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Reassessment of Liabilities

PRACTICAL PRO...

Question

PRACTICAL PROBLEM

Vishnu, Prabhakar and Krishna were partners in a business sharing profits and losses in the ratio of 3:1:1 respectively. Their Balance Sheet as on 31^stMarch, 2012 was as follows:

Balance Sheet as on 31^st March, 2012

Dr.

Cr.

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital

Plant and Machinery

35,000

Vishnu

40,000

Stock

25,000

Prabhakar

30,000

Debtors

20,000

Krishna

25,000

Cash

30,000

Creditors

5,000

Reserve fund

10,000

1,10,000

1,10,000

Krishna died on 1^stOctober, 2012 and the partnership deed provided that:

1) The deceased partner to be given his share of profit to the date of death on the basis of the profits of the previous year.

2) His share of goodwill will be calculated on two years purchase of average profit of the last 4 years. The net profit for last 4 years were Rs 70,000, Rs 55,000, Rs 45,000, Rs 30,000

3) Plant and Machinery to be valued at Rs 40,000. Reserve for doubtful debts of Rs 2,000 to be created.

4) The drawings of Krishna upto the death amounted to Rs 20,000

5) Interest on capital at 10% p.a. is to be allowed and 6% p.a. to be charged on drawings. Both the interest should be calculated for 6 months.

Prepare:

1) Krishna’s capital A/c and P/L Adjustment A/c

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Solution

Krishna’s Capital Account

Dr.

Cr.

Particulars

Amount

Particulars

Amount

Drawings

20,000

Balance b/d

25,000

Interest on Drawings

600

Reserve fund

2,000

Legal Heir’s Loan A/c

31,250

Profit and Loss Adjustment A/c (Profit)

600

Goodwill

20,000

Profit and Loss Suspense A/c

3,000

Interest on Capital

1,250

51,850

51,850

Profit and Loss Adjustment Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Reserve for Doubtful Debts

2,000

Plant and Machinery

5,000

Profit transferred to:

Vishnu

1,800

Prabhakar

600

Krishna

600

3,000

5,000

5,000

Working Notes:

WN1: Krishna’s share of Reserve Fund

WN2: Calculation of Share of Goodwill of Krishna

WN3: Calculation of Share of Profit of Krishna

Note: As no information is given regarding the New Ratio of Vishnu and Prabhakar, hence, it is 3:1 and Gaining Ratio is same as the New Ratio.

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Similar questions

Q. Ashish, Satish and Manish were partners in a business sharing profits and losses in the ratio of

3 : 1 : 1

respectively.
Their Balance Sheet as on

31^{s t}

March,

2016

was as follows":
Balance Sheet as on

31^{s t}

March,

2016

Liabilities	Amount (Rs.)	Assets	Amount(Rs.)
Capital accounts		Plant and machinery	$70, 000$
Ashish	$80, 000$	Stock	$50, 000$
Satish	$60, 000$	Debtors	$40, 000$
Manish	$50, 000$	Cash	$60, 000$
Creditors	$10, 000$
Reserve fund	$20, 000$
	$2, 20, 000$		$2, 20, 000$

Manish dies on

1

st October,

2016

and the partnership deed provided that:

(1)

The deceased partner to be given his share of profit upto the date of death on the basis of the profit of the previous year.

(2)

His share of goodwill will be calculated on the basis of two years purchase of average profit to the last four years.
The net profits for the last four years were:
First year: Rs.

1, 40, 000

, Second year: Rs.

1, 10, 000

.
Third year: Rs.

90, 000

, Fourth year: Rs.

60, 000

(3)

Plant and machinery to be valued at Rs.

80, 000

. Reserve for doubtful debts of Rs.

4, 000

to be created.

(4)

The drawings of Manish upto the date of death amounted to Rs.

40, 000

(5)

Interest on capital is to be allowed at

10 %

p.a. and interest on drawings is charged at

6 %

p.a.
Prepare:

(1)

Profit and Loss Adjustment Account.

(2)

Manish's Capital Account.

(3)

Working of Manish's share in profit and goodwill.

