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Question -

Puneet, Pankaj and Pammy are partners in a business sharing profits and losses in the ratio of 2:2:1 respectively. Their balance sheet as on March 31, 2017 was as follows:

Books of Puneet, Pankaj and Pammy

 

Balance Sheet as on March 31, 2017

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

1,00,000

Cash at Bank

20,000

Capital Accounts:

 

Stock

30,000

Puneet

60,000

 

Sundry Debtors

80,000

Pankaj

1,00,000

 

Investments

70,000

Pammy

40,000

2,00,000

Furniture

35,000

Reserve

 

50,000

Buildings

1,15,000

 

3,50,000

 

3,50,000

 

 

 

 
Mr. Pammy died on September 30, 2017. The partnership deed provided the following:
(i) The deceased partner will be entitled to his share of profit up to the date of death calculated on the basis of previous year’s profit.
(ii) He will be entitled to his share of goodwill of the firm calculated on the basis of 3 years’ purchase of average of last 4 years’ profit. The profits for the last four financial years are given below: for 2013–14; Rs 80,000; for 2014–15, Rs 50,000; for 2015–16, Rs 40,000; for 2016–17, Rs 30,000.
The drawings of the deceased partner up to the date of death amounted to Rs 10,000. Interest on capital is to be allowed at 12% per annum.
Surviving partners agreed that Rs 15,400 should be paid to the executors immediately and the balance in four equal yearly instalments with interest at 12% p.a. on outstanding balance.
Show Mr. Pammy’s Capital account, his Executor’s account till the settlement of the amount due.



Answer -


Pammy’s Capital Account 

 

Dr.

Cr.

 

Particulars

Amount

Rs

Particulars

Amount

Rs

Drawings

10,000

Balance b/d

40,000

Pammy Executor’s A/c

75,400

Profit and Loss (Suspense)

3,000

 

 

Puneet’s Capital A/c

15,000

 

 

Pankaj’s Capital A/c

15,000

 

 

Interest on Capital

2,400

 

 

Reserve

10,000

 

85,400

 

85,400

 

 

 

 

 

 

 

 

 

 

Pammy's Executor Account

 

Dr.

Cr.

 

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

2017-18

 

 

 

2017-18

 

 

 

Sep. 30

Bank

 

15,400

Sep. 30

Pammy’s Capital A/c

 

75,400

Mar. 31

Balance c/d

 

63,600

Mar. 31

Interest

 

3,600

 

 

 

79,000

 

 

 

79,000

 

 

 

 

 

 

 

 

2018-19

 

 

 

2018-19

 

 

 

Sep. 30

Bank

 

22,200

April 01

Balance b/d

 

63,600

 

(15,000+3,600+3,600)

 

 

Sep. 30

Interest

 

3,600

Mar. 31

Balance c/d

 

47,700

Mar. 31

Interest

 

2,700

 

 

 

69,900

 

 

 

69,900

 

 

 

 

 

 

 

 

2019-20

 

 

 

2019-20

 

 

 

Sep. 30

Bank

 

20,400

April 01

Balance b/d

 

47,700

Mar. 31

Balance c/d

 

31,800

Sep. 30

Interest

 

2,700

 

 

 

 

Mar. 31

Interest

 

1,800

 

 

 

52,200

 

 

 

52,200

 

 

 

 

 

 

 

 

2020-21

 

 

 

2020-21

 

 

 

Sep. 30

Bank

 

18,600

April 01

Balance b/d

 

31,800

 

(15,000+1,800+1,800)

 

 

Sep. 30

Interest

 

1,800

Mar. 31

Balance c/d

 

15,900

Mar. 31

Interest

 

900

 

 

 

34,500

 

 

 

34,500

 

 

 

 

 

 

 

 

2021-22

 

 

 

2021-22

 

 

 

Sep. 30

Bank

 

16,800

April 01

Balance b/d

 

15,900

 

(15,000+900+900)

 

 

Sep. 30

Interest

 

900

 

 

 

16,800

 

 

 

16,800

 

 

 

 

 

 

 

 
Working Notes:
 
1) Pammy’s Share of Profit
Previous Year’s Profit x Proportionate Period x Share of Deceased Partner  
 
2) Pammy’s Share of Goodwill
 Goodwill of the firm = Average Profit  Numbers of Year’s Purchase
 
Average Profit  
 
Goodwill of the firm = 50,000 x 3 = Rs 1,50,000
  
 
3) Gaining Ratio = New Ratio – Old Ratio
 
Puneet’s Share 
 
Pankaj’s Share 
 
Gaining Ratio between Puneet and Pankaj = 2 : 2 or 1 : 1
 
4) Interest on Capital for 6 months, i.e. from April 1, 2007 to September 30, 2007
 
Amount of Capital x Rate of Interest x Period  
 
5) Interest Amount
The firm closes its books every year on March 31, while installments to Pammy's Executor are paid on September 30 every year.
Amount outstanding on 30 September = 75,400 – 15,400 = Rs 60,000

Calculation of Interest

Periods

Amount

Outstanding

Yearly Interest

For 6 Months

2017-18

60,000



2018-19

45,000



2019-20

30,000



2020-21

15,000



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