Maharashtra Board Class 12 Commerce BK Chapter 5 Reconstitution of Partnership (Death of Partner) Solutions

Reconstitution Of Partnership (Death Of Partner) 12th BK Commerce Chapter 5 Solutions Maharashtra Board

Balbharti Maharashtra State Board 12th Commerce Book Keeping & Accountancy Solutions Chapter 5 Reconstitution Of Partnership (Death Of Partner) Textbook Exercise Questions And Answers.

Class 12 Commerce BK Chapter 5 Exercise Solutions

1. Objective Questions:

A. Select The Most Appropriate Answer From The Alternative Given Below And Rewrite The Sentences.

Question 1.Benefit Ratio is the ratio in which
(a) The old partner gain on the admission of a new partner
(b) The Goodwill of a new partner on admission is credited to old partners
(c) The continuing partners' benefits on retirement or death of a partner
(d) All partners are benefitted.
Answer: (c) The continuing partner's benefits on retirement or death of a partner
In simple words: The benefit ratio shows how much the remaining partners gain in their share of profits when a partner retires or dies, reflecting their increased proportion in the partnership.

🎯 Exam Tip: Understanding the benefit ratio is crucial for calculating the gain to existing partners upon the exit of another partner, impacting their future profit distribution.

Question 2.The ratio by which existing partners are benefitted -
(a) gain ratio
(b) sacrifice ratio
(c) profit ratio
(d) capital ratio
Answer: (a) gain ratio
In simple words: The gain ratio specifies the proportion in which the continuing partners increase their share of profit after a partner's retirement or death, directly benefiting them.

🎯 Exam Tip: Remember that a gain ratio occurs when partners' shares increase, typically after a retirement or death, distinguishing it from a sacrifice ratio used for new admissions.

Question 3.Profit and Loss Suspense Account is shown in the new Balance Sheet on - side.
(a) debit
(b) credit
(c) asset
(d) liabilities
Answer: (c) asset
In simple words: The Profit and Loss Suspense Account appears on the asset side of the balance sheet as it represents unadjusted profit or loss for a period, typically up to the date of a partner's death.

🎯 Exam Tip: When a partner dies, the Profit and Loss Suspense Account is used to record their share of profit or loss up to the date of death, appearing as an asset if it's a profit and a liability if it's a loss, but usually an asset for profit shares not yet finalized.

Question 4.Death is a compulsory -
(a) Dissolution
(b) Admission
(c) Retirement
(d) Winding up
Answer: (c) Retirement
In simple words: A partner's death is considered a compulsory retirement because the deceased partner can no longer contribute to the business, automatically ending their active partnership.

🎯 Exam Tip: Classifying death as a compulsory retirement highlights that the partnership, as far as the deceased partner is concerned, ends their active involvement and necessitates settlement of their account.

Question 5.The balance on the Capital Account of a partners, on his death is transferred to - Account.
(a) Relatives
(b) Legal Heir's Loan/Executors Loan
(c) Partners' Capital
(d) Partners' Loan
Answer: (b) Legal Heir's Loan/Executors Loan
In simple words: Upon a partner's death, their capital account balance is transferred to the Legal Heir's Loan or Executors' Loan Account, as the amount becomes payable to their legal representatives.

🎯 Exam Tip: The transfer to the Legal Heir's/Executors' Loan Account is a critical step in settling the deceased partner's estate, ensuring the rightful recipients receive the due amount, often with interest until paid.

B. Write A Word, Term, Phrase, Which Can Substitute Each Of The Following Statements.

Question 1.Excess of credit side over the debit side of Profit and Loss Adjustment Account.
Answer: Profit
In simple words: When the total of the credit entries exceeds the total of the debit entries in the Profit and Loss Adjustment Account, it indicates a net profit from revaluation.

🎯 Exam Tip: A credit balance in the Profit and Loss Adjustment Account signifies a gain on revaluation, which is then distributed among partners in their profit-sharing ratio.

