Question

Kanu, Manu and Akansha are partners sharing profits as 20%, 30% and 50%. Kanu decided to retire with the consent of other partners and sold her share to Manu. Goodwill was valued at two and a half years purchase of the average profits of three years. Profits of these three years were Rs 50,000, Rs 70,000 and Rs 60,000. Reserve fund stood in the balance sheet at Rs 30,000 at the time of her retirement. You are required to record necessary journal entries to record above adjustments on Kanu's retirement. Also prepare her capital account to find out the amount due to her when her capital balance in the balance sheet was Rs 1,00,000 before any above adjustment.

Answer 1

JOURNAL

$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F.}& \text{Dr.(Rs)}& \text{Cr. (Rs)}\\ & \text{Reserve Fund A/c}& \text{Dr.}& & 30,000& \\ & \text{To Kanu's Capital A/c}& & & & 6,000\\ & \text{To Manu's Capital A/c}& & & & 9,000\\ & \text{To Akansha's Capital A/c}& & & & 15,000\\ & \text{(Reserve Fund transferred to Capital accounts)}& & & & \\ & \text{Manu's A/c}& \text{Dr.}& & 30,000& \\ & \text{To Kanu's Capital A/c}& & & & 30,000\\ & \text{(Kanu's share of goodwill transferred to Manu's}& & & & \\ & \text{Capital A/c)}& & & & \end{array}$

$\begin{array}{cccccc}\text{Dr}& & & \text{KANU'S CAPITAL ACCOUNT}& & \text{Cr}\end{array}$

$\begin{array}{cccc}\text{Particulars}& \text{Rs}& \text{Particulars}& \text{Rs}\\ \text{Balance c/d}& 1,36,000& \text{Balance b/d}& 1,00,000\\ & & \text{Reserve Fund}& 6,000\\ & & \text{Manu's Capital A/c}& 30,000\\ & \underset{–}{\overline{1,36,000}}& & \underset{–}{\overline{1,36,000}}\end{array}$