,000

    Cash & Bank

    1,951

    Current Liabilities: Creditors

     

    24,951

     

     

    Total

     

    1,08,951

    Total

    1,08,951

    On 1st October 2017, Ramu died. His heirs agreed that -

    (a) Goodwill of the Firm be valued at 2 years’ purchase of Average Profit of past three years. Profits for the year 2010, 2011 and 2012 were Rs. 30,000, Rs. 40,000 and Rs. 47,600 respectively.

    (b) Fixed Assets be revalued at Rs. 1,01,000.

    (c) Profit to be shared, earned in subsequent period after death of Ramu, till settlement of his Executors’ Claim.

    Ramu’s Heirs Account was settled on 31.12.2017 by bringing in required cash by Remaining Partners in equal proportion, leaving cash balance of Rs. 1,234. Each Partner had drawn at Rs. 1,000 per month for personal use.

    Profit for the current year after charging depreciation of Rs. 9,000 (Rs. 6,000 for first three quarters and Rs. 3,000 for last quarter) was Rs. 46,600 earned evenly through-out the year.

    Prepare Profit & Loss Appropriation A/c, Cash & Bank A/c, Ramu’s Executor’s A/c and Partner’s Capital Accounts for the year ended on 31.12.2017 assuming Remaining Partners’ decided not to retain Goodwill in the books.

  20. A, B and C were Partners, sharing Profits in the ratio of 5:3:2 respectively. On 31st March 2017, their B/ Sheet stood as follows -

    Capital and Liabilities

    Rs.

    Properties and Assets

    Rs.

    A’s Capital

    7,79,000

    Plant and Machinery

    13,62,000

    B’s Capital

    7,07,800

    Furniture and Fittings

    2,36,000

    C’s Capital

    6,86,200

    Stock

    7,02,000

    Creditors

    4,91,000

    Debtors

    1,91,000

     

     

    Cash at Bank

    1,73,000

    Total

    26,64,000

    Total

    26,64,000

    On 31st July 2017, A died. According to Partnership Deed, on the Death of a Partner, the Capital Account of the deceased Partner was to be credited with -

    (a) His Share of Profit for the relevant part of the year of death, calculated on the basis of Profit earned during the immediately preceding accounting year, and

    (b) His Share of Goodwill.

    Goodwill was to be valued at two year’s purchase of the Average Profits of immediately preceding three Accounting Years. The Profits as per Books of Accounts, for the preceding accounting years were -

    For the accounting year ending on

    31.03.2015

    31.03.2016

    31.03.2017

    Profits

    Rs. 3,29,000

    Rs. 3,46,000

    Rs. 3,78,000

    However, while going through the Books of Accounts on A’s death, it came to light that Rs. 30,000 worth of Wages were spent on installation of a New Machinery, but the same was not capitalised, the Machinery was put into operation on 1st October 2016. Depreciation was provided on the Machinery @ 20% p.a.

    On 1st October 2017, A’s Son D was admitted into Partnership with immediate effect on the following terms -

    (a) D would get one-fourth Share in the Profit of the Firm, while the relative Profit Sharing Ratio between B and C would remain unchanged.

    (b) The Final Balance of A’s Capital Account would be Credited to D’s Capital Account.

    (c) An adjustment would be made in the Capital Accounts for D’s Share of Goodwill. The basis of valuation of Firm’s Goodwill would be the same as was adopted at the time of the death of his Father.

    On 31st March 2018, the Profit and Loss Account of the Firm showed that the Firm had earned a Profit of Rs. 4,16,000 for the year. The respective Drawings Accounts showed that while B and C had withdrawn Rs. 60,000 each during the year, D’s Drawings totaled Rs. 30,000. The Drawings Accounts are closed at the end of the year by transfer to respective Capital Accounts.

    You are required to:

    1. Prepare a Statement showing distribution of Profits for the Accounting year ended 31st March 2018, and

    2. Pass Journal Entries for all the transactions relating to death of a Partner, D’s admission into Partnership, and at the end of the year relating to transfer of Drawings Accounts and distribution of Profit for the year.