Question

PRACTICAL PROBLEM

Sheetal, Anjali, Rajendra were sharing profits and losses as 7:5:4. Their Balance sheet as on 31^st March, 2011:

Balance Sheet as on 31st March 2012
Dr.					Cr.
Liabilities		Amount Rs	Assets	Amount Rs
Capital			Furniture	17,000
Sheetal		23,000	Machinery	18,000
Anjali		15,000	Building	16,000
Rajendra		12,000	Cash	37,000
Bills Payable		4,000
Creditors		8,000
Loan		10,000
General Reserve		16,000
		88,000		88,000

Rajendra died on 30^th June 2012 and the following adjustments were agreed as per deed.

1) Furniture, Machinery and Building are to be revalued at Rs 16,700/-, Rs 16,200, to Rs 30,100.

2) Rajendra’s share is goodwill to be valued from firm’s goodwill which was valued at two times the average profit of last three years. Profits of last three years Rs 30,000, Rs 25,000, Rs 20,000/-.

3) His profit upto the date of death is to be calculated on the basis of last years profit.

4) Rajendra was entitled to get a salary of Rs 800/-per month.

5) Interest on capital at 10% be allowed.

6) Rajendra’s drawing upto date of death were Rs 600 p.m.

Prepare:

1) Rajendra’s Capital A/c showing amount payable to his executor

2) Give working of share of goodwill and profit

Answer 1

Rajendra’s Capital Account
Dr.	Cr.
Particulars		A	Particulars	A
Drawings		1,800	Balance b/d	12,000
Executor’s A/c		33,650	Profit and Loss Adjustment A/c (Profit)	3,000
			Goodwill	12,500
			Profit and Loss Suspense A/c	1,250
			Salary	2,400
			Interest on Capital	300
			General Reserve	4,000
		35,450		35,450

Working Notes:

WN1: Calculation of share of Goodwill of Rajendra

WN2: Calculation of Share of Profit of Rajendra

WN3: Rajendra’s Share of General Reserve


Note:
WN4: Profit and Loss Adjustment Account

Profit and Loss Adjustment Account
Dr.	Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Furniture			300	Building	14,100
Machinery			1,800
Profit transferred to:
Sheetal’s Capital		5,250
Anjali’s Capital		3,750
Rajendra’s Capital		3,000	12,000
			14,100		14,100

Note: As per the book amount payable to Rajendra’s Executor is Rs 33,350 but as per our solution it is Rs 33,650.