Chapter 4 Reconstitution Retirement Death of a Partner Solutions

Question - 21 : - Following is the Balance Sheet of Jain, Gupta and Malik as on March 31, 2016.

Books of Jain, Gupta and Malik

Balance Sheet as on March 31, 2016

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

19,800

Land and Building

26,000

Telephone Bills Outstanding

300

Bonds

14,370

Accounts Payable

8,950

Cash

5,500

Accumulated Profits

16,750

Bills Receivable

23,450

Sundry Debtors

26,700

Capitals :

Stock

18,100

Jain

40,000

Office Furniture

18,250

Gupta

60,000

Plants and Machinery

20,230

Malik

20,000

1,20,000

Computers

13,200

1,65,800

1,65,800

The partners have been sharing profits in the ratio of 5:3:2. Malik decides to retire from business on April 1, 2016 and his share in the business is to be calculated as per the following terms of revaluation of assets and liabilities : Stock, Rs 20,000; Office furniture, Rs 14,250; Plant and Machinery Rs 23,530; Land and Building Rs 20,000.
A provision of Rs 1,700 to be created for doubtful debts. The goodwill of the firm is valued at Rs 9,000.
The continuing partners agreed to pay Rs 16,500 as cash on retirement of Malik, to be contributed by continuing partners in the ratio of 3:2. The balance in the capital account of Malik will be treated as loan.
Prepare Revaluation account, capital accounts, and Balance Sheet of the reconstituted firm.

Answer - 21 : -

In the books of Jain and Gupta Revaluation Account
Dr.		Cr.
Particulars	Amount Rs		Particulars		Amount Rs
Office Furniture	4,000		Stock		1,900
Land and Building	6,000		Plant and Machinery		3,300
Provision for Doubtful Debts	1,700		Loss transferred to
			Jain's Capital A/c	3,250
			Gupta's Capital A/c	1,950
			Malik's Capital A/c	1,300	6,500
	11,700				11,700

Partners’ Capital Account
Dr.				Cr.
Particulars	Jain	Gupta	Malik		Particulars	Jain	Gupta	Malik
Revaluation (Loss)	3,250	1,950	1,300		Balance b/d	40,000	60,000	20,000
Malik’s Capital	1,125	675			Accumulated Profits	8,375	5,025	3,350
Cash			16,500		Jain’s Capital A/c			1,125
Malik’s Loan			7,350		Gupta’s Capital A/c			675
Balance c/d	53,900	69,000			Cash	9,900	6,600
	58,275	71,625	25,150			58,275	71,625	25,150

Balance Sheet
Liabilities		Amount Rs	Assets		Amount Rs
Sundry Creditors		19,800	Stock (18,100 + 1,900)		20,000
Telephone Bills Outstanding		300	Bonds		14,370
Accounts Payable		8,950	Cash		5,500
Malik’s Loan		7,350	Bills Receivable		23,450
			Sundry Debtors	26,700
Partners’ Capital:			Less: Provision for Bad Debts	1,700	25,000
Jain	53,900		Land and Building (26,000 – 6,000)		20,000
Gupta	69,000	1,22,900	Office Furniture (18,250 – 4,000)		14,250
			Plant and Machinery (20,230 + 3,300)		23,530
			Computers		13,200
		1,59,300			1,59,300

Working Note:

1) Malik’s share of goodwill = Total Goodwill × Retiring Partner Share =

2) Gaining Ratio = New Ratio – Old Ratio

Gaining Ratio between Jain and Gupta = 10:6 or 5:3

Question - 22 : - Arti, Bharti and Seema are partners sharing profits in the proportion of 3:2:1 and their Balance Sheet as on March 31, 2016 stood as follows:

Books of Arti, Bharti and Seema

Balance Sheet as on March 31, 2016

Liabilities

Amount

Rs

Assets

Amount

Rs

Bills Payable

12,000

Buildings

21,000

Creditors

14,000

Cash in Hand

12,000

General Reserve

12,000

Bank

13,700

Capitals:

Debtors

12,000

Arti 20,000

Bills Receivable

4,300

Bharti

12,000

Stock

1,750

Seema

8,000

40,000

Investment

13,250

78,000

78,000

Bharti died on June 12, 2016 and according to the deed of the said partnership, her executors are entitled to be paid as under:
(a) The capital to her credit at the time of her death and interest thereon @ 10% per annum.
(b) Her proportionate share of reserve fund.
(c) Her share of profits for the intervening period will be based on the sales during that period, which were calculated as Rs 1,00,000. The rate of profit during past three years had been 10% on sales.
(d) Goodwill according to her share of profit to be calculated by taking twice the amount of the average profit of the last three years less 20%. The profits of the previous years were:
2013 – Rs 8,200
2014 – Rs 9,000
2015 – Rs 9,800
The investments were sold for Rs 16,200 and her executors were paid out. Pass the necessary journal entries and write the account of the executors of Bharti.

