Question

The Balance Sheet of X, Y and Z as at 31st March, 2018 was:

Liabilities		Amount (₹)	Assets	Amount (₹)
Bills Payable		2,000	Cash at Bank	5,800
Employees' Provident Fund		5,000	Bills Receivable	800
Workmen Compensation Reserve		6,000	Stock	9,000
General Reserve		6,000	Sundry Debtors	16,000
Loans		7,100	Furniture	2,000
Capital A/cs:			Plant and Machinery	6,500
X	22,750		Building	30,000
Y	15,250		Advertising Suspense	6,000
Z	12,000	50,000
		76,100		76,100

The profit-sharing ratio was 3 : 2 : 1. Z died on 31st July, 2018. The Partnership Deed provides that:
(a) Goodwill is to be calculated on the basis of three years' purchase of the five years' average profit. The profits were: 2017-18: ₹ 24,000; 2016-17: ₹ 16,000; 2015-16: ₹ 20,000 and 2014-15: ₹ 10,000 and 2013-14: ₹ 5,000.
(b) The deceased partner to be given share of profits till the date of death on the basis of profits for the previous year.
(c) The Assets have been revalued as: Stock ₹ 10,000; Debtors ₹ 15,000; Furniture ₹ 1,500; Plant and Machinery ₹ 5,000; Building ₹ 35,000. A Bill Receivable for ₹ 600 was found worthless.
(d) A Sum of ₹ 12,233 was paid immediately to Z's Executors and the balance to be paid in two equal annual instalments together with interest @ 10% p.a. on the amount outstanding.
Give Journal entries and show the Z's Executors' Account till it is finally settled.

Answer 1

Journal
Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
Workmen’s Compensation Reserve	Dr.		6,000
To X’s Capital A/c				3,000
To Y’s Capital A/c				2,000
To Z’s Capital A/c				1,000
(Workmen’s Compesation Reserve distributed among partners in their old ratio)
General Reserve A/c	Dr.		6,000
To X’s Capital A/c				3,000
To Y’s Capital A/c				2,000
To Z’s Capital A/c				1,000
(General Reserve distributed among partners in their old ratio)
X’s Capital A/c	Dr.		3,000
Y’s Capital A/c	Dr.		2,000
Z’s Capital A/c	Dr.		1,000
To Advertisement Suspense A/c				6,000
(Advertisement suspense written off among partners in their old ratio)
X’s Capital A/c	Dr.		4,500
Y’s Capital A/c	Dr.		3,000
To Z’s Capital A/c				7,500
(Z’s share of goodwill adjusted)
Revaluation A/c	Dr.		3,600
To Sundry debtors A/c	Dr.			1,000
To Furniture A/c				500
To Plant and Machinery A/c				1,500
To Bills Receivable A/c				600
(Decrease in value of Assets transferred to Revaluation Account)
Stock A/c	Dr.		1,000
Building A/c	Dr.		5,000
To Revaluation A/c				6,000
(Increase in value of Assets transferred to Revaluation Account)
Revaluation A/c	Dr.		2,400
To X’ Capital A/c				1,200
To Y’s Capital A/c				800
To Z’s Capital A/c				400
(Revaluation profit distributed among partners in their old ratio)
Profit and Loss Suspense A/c	Dr.		1,333
To Z’s Capital A/c				1,333
(Z’s share of profit transferred his capital account)
Z’s Capital A/c	Dr.		22,233
To Z’s Executor’s A/c				22,233
(Amount due to Z transferred to his Executor’s Account)
Z’s Executor’s A/c	Dr.		12,333
To Bank A/c				12,333
(Amount paid to Z’s Executor)

Z’s Executor’s Account
Dr.					Cr.
Date	Particulars	Amount Rs	Date	Particulars	Amount Rs
2018			2018
July 31	Bank A/c	12,233	July 31	Z’s Capital A/c	22,233
2019			2019
Mar. 31	Balance c/d	10,667	Mar. 31	Interest (10,000 × 10% for 8 months)	667
		22,900			22,900
2019			2019
July 31	Bank A/c (5,000 + 667 + 333)	6,000	Apr. 01	Balance b/d	10,667
			July 31	Interest (10,000 × 10% for 4 months )	333
2020			2020
Mar.31	Balance c/d	5,333	Mar. 31	Interest (5,000 × 10% for 8 months)	333
		11,333			11,333
2020			2020
July 31	Bank A/c (5,000 + 333 + 167)	5,500	Apr. 01	Balance b/d	5,333
			July 31	Interest (5,000 × 10% for 4months)	167
		5,500			5,500

Working Notes:

WN1 Calculation of Goodwill

Goodwill = Average Profit × Number of Year’s Purchase



∴ Goodwill = Average Profit × Number of Years’ Purchase

= 15,000 × 3 = Rs 45,000

WN2 Adjustment of Goodwill

Old Ratio = 3 : 2 : 1

Z died.

∴ New Ratio (X and Y) = 3 : 1 and

Gaining Ratio = 3 : 2

Z’s Share in Goodwill =

This share of goodwill is to be distributed between X and Y in their gaining ratio (i.e. 3 : 1).



WN3 Calculation Z’s Share of Profit

Profit for 2017-18 ( Immediate Previous Year) = Rs 24,000

∴ Z’s Profit Share

WN4

Revaluation Account
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Sundry Debtors		1,000	Stock	1,000
Furniture		500	Building	5,000
Plant and Machinery		1,500
Bills Receivable		600
Profit transferred to:
X’s Capital A/c	1,200
Y’s Capital A/c	800
Z’s Capital A/c	400	2,400
		6,000		6,000