Nithya, Sathya and Mithya were partners sharing profits and losses in the ratio of 5:3:2. Their Balance Sheet as on December 31, 2002 was as follows:

 

Books of Nithya, Sathya and Mithya

 

Balance Sheet at December 31, 2002

 

 

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 May 1, 2002. 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 1998, Rs 13,000; in 1999, Rs 12,000; in 2000, Rs 16,000; and in 2001, 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 2002.

(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 May 1, 2002 after giving effect to the adjustments.

 Books of Nithya and Sathya

 

Journal

 

 

Date

Particulars

L.F.

Amount

Rs

Amount

Rs

2002

 

 

 

 

 

May 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)

 

 

 

 

 

 

 

 

 

 

May 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)

 

 

 

 

 

 

 

 

 

May 1

Revaluation A/c

Dr.

 

5,000

 

 

To Machinery A/c

 

 

 

5,000

 

(Decrease in the value of machinery)

 

 

 

 

 

 

 

 

 

 

 

May 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)

 

 

 

 

 

 

 

 

 

 

May 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)

 

 

 

 

 

 

 

 

 

 

May 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)

 

 

 

 

 

 

 

 

 

 

May 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)

 

 

 

 

 

 

 

 

 

 

May 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)

 

 

 

 

 

 

 

 

 

 

May 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

2002

 

 

 

2002

 

 

 

May 01

Bank

 

4,200

May 01

Mithya’s Capital A/c

 

28,600

Oct. 31

Bank (6,100 + 1220)

 

7,320

Oct. 31

Interest

 

1,220

Dec. 31

Balance c/d

 

18,605

Dec. 31

Interest {915 × (2/6)}

 

305

 

 

 

30,125

 

 

 

 

30,125

 

 

 

 

 

 

 

 

2003

 

 

 

2003

 

 

 

Apr 30

Bank (6,100 + 915)

 

7,015

Jan. 01

Balance b/d

 

18,605

Oct 31

Bank (6,100 + 610)

 

6,710

Apr. 30

Interest {915 × (4/6)}

 

610

Dec 31

Balance c/d

 

6202

Oct. 31

Interest

 

610

 

 

 

 

Dec. 31

Interest {305 × (2/6)}

 

102

 

 

 

19,927

 

 

 

19,927

 

 

 

 

 

 

 

 

2004

 

 

 

2004

 

 

 

Apr 30

Bank (6,100 + 305)

 

6,405

Jan. 01

Balance b/d

 

6,202

 

 

 

 

Apr 30

Interest {305 × (2/6)}

 

203

 

 

 

6,405

 

 

 

 

6,405

 

 

 

 

 

 

 

 

                     

 

Balance Sheet

 

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

 

 

 

 

 

Working Notes:

 

1.

Partners’ Capital Account

 

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 × Proportionate Period × Share of Profit

 

3. Mithya’s share of Goodwill

Goodwill of a firm = Average Profit × Number of Year’s Purchase

 

4. Gaining Ratio = New Ratio – Old Ratio

Gaining Ratio between Nithya and Sathya = 5:3

 

5.

Calculation of Interest

 

 

Period

Amount Outstanding

Interest

For two months

May 01, 02 to Oct.31, 03

24,400

Nov 01, 02 to Apr.30, 03

18,300

305

May 01, 03 to Oct.31, 03

12,200

 

Nov. 01, 03 to Apr. 30, 04

6,100

 

         

 

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