Question 2.A person who represents the deceased partner on the death of the partner.
Answer: Legal Heir's or Executor
In simple words: An executor or legal heir is the designated individual legally authorized to manage the affairs and receive the dues of a deceased partner.

🎯 Exam Tip: The executor or legal heir acts as the liaison for all financial settlements related to the deceased partner's share in the firm, ensuring proper distribution according to law or will.

Question 3.Accumulated past profit kept in the form of reserve.
Answer: Reserve fund or General reserve
In simple words: A reserve fund or general reserve is a portion of profits set aside by a business for future use or to cover unforeseen contingencies.

🎯 Exam Tip: General reserves are undistributed profits that belong to all partners and must be distributed among them, including a deceased partner, in their profit-sharing ratio at the time of reconstitution.

Question 4.The partner who died.
Answer: Deceased partner
In simple words: A deceased partner refers to a partner who has passed away, leading to the reconstitution of the partnership firm.

🎯 Exam Tip: When a partner dies, their capital account needs to be settled, and their share of profit, goodwill, and reserves must be calculated and paid to their legal representatives.

Question 5.The proportion in which the continuing partners benefit due to the death of a partner.
Answer: Gain/Benefit ratio
In simple words: The gain or benefit ratio indicates how much the remaining partners' profit-sharing proportion increases after a partner's departure.

🎯 Exam Tip: The gain ratio is essential for adjusting goodwill and distributing future profits among the continuing partners, reflecting their enhanced shares.

C. State Whether The Following Statements Are True Or False With Reasons.

Question 1.A deceased partner is not entitled to the Goodwill of the firm.
Answer: This statement is False. A deceased partner's contribution was there in the development of business and goodwill is the value of the business in terms of money. Hence, a deceased partner is entitled to receive goodwill from the firm.
In simple words: A deceased partner is entitled to their share of goodwill because they contributed to building the firm's reputation and value during their lifetime.

🎯 Exam Tip: Goodwill represents the past efforts of all partners; therefore, a deceased partner or their estate has a right to their share of it, which should be properly valued and accounted for.

Question 2.A deceased partner is entitled to his share of General Reserve.
Answer: This statement is True. General reserve is created out of past undistributed profit. Past profit is earned due to the efforts and hard work of all the partners including the partner who is now dead. Hence a deceased partner has right on it and therefore a deceased partner is entitled to receive his share of General reserve.
In simple words: Yes, a deceased partner is entitled to their share of the general reserve because it represents past accumulated profits earned by the collective efforts of all partners.

🎯 Exam Tip: General reserves are part of the firm's accumulated profits; thus, they must be distributed among all partners, including the deceased, in their profit-sharing ratio at the time of death.

Question 3.If goodwill is written off, a Deceased Partner's Capital Account is debited.
Answer: This statement is False. When the benefits of goodwill are given to the deceased partner, his capital account is credited and when such goodwill is written off, capital accounts of remaining partners are debited.
In simple words: A deceased partner's capital account is credited for their share of goodwill, while the continuing partners' capital accounts are debited when goodwill is written off.

🎯 Exam Tip: Crediting the deceased partner's capital account for goodwill increases the amount payable to their estate, reflecting their rightful share in the firm's value.

Question 4.After the death of a partner, the entire amount due to the deceased partner is paid to the legal representative of the deceased partner.
Answer: This statement is True. After the death of a partner, the entire amount due to the deceased partner is paid to the legal representative of the deceased partner as he is the only person who has the legal right to that amount.
In simple words: All amounts owed to a deceased partner are legally paid to their designated legal representative or executor, who then manages the distribution as per the will or law.

🎯 Exam Tip: It is crucial for the firm to identify and pay the correct legal representative to avoid future disputes and ensure proper closure of the deceased partner's account.

Question 5.For recording the profit or loss up to the death, the Profit and Loss Appropriation Account is operated.
Answer: This statement is False. For recording the profit or loss up to the death, the Profit and Loss suspense Account is created and operated. This is because final accounts cannot be prepared on the date of death of a partner. Till that period a separate account called Profit and Loss Suspense A/c is prepared.
In simple words: The Profit and Loss Suspense Account, not the Appropriation Account, is used to record the deceased partner's share of profit or loss up to their death date because full financial statements cannot be prepared then.