Answer - 22 : -

Books of Arti and Seema Journal
Date	Particulars		L.F.	Amount Rs	Amount Rs
2016
June 12	Interest on Capital A/c	Dr.		240
	General Reserve A/c	Dr.		4,000
	Profit and Loss (Suspense) A/c	Dr.		3,333
	To Bharti’s Capital A/c				7,573
	(Profit, interest and general reserve are in credited to Bharti’s Capital account)

June 12	Arti’s Capital A/c	Dr.		3,600
	Seema’s Capital A/c	Dr.		1,200
	To Bharti’s Capital A/c				4,800
	(Bharti’s share of goodwill adjusted to Arti’s and Seema’s Capital Account in their gaining ratio, 3:1)

June 12	Bharti’s Capital A/c	Dr.		24,373
	To Bharti’s Executor’s A/c				24,373
	(Bharti’s capital account is transferred to her executor’s account)

June 12	Bank A/c	Dr.		16,200
	To Investment A/c				13,250
	To Profit on Sale of Investment				2,950
	(Investment sold)

June 12	Bharti’s Executor A/c	Dr.		24,373
	To Bank A/c				24,373
	(Bharti Executor paid)

Bharti’s Capital Account
Dr.			Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2016				2016
June 12	Bharti's Executor’s A/c		24,373	Mar. 31	Balance b/d		12,000
				June 12	Interest on Capital		240
					Profit and Loss (Suspense)		3,333
					General Reserve		4,000
					Arti’s Capital A/c		3,600
					Seema’s Capital A/c		1,200
			24,373				24,373

Bharti’s Executor’s Account
Dr.				Cr.
Date	Particulars	J.F.	Amount Rs		Date	Particulars	J.F.	Amount Rs
2016					2016
June 12	Bank		24,373		June 12	Bharti's Capital A/c		24,373

			24,373					24,373

Question - 23 : -
Nithya, Sathya andMithya were partners sharing profits and losses in the ratio of 5:3:2. TheirBalance Sheet as on March 31, 2015 was as follows:

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 - 23 : -

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 $(24, 400 \times \frac{10}{100} \times \frac{6}{12})$		1,220
Mar. 31	Balance c/d		18,605		Mar. 31	Interest $(18, 300 \times \frac{10}{100} \times \frac{2}{12})$		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 $(18, 300 \times \frac{10}{100} \times \frac{4}{12})$		18,605 610
Jan. 31	Bank (6,100 + 610)		6,710		Jan. 31	Interest $(12, 200 \times \frac{10}{100} \times \frac{6}{12})$		610
Mar. 31	Balance c/d		6202		Mar. 31	Interest $(6, 100 \times \frac{10}{100} \times \frac{2}{12})$		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 $(6, 100 \times \frac{10}{100} \times \frac{4}{12})$		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:

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

Free - Previous Years Question Papers

Books of Jain, Gupta and Malik Balance Sheet as on March 31, 2016
Liabilities		Amount Rs	Assets	Amount Rs
Sundry Creditors		19,800	Land and Building	26,000
Telephone Bills Outstanding		300	Bonds	14,370
Accounts Payable		8,950	Cash	5,500
Accumulated Profits		16,750	Bills Receivable	23,450
			Sundry Debtors	26,700
Capitals :			Stock	18,100
Jain	40,000		Office Furniture	18,250
Gupta	60,000		Plants and Machinery	20,230
Malik	20,000	1,20,000	Computers	13,200
		1,65,800		1,65,800

Books of Arti, Bharti and Seema Balance Sheet as on March 31, 2016
Liabilities		Amount Rs	Assets	Amount Rs
Bills Payable		12,000	Buildings	21,000
Creditors		14,000	Cash in Hand	12,000
General Reserve		12,000	Bank	13,700
Capitals:			Debtors	12,000
Arti 20,000			Bills Receivable	4,300
Bharti	12,000		Stock	1,750
Seema	8,000	40,000	Investment	13,250
		78,000		78,000

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

Chapter 4 Reconstitution Retirement Death of a Partner Solutions

Subscribe Now!