Question

PRACTICAL PROBLEM

The Balance sheet of Mohan, Subhash and Babi as on 31^st December, 2011 was as under. They were sharing profits and losses in the ratio of 2:1:1.

Balance Sheet as on 31st December,2011
Dr.					Cr.
Liabilities		Amount Rs	Assets	Amount Rs
Capital			Investments	20,000
Mohan		25,000	Buildings	33,000
Subhash		15,000	Debtors	12,000
Babi		15,000	Stock	28,000
Creditors		30,000	Cash	8,000
Reserve		16,000
		1,01,000		1,01,000

Babi died on 1^st July, 2012 and partnership deed provided that in the event of death of the partner his executor will be entitled to be paid out.

1) Capital to the credit at the date of last balance sheet

2) Proportion of reserves

3) Proportion of goodwill to be calculated twice the average profits of last three years.

4) His proportion of profits to the date of death based on the average profits of the last three year plus 20%.

5) The net profits for last 3 years Rs 18,000, Rs 18,000, Rs 16,500.

6) Babi had withdrawn Rs 6,000/- to the date of her death.

7) The investments were sold at par and the amount was paid off to Babi’s executor and the balance was transferred to loan A/c.

Prepare:

1) Babi’s Capital A/c only.

Answer 1

Babi’s Capital Account
Dr.	Cr.
Particulars		Amount	Particulars	Amount
Drawings		6,000	Balance b/d	15,000
Cash A/c		20,000	Reserves	4,000
Executor’s Loan A/c		4,375	Goodwill	8,750
			Profit and Loss Suspense A/c	2,625
		30,375		30,375

Working Notes:

WN1: Calculation of Share of goodwill of Babi

WN2: Calculation of Share of Profit of Babi

WN3: Babi’s Share of Reserve:

Note: As no information is given regarding the New Ratio of Mohan and Subhash, hence, it is 2:1 and Gaining Ratio is same as the New Ratio.