DEATH OF A PARTNER
Learning Objectives:
After studying this Unit, students will be able to
understand and prepare:
a)
Deceased partners capital account
b)
Deceased partners Executor account
c)
Executors loan account
d)
Calculation of share of profit and Goodwill of
the deceased partner.
SALIENT POINTS:
v
Gaining Ratio: When the partner retires or dies,
his share of profit is taken over by the remaining partners.
v
Gaining ratio is applied for the purpose of calculating Goodwill to be paid off to the
deceased partner.
v
The deceased partner s share of profit till the
date of death will be calculated by preparing Profit and Loss Suspense account
on the date of Death.
SHORT QUESTIONS--- (3-4 MKS)
1.
A,B and C are partners sharing profits and
losses in the ratio of 5:4:1. The profit for the year ending 31, March, 2010
was Rs 1, 00,000. B died on 30th June 2010. Calculate C’s share of
profit till the date of death and pass necessary journal entry.
|
Profit and Loss suspense a/c – Dr
B’s Capital Account
|
10,000
|
10,000
|
|
(Being
B’s share of profit transferred to his capital account)
|
|
|
C’s share of profit = 1,00,000 X 4/10 X
3/12 = 10,000
2. X,
Y and Z are partners in a firm sharing profits and losses in the ratio of
5:4:1.The Partnership agreement provides that the share of profit of the
deceased partner will be worked out on the basis of sales. The sales for the
year 2009-10 was Rs 8,00,000 and the sales from April 1, 2010 to June 30, 2010
was Rs 1,50,000. The profit for the year ended 31st March 2010 amounted to Rs 1,00,000. Y died on
30th June 2010. Calculate his share of profit and pass necessary
journal entry.
|
Profit and Loss suspense a/c – Dr
Y’s Capital Account
|
7500
|
7500
|
|
(Being Y’s share of profit transferred to his capital
account
|
|
|
Sales for the year 2009-10
----8, 00,000 Profit for the
year 2009-10 -----1,00,000
Sales from April 1,2010 to 30th
June 2010 -----1,50,000 Profit upto 30th
June 2010----?
C’s share of profit =
1,00,000/8,00,000 X 1,50,000 = 18750 X 4/10 = 7500.
3. Ram, Mohan and Sohan were partners sharing
profits and losses in the ratio of 5:3:2. On
31st March, 2006 their Balance Sheet was as under :
|
Liabilities
|
Rs
|
Assets
|
Rs
|
|
Capitals
|
|
Leasehold
|
1,25,000
|
|
Ram
|
1,50,000
|
Patents
|
30,000
|
|
Mohan
|
1,25,000
|
Machinery
|
1,50,000
|
|
Sohan
|
75,000
|
Stock
|
1,90,000
|
|
Workmen’s Compensation
Reserve
|
30,000
|
Cash at Bank
|
40,000
|
|
Creditors
|
1,55,000
|
|
|
|
|
5,35,000
|
|
5,35,000
|
Sohan died on 1st August, 2006. It was agreed that :
(i) Goodwill of the firm is to be valued at Rs. 1,75,000.
(ii) Machinery be valued at Rs. 1,40,000; Patents at Rs.
40,000; Leasehold at
Rs. 1,50,000 on this date.
(iii) For the purpose of calculating Sohan’s share in the
profits of 2006-07, the profits
should be taken to have accrued on the same scale as in
2005-06, which were
Rs. 75,000.
Prepare Sohan’s Capital Account and Revaluation Account. (6)
Revaluation Account
|
Particulars
|
Amt
|
Particulars
|
Amt
|
|
Machinery
|
10,000
|
Leasehold
|
25000
|
|
Capital Accounts
|
|
Patents
|
10,000
|
|
Ram
|
12500
|
|
|
|
Mohan
|
7500
|
|
|
|
Sohan
|
5000
|
|
|
|
|
35000
|
|
35000
|
Sohan’s capital Account
|
Particulars
|
Rs
|
Particulars
|
Rs
|
|
|
|
Balance b/d
|
75000
|
|
Sohan’s Executor’s account
|
1,26,000
|
Revaluation a/c
|
5000
|
|
|
|
Ram’s Capital a/c
|
21875
|
|
|
|
Mohan’s capital a/c
|
13125
|
|
|
|
P & L Suspense A/c
|
13125
|
|
|
|
Workmen’s Compensation reserve a/c
|
6000
|
|
|
1,26,000
|
|
1,26,000
|
|
|
|
|
|
Working Note :
a)Total Goodwill of the firm = 1,75,000
Sohan’s share of goodwill =
1,75,000 X 2/10 = 35000 ( to be divided in the ratio of 5:3 i.e gaining ratio)
b) Sohan’s share of profit =
75000 X 4/12 x 2/10 = Rs 5000
4. Following is the Balance sheet
of P , Q and R as on 31st
December 2010 sharing profits in the ratio of 5:3:2.
