question_answer

Ajay, Vijay and Sanjay were partners in a firm sharing profits in the ratio of 2 : 2 : 1. On 31st December, 2016, their balance sheet was as under: Balance Sheet as at 31st December, 2016

Liabilities		Amt (Rs.)	Assets	Amt (Rs.)
Creditors		40,000	Cash	32,000
General Reserve		30,000	Debtors	48,000
Capital A/cs			Stock	12,000
Ajay	80,000		Patents	2,000
Vijay	40,000		Machinery	64,000
Sanjay	40,000	1,60,000		72,000
		2,30,000		2,30,000

Ajay died on 1st July, 2017. It was agreed between his executor and the remaining partners that (i) Goodwill to be valued at two years' purchase of the average pro fits of the previous four years which were as under: 2013 \[-\] Rs. 20,000; 2014 \[-\] Rs. 28,000; 2015 \[-\] Rs. 36,000 and 2016 ? Rs. 24,000. (ii) Goodwill is not to be shown in the books at all. (iii) Interest on capital be provided at 12% per annum. (iv) His share of profit for the year 2017 be taken as accrued at the same rate as that of the previous year. Prepare Ajay's capital account as on 1st July, 2017.

Answer:

DrAjay's Capital Account                                  Cr

Particulars	Amt (Rs.)	Particulars	Amt (Rs.)
To Ajay?s Executor?s A/c	1,23,200	By Balance b/d	80,000
		By general Reserve A/c	12,000
		By Vijay?s Capital A/c	14,400
		By Sanjay?s Capital A/c	7,200
		By Interest on Capital A/c	4,800
		By Profit and Loss suspense A/c	4,800
	1,23,200		1,23,200

Working Notes 1. Calculation of Gaining Ratio Gaining Ratio = New Share \[-\] Old Share \[Vijay=\frac{2}{3}-\frac{2}{5}=\frac{10-6}{15}=\frac{4}{15}'\] \[Sanjay=\frac{1}{3}-\frac{1}{5}-\frac{5-3}{15}=\frac{2}{15}\] 2. Calculation of Share of Profit \[Average\,\Pr ofit\,of\,Four\,Years=\frac{1,08,000}{4}=Rs.\,27,000\] Firm?s Goodwill = Average Profit \[\times \] Number of years? Purchase \[=27,000\times 2=\text{Rs}\text{.}\,\,54,000\] Vijay?s Share in Goodwill \[=54,000\times 2/5=Rs.\,21,600\] to be adjusted in gaining ratio i.e., 2:1. \[Gaining\text{ }Ratio=4:2\text{ }or\text{ }2:1\] 3. Calculation of General Reserve \[30,000\times \frac{2}{5}=Rs.\,12,000\] 4. Calculation of Interest on Capital \[30,000\times \frac{2}{5}=Rs.\,12,000\] 5. Calculation of Profit up to Death \[24,000\times \frac{2}{5}\times \frac{6}{12}=Rs.\,4,800\]