🎯 Exam Tip: The Profit and Loss Suspense Account is a temporary measure to ascertain the deceased partner's share of interim profits, which is then adjusted when final accounts are prepared.

D. Fill In The Blanks And Rewrite The Following Sentence.

Question 1.Deceased Partners' Executors Account is shown on the - side of the Balance Sheet.
Answer: Liabilities
In simple words: The Deceased Partner's Executors Account appears on the liabilities side of the Balance Sheet, as it represents the amount owed by the firm to the deceased partner's estate.

🎯 Exam Tip: The Executors Account is a liability for the continuing firm until the amount payable to the deceased partner's estate is fully settled.

Question 2.On the death of a partner, a ratio in which the continuing partners get more share of profits in future is called as - Ratio.
Answer: Gain
In simple words: The gain ratio is the proportion in which the remaining partners acquire the deceased partner's share of profits.

🎯 Exam Tip: Calculating the gain ratio is crucial for reallocating profit shares and adjusting goodwill among the surviving partners after a partner's death.

Question 3.Deceased partners share of profit up to the death is shown on - side of Balance Sheet.
Answer: Assets
In simple words: The deceased partner's share of profit up to the date of death, if not yet transferred, is shown on the asset side of the Balance Sheet via the Profit and Loss Suspense Account.

🎯 Exam Tip: This entry acts as a temporary asset, representing an amount to be realized or adjusted against future profits, before final settlement with the executor.

Question 4.Benefit Ratio = New Ratio -
Answer: Old Ratio
In simple words: The benefit ratio is calculated by subtracting a continuing partner's old profit-sharing ratio from their new profit-sharing ratio.

🎯 Exam Tip: This formula precisely quantifies the increase in each continuing partner's share of profit due to the retirement or death of another partner.

Question 5.When Goodwill is raised at its full value and it is written off - Account is to be credited.
Answer: Goodwill
In simple words: When goodwill is raised at full value and then written off, the Goodwill Account is credited to eliminate it from the books.

🎯 Exam Tip: Crediting the Goodwill Account reduces its balance to zero, impacting the capital accounts of the partners when it is written off.

E. Answer In One Sentence Only.

Question 1.What is Gain Ratio?
Answer: The profit-sharing ratio which is acquired by the surviving or continuing partners on account of the death of any partner is called gain ratio or benefit ratio.
In simple words: The gain ratio is the proportion by which the continuing partners increase their share of profits due to a partner's retirement or death.

🎯 Exam Tip: This ratio is vital for adjusting goodwill and reallocating future profit shares among the remaining partners.

Question 2.In which ratio general reserve is distributed on the death of a partner?
Answer: General reserve is distributed on the death of a partner in their old profit sharing ratio.
In simple words: The general reserve is distributed among all partners, including the deceased, in their original profit-sharing ratio at the time of a partner's death.

🎯 Exam Tip: This distribution ensures that the deceased partner receives their rightful share of past accumulated profits before their final account settlement.

Question 3.To whom do you distribute general reserve on the death of a partner?
Answer: On the death of a partner general reserve is distributed among all partners in their old profit and loss ratio.
In simple words: The general reserve is distributed to all existing partners, including the deceased partner, in their old profit and loss sharing ratio.

🎯 Exam Tip: This ensures fair allocation of past undistributed profits, which are considered earned by all partners, to their respective capital accounts.

Question 4.How the death of a partner is a compulsory retirement?
Answer: After the death of a partner, the business is not able to get any kind of services from the deceased partner and so we can say that the death of a partner is like a compulsory retirement.
In simple words: A partner's death is a compulsory retirement because it automatically ends their active participation and contribution to the firm.

🎯 Exam Tip: This classification simplifies the accounting treatment, as the firm proceeds with settling the deceased partner's account much like a retirement, but without prior notice.

