Arti,Bharti and Seema arepartners sharing profits in the proportion of 3:2:1 and their Balance Sheet ason March 31, 2003 stood as follows:
Books of Arti, Bharti and Seema
Balance Sheet as on March 31, 2003
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
Bhartidied on June 12, 2003 and according to the deed of the said partnership, herexecutors are entitled to be paid as under:
(a) The capital toher credit at the time of her death and interest thereon @ 10% per annum.
(b) Herproportionate share of reserve fund.
(c) Her share ofprofits for the intervening period will be based on the sales during thatperiod, which were calculated as Rs 1,00,000. The rateof profit during past three years had been 10% on sales.
(d) Goodwillaccording to her share of profit to be calculated by taking twice the amount ofthe average profit of the last three years less 20%. The profits of theprevious years were:
2001 – Rs 8,200
2002 – Rs 9,000
2003 – Rs 9,800
The investmentswere sold for Rs 16,200 and her executors were paid out. Pass the necessaryjournal entries and write the account of the executors of Bharti.
Arti,Bharti and Seema arepartners sharing profits in the proportion of 3:2:1 and their Balance Sheet ason March 31, 2003 stood as follows:
| Books of Arti, Bharti and Seema
Balance Sheet as on March 31, 2003
|
| ||||
| 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 | ||
|
|
|
|
| ||
Bhartidied on June 12, 2003 and according to the deed of the said partnership, herexecutors are entitled to be paid as under:
(a) The capital toher credit at the time of her death and interest thereon @ 10% per annum.
(b) Herproportionate share of reserve fund.
(c) Her share ofprofits for the intervening period will be based on the sales during thatperiod, which were calculated as Rs 1,00,000. The rateof profit during past three years had been 10% on sales.
(d) Goodwillaccording to her share of profit to be calculated by taking twice the amount ofthe average profit of the last three years less 20%. The profits of theprevious years were:
2001 – Rs 8,200
2002 – Rs 9,000
2003 – Rs 9,800
The investmentswere sold for Rs 16,200 and her executors were paid out. Pass the necessaryjournal entries and write the account of the executors of Bharti.
| Books of Arti and Seema
Journal
|
| ||||||
| Date | Particulars | L.F. | Amount Rs | Amount Rs | |||
| 2003 |
|
|
|
|
| ||
| 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 | ||
| 2003 |
|
|
| 2003 |
|
|
| ||
| 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 | ||
| 2003 |
|
|
| 2003 |
|
|
| ||
| June 12 | Bank |
| 24,373 | June 12 | Bharti's Capital A/c |
| 24,373 | ||
|
|
|
|
|
|
|
|
| ||
|
|
|
| 24,373 |
|
|
| 24,373 | ||
|
|
|
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|
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| ||
Working Notes:
1. Bharti’s share of profit = Profit is 10% of sales
Sales during the last year for that period were Rs 1,00,000
If sales are Rs 1,00,000, then the profit is Rs 10,000
2. Bharti’s Share of Goodwill
Goodwill of the firm = Average Profit × Number of Years Purchase
Or, 9,000 − 20% of 9,000 = 9,000 − 1,800 = Rs 7,200
Goodwill of the firm = 7,200 × 2 = Rs 14,400
3. Gaining Ratio = New Ratio − Old Ratio
Gaining ratio between Arti and Seema = 3:1
4. Interest on Capital for 73 days, i.e. from April 1, 2003 to June 12, 2003
Interest on capital = Amount of Capital × Ratio of Interest × Period 