Question

X, Y and Z were partners in a firm sharing profits and losses in the 5 : 4 : 3. Their Balance Sheet on 31st March, 2018 was as follows:

Liabilities		Amount (₹)	Assets	Amount (₹)
Creditors		2,00,000	Building	2,00,000
Employees' Provident Fund		1,50,000	Machinery	3,00,000
General Reserve		36,000	Furniture	1,10,000
Investment Fluctuation Reserve		14,000	Investment (Market value ₹ 86,000)	1,00,000
Capital A/cs:			Debtors	80,000
X	3,00,000		Cash at Bank	1,90,000
Y	2,50,000		Advertisement Suspense	1,20,000
Z	1,50,000	7,00,000
		11,00,000		11,00,000

X died on 1st October, 2018 and Y and Z decide to share future profits in the ratio of 7 : 5. It was agreed between his executors and the remaining partners that:
(i) Goodwill of the firm be valued at $2^{\raisebox{1ex}{$1$}\!\left/ \!\raisebox{-1ex}{$2$}\right.}$ years' purchase of average of four completed years' profit which were:

Year	2014-15	2015-16	2016-17	2017-18
Profits (₹)	1,70,000	1,80,000	1,90,000	1,80,000

(ii) X's share of profit from the closure of last accounting year till date of death be calculated on the basis of last years' profit.
(iii) Building undervalued by ₹ 2,00,000; Machinery overvalued by ₹ 1,50,000 and Furniture overvalued by ₹ 46,000.
(iv) A provision of 5% be created on Debtors for Doubtful Debts.
(v) Interest on Capital to be provided at 10% p.a.
(vi) Half of the net amount payable to X's executor was paid immediately and the balance was transferred to his loan account which was to be paid later.
Prepare Revaluation Account, X's Capital Account and X's Executor's Account as on 1st October, 2018.

Answer 1

Revaluation Account
Dr.					Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Machinery		1,50,000	Building	2,00,000
Furniture		46,000
Provision for Doubtful Debts		4,000
		2,00,000		2,00,000

X’s Capital Account
Dr.					Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Advertisement Suspense A/c		50,000	Balance b/d	3,00,000
X’s Executors A/c		5,05,000	General Reserve	15,000
			Y’s Capital A/c	1,12,500
			Z’s Capital A/c	75,000
			Profit & Loss Suspense	37,500
			Interest on Capital	15,000
		5,55,000		5,55,000

X’s Executors Account
Dr.					Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Bank A/c		2,52,500	X’s Capital A/c	5,05,000
X’s Executors Loan Account		2,52,500
		57,000		57,000

Working Notes:

WN1: Calculation of Share in General Reserve

$\text{Reserve}=\frac{36,000\times 5}{12}=\text{Rs 15,000}$
WN2: Calculation of Interest on Capital

$\text{Interest on capital}=\frac{3,00,000\times 10\times 6}{100\times 12}=\text{Rs 15,000}$
WN3: Calculation of Profit & Loss Suspense

$\text{Profit \& Loss Suspense}=\frac{1,80,000\times 5\times 6}{12\times 12}=\text{Rs 37,500}$
WN4: Calculation of Share in Goodwill

$\begin{array}{l}\begin{array}{l}\text{Gaining Ratio = New Ratio - Old Ratio}\\ \text{Y's Gain =}\frac{7}{12}-\frac{4}{12}=\frac{7-4}{12}=\frac{3}{12}\\ \text{Z's Gain =}\frac{5}{12}-\frac{3}{12}=\frac{5-3}{12}=\frac{2}{12}\\ \text{Goodwill}=\text{Average Profit}\times \text{No. of years' Purchase}\\ =1,80\text{,000}\times 2.\text{5}=\text{Rs 4,50,000}\\ \text{X's share in Goodwill = 4,50,000}\times \frac{5}{12}=\text{Rs 1,87,500, should be contributed by Y \& Z in gaining ratio i.e. 3:2}\end{array}\end{array}$