Question 5.To which account profit is to be transferred up to the date of his death?
Answer: Profit of the deceased partner, up to the date of his death, is transferred to his Legal Heir's/Executor's Account.
In simple words: The deceased partner's share of profit up to their death is transferred to their Legal Heir's or Executor's Account for final settlement.

🎯 Exam Tip: This ensures that the deceased partner's estate receives all dues, including profits earned up to their last day in the partnership.

Practical Problems

Question 1.Rajesh, Rakesh, and Mahesh were equal Partners on 31st March 2019. Their Balance Sheet was as follows 31st March 2019. Balance Sheet as of 31st March 2019

Liabilities	Amt Rs.	Assets	Amt Rs.
Capital Account :		Land and Building	4,00,000
Rajesh	5,00,000	Furniture	3,00,000
Rakesh	2,00,000	Debtors	3,00,000
Mahesh	2,00,000	Stock	1,00,000
Sundry creditors	90,000	Cash	1,00,000
Bills Payable	60,000
Bank loan	1,50,000
	12,00,000		12,00,000

Mr. Rajesh died on 30th June 2019 and the following adjustment was agreed as:
1. Furniture was to be adjusted to its market price of Rs. 3,40,000.
2. Land and Building were to be depreciated by 10%.
3. Provide R.D.D. @ 5% on debtors.
4. The profit up to the date of death of Mr. Rajesh is to be calculated on the basis of last year's profit which was Rs. 1,80,000. Prepare:
1. Profit and Loss Adjustment A/c
2. Partners' Capital Account
3. Balance Sheet of the continuing firm. Solution: In the books of the Partnership Firm

Profit and Loss Adjustment Account
Dr.			Cr.
Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Land and Building A/c	40,000	By Furniture A/c	40,000
To R.D.D. A/c	15,000	By Partners' Capital A/c (Loss)
		Rajesh	5,000
		Rakesh	5,000
		Mahesh	5,000
			15,000
	55,000		55,000

Partners' Capital Account
Dr.						Cr.
Particulars	Rajesh (Rs.)	Rakesh (Rs.)	Mahesh (Rs.)	Particulars	Rajesh (Rs.)	Rakesh (Rs.)	Mahesh (Rs.)
To Profit and Loss Adjustment A/c - Loss	5,000	5,000	5,000	By Balance b/d	5,00,000	2,00,000	2,00,000
				By Profit and Loss Suspense A/c	15,000	-	-
To Rajesh's Executor's A/c	5,10,000
To Balance c/d		1,95,000	1,95,000
	5,15,000	2,00,000	2,00,000		5,15,000	2,00,000	2,00,000

Balance Sheet as of 1st July 2019

Liabilities		Amount (Rs.)		Assets		Amount (Rs.)
		(Rs.)	(Rs.)			(Rs.)	(Rs.)
Capital Accounts:				Land and Building		4,00,000
Rakesh	1,95,000			Less: Depreciation	40,000	3,60,000
Mahesh	1,95,000	3,90,000		Furniture		3,00,000
Rajesh's Executor's Loan A/c			5,10,000	Add: Appreciation	40,000	3,40,000
Sundry Creditors			90,000	Debtors		3,00,000
Bills Payable			60,000	Less: R.D.D. (5%)	15,000	2,85,000
Bank Loan			1,50,000	Stock			1,00,000
				Cash			1,00,000
				Profit and Loss Suspense A/c			15,000
			12,00,000				12,00,000

Working Note: The profit of the firm of last year was Rs. 1,80,000. Proportionate profit up to the date of death for Rajesh is as follows \[ 1,80,000 \times \frac{3}{12} \times 1 \text{ (Period) (P & L ratio)} \] \( = \text{Rs. } 15,000 \text{ (Profit and Loss Suspense A/c)} \)
In simple words: This solution provides the Profit and Loss Adjustment Account, Partners' Capital Account, and the Balance Sheet after Rajesh's death, along with a working note for the deceased partner's share of profit up to his death date.

