Question

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 31st 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

Answer 1

Profit and Loss Adjustment Account
Dr.	Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Reserve for Doubtful Debts			200	Land and Building	1,000
Profit transferred to:
Vilas’s Capital		400
Mangal’s Capital		200
Guru’s Capital		200	800
			1,000		1,000

Partners’ Capital Accounts
Dr.	Cr.
Particulars		Vilas	Mangal	Guru	Particulars	Vilas	Mangal	Guru
Drawings				1,000	Balance b/d	6,000	7,000	3,400
Interest on Drawings				100	General Reserve	800	400	400
Legal Heir’s Loan A/c				10,775	Profit and Loss Adjustment A/c (Profit)	400	200	200
Balance c/d		7,200	7,600		Goodwill			7,500
					Profit and Loss Suspense A/c			375
		7,200	7,600	11,875		7,200	7,600	11,875

Balance Sheet as on April 01, 2012
Liabilities		Liabilities	Liabilities		Liabilities
Creditors		2,000	Land and Building		7,000
Capital A/cs			Stock		3,000
Vilas	7,200		Cash		6,000
Mangal	7,600	14,800	Debtors	5,000
Guru’s Legal Heir’s Loan A/c		10,775	Less: Reserve for Doubtful Debts	200	4,800
			Profit and Loss Suspense A/c		375
		27,575*			21,175*

*Note: As per the textbook, the Profit of P&L Adjustment Account, Closing Balance of Legal Heir’s Loan A/c and the total of the Balance Sheet are given as Rs 900, Rs 10,800 and Rs 20,175, respectively. However, as per the above solution, we are getting Profit as Rs 800, whereas, Loan A/c balance as Rs 10,775. In addition to this, there seems to be some problem in the question either in terms of missing items or in terms of misprint of amounts, since the amount of Liabilities side is not getting matched with that of the Assets side.

Working Notes:
W N 1: Calculation of Gaining Ratio of Vilas and Mangal:


WN 2: Calculation of Goodwill

WN3: Calculation of Share of Profit of Guru