|
Particulars
|
Rs
|
Particulars
|
Rs
|
|
Capital Accounts
|
|
Cash
|
13000
|
|
P
|
30000
|
Debtors
|
8000
|
|
Q
|
25000
|
Machinery
|
30000
|
|
R
|
15000
|
Stock
|
10000
|
|
Creditors
|
7000
|
Patents
|
6000
|
|
Reserve Fund
|
10000
|
Building
|
20000
|
|
|
87000
|
|
87000
|
P died on 1st July
2011 on the following terms-
i)
Patents are to be valued at Rs 8000, Machinery at Rs
28000 and Building at Rs 30,000.
ii)
Interest on Capital is to be provided at 10% p.a.
iii)
Goodwill of the firm is valued at 2 years purchase of
the average profits of the last five years which were-
2006 - Rs
15,000 2007 – Rs
13000 2008 – Rs
12,000 2009—15,000 and 2010--- Rs 20,000
iv)
Profit for the year 2011 has been accrued on the same
scale as in 2010.
v)
P’s Executor is to be paid Rs 11,500 and balance
transferred to his loan account.
Prepare Revaluation Account, P’s Capital account and
P’s executors account. Also pass necessary journal entries.
Revaluation Account
|
Particulars
|
Rs
|
Particulars
|
Rs
|
|
Machinery
|
2000
|
Patents
|
2000
|
|
Capital
Accounts-
|
|
Buildings
|
10000
|
|
P
|
5000
|
|
|
|
Q
|
3000
|
|
|
|
R
|
2000
|
|
|
|
|
12000
|
|
12000
|
P’s
Capital Account
|
Particulars
|
Rs
|
Particulars
|
Rs
|
|
P’s
Executors a/c
|
61500
|
Balance b/d
|
30000
|
|
|
|
Reserve fund
|
5000
|
|
|
|
Q’s Capital a/c
|
9000
|
|
|
|
R’s Capital a/c
|
6000
|
|
|
|
Revaluation a/c
|
5000
|
|
|
|
Interest on capital
|
1500
|
|
|
61500
|
|
61500
|
P’s
Executor’s account
|
Particulars
|
Rs
|
Particulars
|
Rs
|
|
Bank/cash
a/c
|
11500
|
P’s Capital a/c
|
61500
|
|
P’s
Executor’s Loan a/c
|
50000
|
|
|
|
|
61500
|
|
61500
|
Working Note :
a)
Interest on Capital : 30,000 X 10/100 X 6/12 = Rs 1500
b)
Reserve fund = 10,000 X 5/10 = Rs 5000
c)
P’s Share of profits = 20,000 X 5/10 X 6/12 = Rs
5000.(for 6 months)
d)
Total Goodwill of the firm =
Average profits = 75000/5 = Rs 15000
Goodwill = 15000 X 2 = 30,000
P’s share of Goodwill = 30,000 X 5/10 = 15000(to be divided
in Gaining ratio 3:2)
Journal
|
SN
|
Particulars
|
LF
|
Amt
|
Amt
|
|
1
|
Revaluation a/c
----Dr
Machinery
a/c
(Being machinery revalued)
|
|
2000
|
2000
|
|
2
|
Patents a/c --Dr
Building a/c - Dr
Revaluation
a/c
(Being Assets revalued)
|
|
2000
10000
|
12000
|
|
3
|
Revaluation a/c --- Dr
P’s Capital
a/c
Q’s Capital
a/c
R’s Capital
a/c
(Being Revaluation
profit distributed)
|
|
10000
|
5000
3000
2000
|
|
4
|
Reserve fund a/c –Dr
P’s Capital
a/c
(Being reserve distributed)
|
|
5000
|
5000
|
|
5
|
Q’s Capital a/c ---Dr
R’s Capital a/c ---Dr
P’s capital
a/c
(Being deceased partner ‘s account credited by his share
of goodwill contributed by the gaining partners)
|
|
9000
6000
|
15000
|
|
6
|
Interest on capital a/c – Dr
P’s Capital
a/c
(Being Interest on capital provided to the deceased
partner)
|
|
1500
|
1500
|
|
7
|
P’s Capital a/c ---Dr
P’s executor’s
a/c
(Being P’s balance due transferred to his executor’s a/c)
|
|
61500
|
61500
|
|
8
|
P’s executor’s a/c
--Dr
Cash a/c
P’s
executor’s loan a/c