🎯 Exam Tip: Ensure accurate calculation of revaluation gains/losses, proper transfer of the deceased partner's capital to their executor's account, and correct balance sheet adjustments for assets and liabilities.

Question 2.Rahul, Rohit, and Ramesh are in a business sharing profits and losses in the ratio of 3:2:1 respectively. Their Balance Sheet as of 31st March, 2017 was as follows: Balance Sheet as of 31st March 2017

Liabilities	Amt Rs.	Assets	Amt Rs.
Capital Account :		Debtors	1,00,000
Rahul	2,20,000	Less: R. D. D.	10,000
Rohit	2,10,000		90,000
Ramesh	2,40,000	Plant and Machinery	85,000
creditors	80,000	Investment	3,50,000
Bills Payable	7,000	Motor lorry	1,00,000
General Reserve	96,000	Building	80,000
		Bank	1,48,000
	8,53,000		8,53,000

On 1st October 2017, Ramesh died and the Partnership deed provided that
1. R.D.D. was maintained at 5% on Debtors.
2. Plant and Machinery and Investment were valued at Rs. 80,000 and Rs. 4,10,000 respectively.
3. Of the creditors an item of Rs. 6,000 was no longer a liability and hence was properly adjusted.
4. Profit for 2017-18 was estimated at Rs. 1,20,000 and Ramesh's share in it up to the date of his death was given to him.
5. Goodwill of the firm was valued at two times the average profit of the last five years, which were
2012-13 - Rs. 1,80,000
2013-14 - Rs. 2,00,000
2014-15 - Rs. 2,50,000
2015-16 - Rs. 1,50,000
2016-17 - Rs. 1,20,000 Ramesh's share in it was to be given to him.
6. Salary Rs. 5,000 p.m. was payable to him.
7. Interest on capital at 5% i.e. was payable and on Drawings Rs. 2,000 were charged.
8. Drawings made by Ramesh up to September 2017 were Rs. 5,000 p.m. Prepare Ramesh's Capital A/c showing the amount payable to his executors. Give working of Profit and Goodwill. Ramesh Capital Balance 3,41,000 Solution: In the books of the Partnership Firm

Ramesh's Capital Account
Dr.		Cr.
Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Drawings A/c	30,000	By Balance b/d	2,40,000
To Interest on Drawings A/c	2,000	By Goodwill A/c	60,000
To Executor's Loan A/c	3,41,000	By Salary A/c	30,000
		By Interest on Capital A/c	6,000
		By Profit and Loss Adjustment A/c - Profit	11,000
		By Profit and Loss Suspense A/c	10,000
		By General Reserve A/c	16,000
	3,73,000		3,73,000

Working Notes: 1. Calculation of share of Goodwill: (a) Average profit \( = \frac{\text{TotalProfit}}{\text{No.ofyears}} \) \( = \frac{1,80,000+2,00,000+2,50,000+1,50,000+1,20,000}{5} \) \( = \frac{9,00,000}{5} \) \( = \text{Rs. } 1,80,000 \)
(b) Goodwill = Average profit \( \times \) No. of years \( = 1,80,000 \times 2 \) \( = \text{Rs. } 3,60,000 \)
(c) Share of Goodwill to Ramesh = Goodwill of the firm \( \times \) Ramesh's share \( = 3,60,000 \times \frac{1}{6} \) \( = \text{Rs. } 60,000 \)
2. Calculation of share of profit due to Ramesh: Share of profit = Last year profit \( \times \) Share of profit \( \times \) Period \( = 1,20,000 \times \frac{6}{12} \times 1 \) \( = \text{Rs. } 10,000 \text{ (Profit and Loss Suspense A/c)} \)
3. Interest on Capital is calculated for six months. \( \therefore \) Interest \( = 2,40,000 \times \frac{6}{12} \times \frac{5}{100} = \text{Rs. } 6,000 \)
In simple words: This solution details the calculation of Ramesh's capital account balance upon his death, including his share of goodwill, profit, salary, and interest on capital, and transfers the final amount to his executor's loan account.

