Question

Following is the Balance Sheet of Prateek, Rockey and Kushal as on March 31, 2017.

Books of Prateek, Rockey and Kushal
Balance Sheet as on March 31, 2017
Liabilities		Amount Rs	Assets	Amount Rs
Sundry Creditors		16,000	Bills Receivable	16,000
General Reserve		16,000	Furniture	22,600
Capital Accounts:			Stock	20,400
Prateek	30,000		Sundry Debtors	22,000
Rockey	20,000		Cash at Bank	18,000
Kushal	20,000	70,000	Cash in Hand	3,000
		1,02,000		1,02,000

Rockey died on June 30, 2017. Under the terms of 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% per annum.

c) Share of goodwill on the basis of twice the average of the past three years’ profit and

d) Share of profit from the closing date of the last financial year to the date of death on the basis of last year’s profit.

Profits for the year ending on March 31, 2015, March 31, 2016 and March 31, 2017 were Rs 12,000, Rs 16,000 and Rs 14,000 respectively. Profits were shared in the ratio of capitals.

Pass the necessary journal entries and draw up Rockey’s capital account to be rendered to his executor.

Answer 1

Books of Prateek and Kushal Journal
Date	Particulars			L.F.	Amount Rs	Amount Rs
2017
June 30	Interest on Capital A/c		Dr.		250
	Profit and Loss (Suspense) A/c		Dr.		1,000
	General Reserve A/c		Dr.		4,571
	To Rockey’s Capital A/c					5,821
	(Share of profit, interest on capital and share of General Reserve credited to Rockey’s Capital Account)
June 30	Prateek’s Capital A/c		Dr.		4,800
	Kushal’s Capital A/c		Dr.		3,200
	To Rockey’s Capital A/c					8,000
	(Rockey’s share of goodwill adjusted to Prateek’s and Kushal’s Capital Account in their gaining ratio, 3:2)
June 30	Rockey’s Capital A/c		Dr.		33,821
	To Rockey Executor’s A/c					33,821
	(Balance of Rockey’s Capital Account transferred to his Executor’s Account)

Rockey’s Capital Account
Dr.					Cr.
Date	Particulars	J.F.	Amount Rs	Date		Particulars	J.F.	Amount Rs
2017				2017
April 1	Rockey's Executor A/c		33,821	April 1		Balance b/d		20,000
						Interest on Capital		250
						Profit and Loss (Suspense) A/c		1,000
						General Reserve		4,571
						Prateek’s Capital		4,800
						Kushal’s Capital		3,200
			33,821					33,821

Working Notes:

1. Rockey’s Share of Profit = Previous year’s profit × Proportionate Period × Share of Deceased Partner

=

2. Rockey’s Share of Goodwill

Goodwill of a firm = Average profit × Numbers of year’s Purchase

Goodwill of a firm = 14,000 × 2 = Rs 28,000

3. Gaining Ratio = New Ratio − Old Ratio

Gaining Ratio between Prateek and Kushal = 9:4 or 3:2

4. Interest on Capital for 3 months i.e. from April 1, 2017 to June 30, 2017

Amount of × Rate of Interest × Period