(Being amount paid to the executor and balance transferred
to his loan account)
|
|
61500
|
11500
50000
|
5. X, Y and Z are partners
sharing profits and losses in the ratio of 2:2:1 respectively. Their Balance
Sheet as on 31st march 2007 was as follows—
Balance
Sheet as on 31/03/10
|
Liabilities
|
Rs
|
Assets
|
Rs
|
|
Sundry Creditors
|
1,00,000
|
Cash at bank
|
20,000
|
|
Capital Accounts
|
|
Stock
|
30,000
|
|
X
|
60,000
|
Sundry Debtors
|
80,000
|
|
Y
|
1,00,000
|
Investments
|
70,000
|
|
Z
|
40,000
|
Furniture
|
35,000
|
|
General Reserve
|
50,000
|
Buildings
|
1,15,000
|
|
|
3,50,000
|
|
3,50,000
|
Z died on 30th September 2007 and the following was provided—
a)
“Z” will be entitled to his share of profit upto the
date of death based on last year’s profit.
b)
Z’s share of Goodwill will be calculated on the basis
of 3 years purchase of average profits of last four years . The profits of the
last four years was as follows—
Year I – 80,000, Year II –Rs 50,000 Year III – Rs 40,000 and Year IV –Rs 30,000
c)
Interest on Capital was provided at 12% p.a.
d)
Drawings of the deceased partner up to the date of
death was Rs 10,000.
e)
Rs 15,400 should be paid immediately to the executor of
the deceased partner and the balance in four equal yearly installments with
interest at 12% on remaining balance.
Prepare Z’s
capital account and Z’s executors account till the account is finally closed.
Z’s
Capital Account
|
Particulars
|
Rs
|
Particulars
|
Rs
|
|
Drawings
|
10,000
|
Balance b/d
|
40,000
|
|
Z’s
Executor’s a/c
|
75,400
|
General Reserve
|
10,000
|
|
|
|
Profit &Loss Suspense a/c
|
3,000
|
|
|
|
Interest on capital
|
2400
|
|
|
|
X’s Capital a/c
|
15,000
|
|
|
|
Y’s capital a/c
|
15,000
|
|
|
85400
|
|
85400
|
Z’s
Executor’s Account
|
Date
|
Particulars
|
Rs
|
Date
|
Particulars
|
Rs.
|
|
30/09/07
|
Bank a/c
|
15400
|
30/09/07
|
Z’s Capital a/c
|
75400
|
|
31/03/08
|
Balance c/d
|
63600
|
31/03/08
|
Interest on Loan
(on Rs 60,000@12% for 6 months)
|
3600
|
|
|
|
79000
|
|
|
79000
|
|
30/09/08
|
Bank a/c ( 15000+
7200)
|
22,200
|
1/04/08
|
Balance b/d
|
63600
|
|
31/03/09
|
Balance c/d
|
47,700
|
30/09/08
|
Interest on Loan(On Rs 60,000 @ 12% for 6 months)
|
3600
|
|
|
|
|
31/03/09
|
Interest on Loan(on Rs 45000 @12% for 6 months)
|
2700
|
|
|
|
69900
|
|
|
69900
|
|
30/09/09
|
Bank a/c
(15000+5400)
|
20,400
|
1/04/09
|
Balance b/d
|
47,700
|
|
31/03/10
|
Balance c/d
|
31800
|
30/09/09
|
Interest on loan(on Rs 45000 @ 12% for 6 months)
|
2700
|
|
|
|
|
31/03/10
|
Interest on loan ( on Rs 30,000@12% for 6 months)
|
1800
|
|
|
|
52200
|
|
|
52200
|
|
30/09/10
|
Bank a/c(15000 + 3600)
|
18600
|
1/4/10
|
Balance b/d
|
31800
|
|
31/03/11
|
Balance c/d
|
15900
|
30/09/10
|
Interest on loan(on Rs 30,000 @12% for 6 months)
|
1800
|
|
|
|
|
31/03/11
|
Interest on Loan(on Rs 15000 @12% for 6 months)
|
900
|
|
|
|
34500
|
|
|
34500
|
|
30/09/11
|
Bank a/c
(15000+1800)
|
16800
|
1/04/11
|
Balance b/d
|
15900
|
|
|
|
|
30/09/11
|
Interest on loan(on Rs 15000 @12% for 6
months)
