Question

​A, B and C were partners in a firm sharing profits in the ratio of 5 : 3 : 2. On 31st March, 2018, their Balance Sheet was as follows:​

Liabilities		₹	Assets	₹
Creditors		11,000	Building	20,000
Reserves		6,000	Machinery	30,000
A's Loan A/c		5,000	Stock	10,000
Capital A/cs:			Patents	11,000
A	25,000		Debtors	8,000
B	25,000		Cash	8,000
C	15,000	65,000
		87,000		87,000

A died on 1st October, 2018. It was agreed among his executors and the remaining partners that:
(i) Goodwill to be valued at $2^{\raisebox{1ex}{$1$}\!\left/ \!\raisebox{-1ex}{$2$}\right.}$ years' purchase of the average profit of the previous 4 years, which were 2014-15: ₹ 13,000; 2015-16: ₹ 12,000; 2016-17: ₹ 20,000 and 2017-18: ₹ 15,000.
(ii) Patents be valued at ₹ 8,000; Machinery at ₹ 28,000; and Building at ₹ 25,000.
(iii) Profit for the year 2017-18 be taken as having accrued at the same rate as that of the previous year.
(iv) Interest on capital be provided @ 10% p.a.
(v) Half of the amount due to A to be paid immediately to the executors and the balance transferred to his (Executors') Loan Account.
Prepare A's Capital Account and A's Executors' Account as on 1st October, 2018.

Answer 1

A’s Capital Account
Dr.					Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
Bank A/c		28,450	Balance b/d	25,000
A’s Executors A/c		28,450	Reserve (WN1)	3,000
			B’s Capital A/c (Goodwill)	11,250
			C ’s Capital A/c (Goodwill)	7,500
			Profit & Loss Suspense	3,750
			Interest on Capital (WN2)	1,250
			A's Loan A/c (WN6)	5,150
		56,900		56,900

A’s Executors Account
Dr.					Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
Bank A/c		28,450	A’s Capital A/c	56,900
A’s Executors Loan Account		28,450
		56,900		56,900

Working Notes:

WN1: Calculation of Share in Reserve

$\text{Reserve}=\frac{6,000\times 5}{10}=\text{Rs 3,000}$
WN2: Calculation of Interest on Capital

$\text{Interest on capital}=\frac{25,000\times 10\times 6}{100\times 12}=\text{₹ 1,250}$
WN3: Calculation of Profit & Loss Suspense

$\text{Profit \& loss Suspense}=\frac{15,000\times 5\times 6}{10\times 12}=\text{Rs 3,750}$
WN4: Calculation of Share in Revaluation Profit/Loss

$\text{Revaluation}=\text{Nil}(-3,000-2,000+5,000)$
WN5: Calculation of Share in Goodwill

$$\begin{gathered} \begin{array}{l}\text{Goodwill}=\text{Average Profit}\times \text{No. of Years' Purchase}\\ =15\text{,000}\times 2.\text{5}=\text{Rs 37,500}\\ \text{A's share in Goodwill =37,500}\times \frac{5}{10}=\text{Rs 18,750}\\ \text{A's share of Goodwill will be brought by B \& C in 3:2}\\ \text{B's Capital will be debited by 18,750}\times \frac{3}{5}=11,250\\ \text{C's Capital will be debited by 18,750}\times \frac{2}{5}=7,500\end{array} \\ \begin{array}{l}\text{Average Profit}=\frac{\text{Total Profits of past years' given}}{\text{Number of years}}\\ =\frac{13,000+12,000+20,000+15,000}{4}=\text{Rs 15,000}\end{array} \end{gathered}$$
$$\begin{gathered} WN6:LoanAmounttobetransferredtoA\text{'}sCapitalA/c \\ \mathrm{A}\text{'}\mathrm{s}\mathrm{Loan}=₹5,000 \\ \mathrm{Interest}\mathrm{on}\mathrm{Loan}\mathrm{till}\mathrm{the}\mathrm{date}\mathrm{of}\mathrm{death}=₹\left(5,000\times \frac{6}{100}\times \frac{6}{12}\right)=₹150 \\ \mathrm{Total}\mathrm{of}\mathrm{Loan}\mathrm{Amount}\mathrm{transferred}\mathrm{to}\mathrm{A}\text{'}\mathrm{s}\mathrm{Capital}\mathrm{A}/\mathrm{c}=₹(5,000+150)=₹5,150 \end{gathered}$$