🎯 Exam Tip: Accurately calculating all adjustments related to the deceased partner's account (goodwill, profit, salary, interest on capital and drawings) and ensuring the final balance is correctly transferred to the executor's loan account are key scoring points.

Question 3.Ram, Madhav, and Keshav are partners sharing profit and losses in the ratio 5:3:2 respectively. Their Balance Sheet as of 31st March, 2018 was as follows: Balance Sheet as of 31st March 2018

Liabilities	Amt Rs.	Assets	Amt Rs.
General Reserve	25,000	Goodwill	50,000
Creditors	1,00,000	Loose Tools	50,000
Unpaid Rent	25,000	Debtor	1,50,000
Capital Accounts		Live Stock	1,00,000
Ram	1,00,000	Cash	25,000
Madhav	75,000
Keshav	50,000
	3,75,000		3,75,000

Keshav died on 31st July 2018 and the following adjustments were agreed by as per the partnership deed.
1. Creditors have increased by Rs. 10,000.
2. Goodwill is to be calculated at 2 years purchase of average profits of 5 years.
3. The profits of the preceding 5 years was
2013-14 - Rs. 90,000
2014-15 - Rs. 1,00,000
2015-16 - Rs. 60,000
2016-17 - Rs. 50,000
2017-18 - Rs. 50,000 (Loss) Keshav's share in it was to be given to him.
4. Loose Tools and livestock were valued at Rs. 80,000 and Rs. 1,20,000 respectively.
5. R.D.D. was maintained at Rs. 10,000.
6. Commission Rs. 2,000 p.m. was payable to Keshav. Profit for 2018-19 was estimated at Rs. 45,000 and Keshav's share in it up to the date of his death was given to him. Prepare Revaluation A/c, Keshav's Capital A/c showing the amount payable to his executors. Solution: In the books of the Partnership Firm

Revaluation Account
Dr.			Cr.
Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To R.D.D. A/c	10,000	By Loose Tools A/c	30,000
To Creditors A/c	10,000	By Live Stock A/c	20,000
To Partners' capital A/c - Profit
Ram	15,000
Madhav	9,000
Keshav	6,000
	30,000
	50,000		50,000

Keshav's Capital Account
Dr.		Cr.
Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Balance c/d	92,000	By Balance b/d	50,000
		By General Reserve A/c	5,000
		By Commission A/c	8,000
		(2,000 \( \times \) 4 months)
		By Goodwill A/c	20,000
		By Revaluation A/c - Profit	6,000
		By Profit and Loss Suspense A/c	3,000
	92,000		92,000

Working Notes: 1. Calculation of share of Goodwill: (a) Average profit \( = \frac{\text{Total profit}}{\text{No. of years}} \) \( = \frac{90,000+1,00,000+60,000+50,000-50,000}{5} \) \( = \frac{2,50,000}{5} \) \( = \text{Rs. } 50,000 \)
(b) Goodwill = Average profit \( \times \) No. of years \( = 50,000 \times 2 \) \( = \text{Rs. } 1,00,000 \)
(c) Share of Goodwill to Keshav = Goodwill of the firm \( \times \) Keshav's share \( = 1,00,000 \times \frac{2}{10} \) \( = \text{Rs. } 20,000 \)
In simple words: This solution presents the Revaluation Account and Keshav's Capital Account, incorporating adjustments for creditors, asset revaluation, R.D.D., goodwill, commission, and Keshav's share of profit up to his death, transferring the final balance to his executors.

🎯 Exam Tip: Pay close attention to the timeline of death for calculating proportionate profit and commission, and ensure all revaluation adjustments are correctly reflected in the Revaluation Account and then distributed to partners.

2. Calculation of share of profit due to Keshav Share of profit = Last year profit \( \times \) Share of Keshav \( \times \) Period \( = 45,000 \times \frac{2}{10} \times \frac{4}{12} \) \( = \text{Rs. } 3,000 \text{ (Profit and Loss Suspense Account)} \)
In simple words: This working note calculates Keshav's share of profit for the period up to his death using a proportionate method based on the estimated last year's profit.

