Question -
| Books of Nithya, Sathya and Mithya Balance Sheet at March 31, 2015 | |
| Liabilities | Amount Rs | Assets | Amount Rs |
| Creditors | 14,000 | Investments | 10,000 |
| Reserve Fund | 6,000 | Goodwill | 5,000 |
| Capitals: | | Premises | 20,000 |
| Nithya | 30,000 | | Patents | 6,000 |
| Sathya | 30,000 | | Machinery | 30,000 |
| Mithya | 20,000 | 80,000 | Stock | 13,000 |
| | | Debtors | 8,000 |
| | | Bank | 8,000 |
| | 1,00,000 | | 1,00,000 |
| | | | |
Mithya dies on August 1, 2015. The agreement between the executors of Mithya and the partners stated that:
(a) Goodwill of the firm be valued at
times the average profits of last four years. The profits of four years were : in 2011-12, Rs 13,000; in 2012-13, Rs 12,000; in 2013-14, Rs 16,000; and in 2014-15, Rs 15,000.(b) The patents are to be valued at Rs 8,000, Machinery at Rs 25,000 and Premises at Rs 25,000.
(c) The share of profit of Mithya should be calculated on the basis of the profit of 2014-15.
(d) Rs 4,200 should be paid immediately and the balance should be paid in 4 equal half-yearly instalments carrying interest @ 10%.
Record the necessary journal entries to give effect to the above and write the executor’s account till the amount is fully paid. Also prepare the Balance Sheet of Nithya and Sathya as it would appear on August 1, 2015 after giving effect to the adjustments.
Answer -
| Books of Nithya and Sathya Journal | |
| Date | Particulars | L.F. | Amount Rs | Amount Rs |
| 2015 | | | | | |
| Aug. 1 | Nithya’s Capital A/c | Dr. | | 2,500 | |
| | Sathya’s Capital A/c | Dr. | | 1,500 | |
| | Mithya’s Capital A/c | Dr. | | 1,000 | |
| | To Goodwill A/c | | | | 5,000 |
| | (Goodwill written off among all the partners) | | | |
| | | | | | | |
| Aug. 1 | Patents A/c | Dr. | | 2,000 | |
| | Premises A/c | Dr. | | 5,000 | |
| | To Revaluation A/c | | | | 7,000 |
| | (Increase in the value of patents and premises) | | | |
| | | | | | |
| Aug. 1 | Revaluation A/c | Dr. | | 5,000 | |
| | To Machinery A/c | | | | 5,000 |
| | (Decrease in the value of machinery) | | | | |
| | | | | | | |
| Aug. 1 | Revaluation A/c | Dr. | | 2,000 | |
| | To Nithya’s Capital A/c | | | | 1,000 |
| | To Sathya’s Capital A/c | | | | 600 |
| | To Mithya’s Capital A/c | | | | 400 |
| | (Profit on revaluation of assets and liabilities transferred to Partners’ Capital Account) | | | |
| | | | | | | |
| Aug. 1 | Reserve Fund A/c | Dr. | | 6,000 | |
| | To Nithya’s Capital A/c | | | | 3,000 |
| | To Sathya’s Capital A/c | | | | 1,800 |
| | To Mithya’s Capital A/c | | | | 1,200 |
| | (Reserve Fund transferred to Partners’ Capital Account) | | | |
| | | | | | | |
| Aug. 1 | Nithya’s Capital A/c | Dr. | | 4,375 | |
| | Sathya’s Capital A/c | Dr. | | 2,625 | |
| | To Mithya’s Capital A/c | | | | 7,000 |
| | (Mithya’s share of goodwill adjusted to Nithya’s and Sathya’s Capital Account in their gaining ratio, 5:3) | | | |
| | | | | | | |
| Aug. 1 | Profit and Loss A/c (Suspense) | Dr. | | 1,000 | |
| | To Mithya’s Capital A/c | | | | 1,000 |
| | (Profit till date of death credited to Mithya’s Capital Account) | | | |
| | | | | | | |
| Aug. 1 | Mithya’s Capital A/c | Dr. | | 28,600 | |
| | To Mithya Executors A/c | | | | 28,600 |
| | (Mithya’s Capital Account transferred to her executor account) | | | |
| | | | | | | |
| Aug. 1 | Mithya Executor’s A/c | Dr. | | 4,200 | |
| | To Cash A/c | | | | 4,200 |
| | (Cash paid to Mithya's executor) | | | | |
| | | | | | |
| | | | | | | | |
| Mithya Executor’s Account | |