|
900
|
|
|
|
16800
|
|
|
16800
|
6 Anil, Jatin and Ramesh were sharing profit in the ratio of 2:1:1.
Their Balance Sheet as at 31.12.2001
stood as follows:-
|
Liabilities
|
Rs
|
Assets
|
Rs
|
|
Creditors
|
24,400
|
Cash
|
1,00,000
|
|
Bank Loan
|
10,000
|
Debtors
20000
Less : Provision 1600
|
18,400
|
|
Profit and Loss A/c
|
18,000
|
Stock
|
10,000
|
|
Bills Payable
|
2,000
|
Building
|
20,000
|
|
Anil’s Capital
|
50,000
|
Investment
|
14,000
|
|
Jatin’s Capital
|
40,000
|
Goodwill
|
22,000
|
|
Ramesh’s Capital
|
40,000
|
|
|
|
|
1,84,400
|
|
1,84,400
|
Ramesh died on 31st March 2002. The
following adjustments were agreed upon-
(a) Building
be appreciated by Rs. 2,000
(b) Investments
be valued at 10% less than the book value.
(c) All
debtors (except 20% which are considered as doubtful) were good.
(d) Stock be
increased by 10 %
(e) Goodwill
be valued at 2 years’ purchase of the average profit of the past five years.
(f) Ramesh’s
share of profit to the death be calculated on the basis of the profit of the
preceding year. profit for the years 1997, 1998, 1999 and 2000 were Rs. 26,000,
Rs. 22,000, Rs. 20,000 and Rs. 24,000 respectively.
Prepare revaluation account, partner’s capital Account,
Ramesh ‘s Executors’ Account and Balance sheet immediately after Ramesh’s death
assuming that Rs. 18, 425 be paid
immediately to his executors and balance to b left to the Ramesh’s Executor’s
Account
Revaluation Account
|
Particulars
|
Rs
|
Particulars
|
Rs
|
|
Investment
A/c
|
1,400
|
Building A/c
|
2,000
|
|
Provision
for doubtful debt A/c
|
2,400
|
Stock A/c
|
1,000
|
|
|
|
Loss
transferred to
|
|
|
|
|
Anil’s
Capital A/c
|
400
|
|
|
|
Jatin’s
Capital A/c
|
200
|
|
|
|
Ramesh’s
Capital A/c
|
200
|
|
|
3800
|
|
3800
|
Partners Capital Accounts
|
Particulars
|
Anil
|
Jatin
|
Ramesh
|
Particulars
|
Anil
|
Jatin
|
Ramesh
|
|
Goodwill A/c
|
11000
|
5500
|
5500
|
By Balance b/d
|
50000
|
40000
|
40000
|
|
Ramesh Capital A/c
|
7333
|
3667
|
|
Profit and Loss A/c
|
9000
|
4500
|
4500
|
|
Revaluation A/c (Loss)
|
400
|
200
|
200
|
Profit
&Loss Susp A/c
|
|
|
1125
|
|
Ramesh’s
Executor’s A/c
|
|
|
50925
|
Anil’s Capital A/c
|
|
|
7333
|
|
Balance c/d
|
40,267
|
35,133
|
----
|
Jatin’s Capital A/c
|
|
|
3667
|
|
|
59,000
|
41,500
|
56,625
|
|
59,000
|
41,500
|
56,625
|
Ramesh’s Executor’s account
|
Particulars
|
Rs
|
Particulars
|
Rs
|
|
Cash Account
|
18425
|
Ramesh’s Capital account
|
50925
|
|
Balance c/d
|
32500
|
|
|
|
|
50925
|
|
50925
|
Balance sheet
|
Liabilities
|
Rs
|
Assets
|
Rs
|
|
Bank Loan
|
10, 000
|
Cash
|
81,575
|
|
Creditors
|
20,400
|
Debtors 20000
Less
Provision 4000
|
16000
|
|
Bills
Payable
|
2,000
|
Stock
|
11000
|
|
Ramesh’s
Executor’s Loan
|
32,500
|
Building
|
22000
|
|
Anil’s
Capital
|
40,267
|
Investments
|
12600
|
|
Jatin’s
Capital
|
35,133
|
Profit &Loss Suspense A/c
|
1125
|
|
|
1,44,300
|
|
1,44,300
|