🎯 Exam Tip: Remember to annualize profit estimates and apply the correct profit-sharing ratio and period fraction to accurately determine the deceased partner's share of interim profit.

Question 4.Virendra, Devendra, and Narendra were partners sharing profit and losses in the ratio of 3:2:1. Their Balance Sheet as of 31st March 2019 was as follows. Balance Sheet as of 31st March 2019

Liabilities	Amt Rs.	Assets	Amt Rs.
Bank Loan	25,000	Furniture	50,000
Creditors	20,000	Land & Building	50,000
Bills Payable	5,000	Motor Car	20,000
Reserve Fund	30,000	Sundry Debtors	50,000
Capital Account :		Bills Receivable	20,000
Virendra	90,000	Investments	50,000
Devendra	60,000	Cash at Bank	20,000
Narendra	30,000
	2,60,000		2,60,000

Mr. Virendra died on 31st August 2019 and the partnership deed provided that the event of the death of Mr. Virendra his executors be entitled to be paid out.
1. The capital to his credit at the date of death.
2. His proportion of Reserve at the date of last Balance Sheet.
3. His proportion of Profits to date of death is based on the average profits of the last four years.
4. His share of Goodwill should be calculated at two years purchase of the profits of the last four years for the year ended 31st March were as follows:
2016 - Rs. 40,000
2017 - Rs. 60,000
2018 - Rs. 70,000
2019 - Rs. 30,000
5. Mr. Virendra has drawn Rs. 3,000 p.m. to date of death, There is no increase and decrease in the value of assets and liabilities. Prepare Mr. Virendra Executors A/c. Solution: In the books of the Partnership Firm

Virendra's Capital Account
Dr.		Cr.
Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Drawings A/c	15,000	By Balance b/d	90,000
(3,000 \( \times \) 5 months)		By Goodwill A/c	50,000
To Executor's Loan A/c	1,50,417	By Profit and Loss Suspense A/c	10,417
		By Reserve Fund A/c	15,000
	1,65,417		1,65,417

Working Notes: 1. Calculation of share of profit: (a) Average Profit \( = \frac{\text{Total profit}}{\text{No. of years}} \) \( = \frac{40,000+60,000+70,000+30,000}{4} \) \( = \frac{2,00,000}{4} \) \( = \text{Rs. } 50,000 \)
(b) Goodwill = Average profit \( \times \) No. of years \( = 50,000 \times 2 \) \( = \text{Rs. } 1,00,000 \)
(c) Share of Goodwill to Virendra = Goodwill of the firm \( \times \) Virendra's share \( = 1,00,000 \times \frac{3}{6} \) \( = \text{Rs. } 50,000 \)
2. Share of profit due to Virendra Share of profit = Last year profit \( \times \) Share of Virendra \( \times \) Period \( = 50,000 \times \frac{3}{6} \times \frac{5}{12} \) \( = \text{Rs. } 10,417 \text{ (Profit and Loss Suspense A/c)} \)
In simple words: This solution calculates the amount payable to Virendra's executors upon his death, considering his capital, share of reserves, goodwill, and proportionate profit, after deducting his drawings.

🎯 Exam Tip: It is essential to correctly calculate average profits for goodwill valuation and proportionate profit for the deceased partner up to the date of death, ensuring all individual adjustments like drawings are accounted for before transferring to the executor's loan account.

Question 5.The Balance Sheet of Sohan, Rohan, and Mohan who were sharing profits and losses in the ratio of 3:2:1 is as follows: Balance Sheet as of 31st March 2019

 

Question 5. The Balance Sheet of Sohan, Rohan, and Mohan who were sharing profits and losses in the ratio of 3:2:1 is as follows: Balance Sheet as of 31st March 2019