| Dr. | Cr. | |
| Date | Particulars | J.F. | Amount Rs | Date | Particulars | J.F. | Amount Rs |
| 2015 | | | | 2015 | | | |
| Aug. 1
2016 | Bank | | 4,200 | Aug. 1
2016 | Mithya’s Capital A/c | | 28,600 |
| Jan. 31 | Bank (6,100 + 1220) | | 7,320 | Jan. 31 | Interest (24,400×10100×612)" role="presentation" style="overflow-wrap: normal; max-width: none; max-height: none; min-width: 0px; min-height: 0px; float: none; word-spacing: normal;">(24,400×10100×612)
| | 1,220 |
| Mar. 31 | Balance c/d | | 18,605 | Mar. 31 | Interest (18,300×10100×212)" role="presentation" style="overflow-wrap: normal; max-width: none; max-height: none; min-width: 0px; min-height: 0px; float: none; word-spacing: normal;">(18,300×10100×212) | | 305 |
| | | | 30,125 | | | | | 30,125 |
| | | | | | | | |
| 2016 | | | | 2016 | | | |
| July 31
2017 | Bank (6,100 + 305 + 610) | | 7,015 | April 01
July 31
2017 | Balance b/d
Interest (18,300×10100×412)" role="presentation" style="overflow-wrap: normal; max-width: none; max-height: none; min-width: 0px; min-height: 0px; float: none; word-spacing: normal;">(18,300×10100×412) | | 18,605
610 |
|
Jan. 31
|
Bank (6,100 + 610)
| | 6,710 | Jan. 31 | Interest (12,200×10100×612)" role="presentation" style="overflow-wrap: normal; max-width: none; max-height: none; min-width: 0px; min-height: 0px; float: none; word-spacing: normal;">(12,200×10100×612) | | 610 |
| Mar. 31 | Balance c/d | | 6202 | Mar. 31 | Interest (6,100×10100×212)" role="presentation" style="overflow-wrap: normal; max-width: none; max-height: none; min-width: 0px; min-height: 0px; float: none; word-spacing: normal;">(6,100×10100×212) | | 102 |
| | | | | | | | |
| | | | 19,927 | | | | 19,927 |
| | | | | | | | |
| 2017 | | | | 2017 | | | |
| July 31 | Bank (6,100 + 102 + 203) | | 6,405 | April 01 | Balance b/d | | 6,202 |
| | | | | July 31 | Interest (6,100×10100×412)" role="presentation" style="overflow-wrap: normal; max-width: none; max-height: none; min-width: 0px; min-height: 0px; float: none; word-spacing: normal;">(6,100×10100×412) | | 203 |
| | | | 6,405 | | | | | 6,405 |
| | | | | | | | |
| | | | | | | | | | | |
| Balance Sheet
As on August 31, 2015
|
| Liabilities | Amount Rs | Assets | Amount Rs |
| Creditors | 14,000 | Investments | 10,000 |
| Mithya’s Executor’s Loan A/c | 24,400 | Premises | 25,000 |
| Partners’ Capital A/c | | Machinery | 25,000 |
| Nithya | 27,125 | | Stock | 13,000 |
| Sathya | 28,275 | 55,400 | Debtors | 8,000 |
| | | Patents | 8,000 |
| | | Bank (8,000 – 4,200) | 3,800 |
| | | Profit and Loss (Suspense) | 1,000 |
| | | | |
| | 93,800 | | 93,800 |
| | | | |
WorkingNotes:
1.
| Partners’ Capital Accounts | |
| Dr. | Cr. | |
| Particulars | Nithya | Sathya | Mithya | Particulars | Nithya | Sathya | Mithya |
| Goodwill | 2,500 | 1,500 | 1,000 | Balance b/d | 30,000 | 30,000 | 20,000 |
| Mithya’s Capital A/c | 4,375 | 2,625 | | Revaluation A/c | 1,000 | 600 | 400 |
| Mithya's Executor’s A/c | | | 28,600 | Reserve Fund | 3,000 | 1,800 | 1,200 |
| Balance c/d | 27,125 | 28,275 | | Profit and Loss A/c (Suspense) | | | 1,000 |
| | | | | Nithya’s Capital A/c | | | 4,375 |
| | | | | Sathya’s Capital A/c | | | 2,625 |
| | 34,000 | 32,400 | 29,600 | | 34,000 | 32,400 | 29,600 |
| | | | | | | | |
2. Mithya’s Share of Profit:
Previous year’s profit x Proportionate Period x Share of Profit
3. Mithya’s share of Goodwill
Goodwill of a firm = Average Profit x Number of Year’s Purchase
4. Gaining Ratio = New Ratio – Old Ratio
Gaining Ratio between Nithya and Sathya = 5:3