X and Yare equal partners and their partnership deed provides for IOC @5%. Goodwill is valued at 2yr purchase of last 3yrs of avg profits. An insurance policy is taken in joint names of partner whose value is 8710. The profits for 3yrs ended 30th june,95 were Rs. 9,000 ; Rs.10,800; Rs.8,550. On 30th june X died and on that date X's capital was Rs. 7,200, his share of profit Rs. 2,700 and drawings Rs. 6,000. Prepare X's capital A/c and also show the calculation of IOC.

Dear Student,

The solution to your query is provided below:

X’s Capital A/c

Dr.

Cr.

Particulars

Amount (Rs)

Particulars

Amount (Rs)

 

 

 

 

Drawings

6,000

Capital

7,200

X’s Executor’s A/c

18,230

Interest on Capital (WN)

525

 

 

Share of Joint life policy

4,355

 

 

Y’s Capital A/c

9,450

 

 

Profit Share

2,700

 

24,230

 

24,230

 

 

 

 

         

Working Note:

Interest on Capital

Capital given is the Closing Capital = 7,200

However, interest is to be calculated on opening Capital

Therefore, we calculate opening capital first

Opening Capital = Closing Capital + Drawings – Share of Profit

    = 7,200 + 6,000 – 2,700 = 10,500

Interest on Capital = 10,500 × 5% = 525

Keep posting for further doubts!!

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