Liabilities	Amt Rs.	Assets	Amt Rs.
Bank Overdraft	18,000	Bank	48,000
Creditors	85,000	Debtors	30,000
Bills payable	40,000	Land and Building	40,000
Bank Loan	1,50,000	Machinery	80,000
General Reserve	27,000	Investments	40,000
Capital Account :		Computers	40,000
Sohan	20,000	Stock	90,000
Rohan	20,000	Patents	12,000
Mohan	20,000
Total	3,80,000	Total	3,80,000

Mr. Rohan died on 1st October 2019 and the following adjustments were made:
1. Goodwill of the firm is valued at Rs. 30,000.
2. Land and Building and Machinery were found to be undervalued by 20%.
3. Investments are valued at Rs. 60,000.
4. Stock to be undervalued by Rs. 5,000 and a provision of 10% as debtors were required.
5. Patents were valueless.
6. Mr. Rohan was entitled to share in profits up to the date of death and it was decided that he may be allowed to retain his drawings as his share of profit.
Rohan's drawings till the date of death were Rs. 25,000.
Prepare Partners' Capital Accounts.
Answer:
Solution:
In the books of the Partnership firm

Dr. Partners' Capital Accounts Cr.
Particulars	Sohan (Rs.)	Rohan (Rs.)	Mohan (Rs.)	Particulars	Sohan (Rs.)	Rohan (Rs.)	Mohan (Rs.)
To Executor's Loan A/c		49,000		By Balance b/d	20,000	20,000	20,000
To Drawings A/c		25,000		By Revaluation A/c	15,000	10,000	5,000
To Balance c/d	63,500		34,500	By General Reserve A/c	13,500	9,000	4,500
				By Goodwill A/c	15,000	10,000	5,000
				By Profit and Loss Suspense A/c		25,000
Total	63,500	74,000	34,500	Total	63,500	74,000	34,500

Working Notes:
1.

Dr. Revaluation Account Cr.
Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Stock A/c	5,000	By Land and Building A/c	10,000
To R.D.D. A/c	3,000	By Machinery A/c	20,000
To Patents A/c	12,000	By Investments A/c	20,000
To Partner's Capital A/cs - Profit
Sohan	15,000
Rohan	10,000
Mohan	5,000
	30,000
Total	50,000	Total	50,000

2. Firm's goodwill = Rs. 30,000.
Distribute among partners in their profit and loss ratio 3:2:1.
3. Revised value of Land & Building = \( \frac{\text{Book value}}{(100-20)} \times 100 \)
= \( \frac{40,000}{80} \times 100 \)
= Rs. 50,000.
\( \therefore \) Increase In the value of Land & Building = Revised value – Book value
= 50,000 – 40,000
= Rs. 10,000.
4. Revised value of Machinery = \( \frac{\text{Book value}}{(100-20)} \times 100 \)
= \( \frac{80,000}{80} \times 100 \)
= Rs. 1,00,000.
\( \therefore \) Increase in the value of Machinery = 1,00,000 – 80,000 = Rs. 20,000.
5. Patents were valueless means it is a loss for the business.
6. Rohan's share In profit is 25,000 and his drawings are 25,000. Rohan is allowed to retain his drawings as his share of profit. Means write Rs.25,000 as drawings on the debit side and write Rs. 25,000 as Profit and Loss Suspense A/c on the Credit side of Partners' Capital A/c.
In simple words: This problem involves calculating the final amount payable to a deceased partner's executor by preparing their Capital Account, taking into consideration various adjustments related to assets, liabilities, goodwill, and profit shares up to the date of death. It demonstrates how to reconcile capital balances and profit distributions.

🎯 Exam Tip: Focus on accurately calculating each adjustment (like goodwill, revaluation of assets, and profit share) and correctly posting them to the deceased partner's capital account to ensure the final balance payable is precise.

Class 12 Commerce BK Textbook Solutions Digest

• 12th Bk Chapter 1 Practical Problems
• 12th Bk Chapter 2 Practical Problems
• 12th Bk Chapter 3 Practical Problems
• 12th Bk Chapter 4 Practical Problems
• 12th Bk Chapter 5 Practical Problems
• 12th Bk Chapter 6 Practical Problems
• 12th Bk Chapter 7 Practical Problems
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