Question

X, Y and Z were partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. Z died on 30th June, 2018. The Balance Sheet of the firm as at that 31st March, 2018 is as follows:

BALANCE SHEET as at 31st March, 2018
Liabilities		Amount (₹)	Assets		Amount ​(₹)
X's Capital A/c	2,40,000		Machinery		2,40,000
Y's Capital A/c	1,60,000		Furniture		1,50,000
Z's Capital A/c	80,000	4,80,000	Investments		40,000
X's Current A/c		16,000	Stock		64,000
Y's Current A/c		5,000	Sundry Debtors		50,000
Reserve		60,000	Bills Receivable		22,000
Bills Payable		34,000	Cash at Bank		37,000
Sundry Creditors		40,000	Cash in Hand		22,000
			Z's Current A/c		10,000
		6,35,000			6,35,000

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The following decisions were taken by the remaining partners:
(a) A Provision for Doubtful Debts is to be raised at 5% on Debtors.
(b) While Machinery to be decreased by 10%, Furniture and Stock are to be appreciated by 5% and 10% respectively.
(c) Advertising Expenses ₹ 4,200 are to be carried forward to the next accounting year and, therefore, it is to be adjusted through the Revaluation Account.
(d) Goodwill of the firm is valued at ₹ 60,000.
(e) X and Y are to share profits and losses equally in future.
(f) Profit for the year ended 31st March, 2018 was ₹ 8,16,000 and Z's share of profit till the date of death is to be determined on the basis of profit for the year ended 31st March, 2018.
(g) The Fixed Capital Method is to be converted into the Fluctuating Capital Method by transferring the Current Account balances to the respective Partners' Capital Accounts.
Prepare the Revaluation Account, Partners' Capital Accounts and prepare C's Executors's Account to show that C's Executors were paid in two half-yearly instalments plus interest of 10% p.a. on the
unpaid balance. The first instalment was paid on 31st December, 2018.

Answer 1

Revaluation Account
Dr.						Cr.
Particulars		Amount Rs	Particulars		Amount Rs
Machinery		24,000	Furniture		7,500
Provision for Doubtful Debts		2,500	Stock		6,400
			Prepaid Advertisement Expenses		4,200
			Loss transferred to:
			X’s Capital A/c	4,200
			Y’s Capital A/c	2,800
			Z’s Capital A/c	1,400	8,400
		26,500			26,500

Partners’ Capital Accounts
Dr.								Cr.
Particulars		X	Y	Z	Particulars	X	Y	Z
Current A/c				10,000	Balance b/d	2,40,000	1,60,000	80,000
Revaluation A/c		4,200	2,800	1,400	Current A/c	16,000	5,000
Z ’s Capital A/c			10,000		Reserve	30,000	20,000	10,000
Z ’s Capital A/c			34,000		Y ’s Capital A/c			34,000
Z’s Executors A/c				1,22,600	Y ’s Capital A/c			10,000
Balance c/d		2,81,800	1,38,200
		2,86,000	1,85,000	1,34,000		2,86,000	1,85,000	1,34,000

Z's Executor Account
Dr.				Cr.
Date	Particulars	J.F.	Amount Rs		Date	Particulars	J.F.	Amount Rs
2018-19					2018-19
Dec. 31	Bank A/c (61,300 + 6,130)		67,430		Jun. 30	Z’s Capital A/c		1,22,600
Mar. 31	Balance c/d		62,832.5		Dec. 31	Interest $(1,22,600\times \frac{10}{100}\times \frac{6}{12})$		6,130
					Mar.31	Interest $(61,300\times \frac{10}{100}\times \frac{3}{12})$		1,532.5
			1,30,262.5					1,30,262.5
2019-20					2019-20
Jun. 30	Bank (61,300 + 3,065)		64,365		April 01	Balance b/d		62,832.5
					Jun. 30	Interest $(61,300\times \frac{10}{100}\times \frac{3}{12})$		1,532.5
			64,365					64,365

Working Notes:

WN1: Calculation of Profit & Loss Suspense

$\text{Profit \& loss Suspense}=\frac{8,16,000\times 1\times 3}{6\times 12}=\text{Rs 34,000}$
WN2: Calculation of Gaining Ratio and Share of Goodwill

$\begin{array}{l}\text{Gaining Ratio = New Ratio - Old Ratio}\\ \text{X's gain}=\frac{1}{2}-\frac{3}{6}=0\\ \text{Y's gain}=\frac{1}{2}-\frac{2}{6}=\frac{1}{6}\\ \text{X:Y}=\text{0:1}\\ \text{Z's share of goodwill=60,000}\times \frac{1}{6}=\text{Rs 10,000 should be given by Y}\end{array}$
Note:
Z’s share of profit is adjusted through Y’s capital A/c because there is change in profit sharing ratio of remaining partners.