NOTES

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

Notes of Partnership Accounts - Death of a Partner (Old & New)

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

   
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2. 1.    The balance sheet of seed, plant and Flower as at 31^st 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 1^st 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. 
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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 31^st 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 30^th September,2016. The books of accounts are closed on calendar year basis from 1^st january to 31^st December.

   The balance in the Fixed Capital Accounts as on 1^st January,2016 were peter Rs.10,000,paaul Rs.5,000 and Prince Rs.5,000. The balance in the current account as on 1^st January,2016 were Peter Rs.20,000, Paul Rs.10,000 and Prince Rs.7,000. Drawings of peter till 30^th 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 30^th 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 30^th September,2016 along with necessary workings.
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4. Samita, Sangita and Savita were partners sharing profits and losses in the ratio of 2:2:1. Balance Sheet as on 31^st December, 2012 was as follows:

   Balance Sheet As on 31^st 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 31^st 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 1^st April, 2013.
   

   
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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
   

   
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