PRACTICAL PROBLEMS

Vilas, Mangal, Guru were partners in a business sharing profits and losses in the ratio of 2:1:1 respectively. Their Balance sheet as on 31^st March, 2012 was as follows:

Balance Sheet as on 31^st March 2012
Dr.	Cr.
Liabilities		Amount Rs	Assets	Amount Rs
Capital			Land and Building	6,000
Vilas		6,000	Debtors	5,000
Mangal		7,000	Stock	3,000
Guru		3,400	Cash	6,000
Creditors		2,000
General Reserve		1,600
		20,000		20,000

Guru died on 1^st July, 2012

1) Land and Building was to be revalued to Rs 7,000 and RDD was to be created of Rs 200.

2) The drawings of Guru upto the date of his death amounted to Rs 1,000/-

3) Charge interest on drawings Rs 100/-

4) His share of goodwill should be calculated at ‘Three’ years purchase of the profits for the last four years which were Rs 15,000, Rs 13,000/-, Rs 7,000, Rs 5,000

5) The deceased partners share of profit upto the date of his death to be calculated on the basis of average profit of last two years.

Prepare:

1) Profit and Loss Adjustment A/c

2) Partners Capital A/cs

3) Balance Sheet of the continuing firm

4) Give working or share of profit and goodwill

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 31^st 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

Puneet, Pankaj and Pammy are partners in a business sharing profits and losses in the ratio of 2:2:1 respectively. Their balance sheet as on March 31, 2017 was as follows:

Books of Puneet, Pankaj and Pammy
Balance Sheet as on March 31, 2017
Liabilities		Amount Rs	Assets	Amount Rs
Sundry Creditors		1,00,000	Cash at Bank	20,000
Capital Accounts:			Stock	30,000
Puneet	60,000		Sundry Debtors	80,000
Pankaj	1,00,000		Investments	70,000
Pammy	40,000	2,00,000	Furniture	35,000
Reserve		50,000	Buildings	1,15,000
		3,50,000		3,50,000

Mr. Pammy died on September 30, 2017. The partnership deed provided the following:

(i)

The deceased partner will be entitled to his share of profit up to the date of death calculated on the basis of previous year’s profit.

(ii)

He will be entitled to his share of goodwill of the firm calculated on the basis of 3 years’ purchase of average of last 4 years’ profit. The profits for the last four financial years are given below: for 2013–14; Rs 80,000; for 2014–15, Rs 50,000; for 2015–16, Rs 40,000; for 2016–17, Rs 30,000.

The drawings of the deceased partner up to the date of death amounted to Rs 10,000. Interest on capital is to be allowed at 12% per annum.

Surviving partners agreed that Rs 15,400 should be paid to the executors immediately and the balance in four equal yearly instalments with interest at 12% p.a. on outstanding balance.

Show Mr. Pammy’s Capital account, his Executor’s account till the settlement of the amount due.

Aditi, Kavya and Sohail were partners in a firm sharing profits in the ratio of 2 : 2 : 1. The firm closes its books on 31st March every year. On 30th September, 2017 Sohail died. According to the partnership deed, his legal representatives are entitled to the following :

(a) Capital as per Balance Sheet (Rs 60,000)

(b) Interest on capital @ 6 $%$ p.a., till the date of death.

(d) Share of goodwill to be determined on the basis of the three years purchase of the average profits of last four years. The profits of last four years were : Rs 30,000, Rs 50,000, Rs 40,000 and Rs 60,000

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Balance Sheet as on 31^st March, 2012
Dr.	Cr.
Liabilities		Amount Rs	Assets	Amount Rs
Capital			Plant and Machinery	35,000
Vishnu		40,000	Stock	25,000
Prabhakar		30,000	Debtors	20,000
Krishna		25,000	Cash	30,000
Creditors		5,000
Reserve fund		10,000
		1,10,000		1,10,000

Krishna’s Capital Account
Dr.	Cr.
Particulars		Amount	Particulars	Amount

Drawings		20,000	Balance b/d	25,000
Interest on Drawings		600	Reserve fund	2,000
Legal Heir’s Loan A/c		31,250	Profit and Loss Adjustment A/c (Profit)	600
			Goodwill	20,000
			Profit and Loss Suspense A/c	3,000
			Interest on Capital	1,250
		51,850		51,850

Profit and Loss Adjustment Account
Dr.	Cr.
Particulars			Amount Rs	Particulars	Amount Rs

Reserve for Doubtful Debts			2,000	Plant and Machinery	5,000
Profit transferred to:
Vishnu		1,800
Prabhakar		600
Krishna		600	3,000
			5,000		5,000