Question

X, Y and Z are partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. Their Balance Sheet as at 31st March, 2018 was as follows:
Z died on 1st April, 2018, X and Y decide to share future profits and losses in ratio of 3 : 5. It was agreed that:
(i) Goodwill of the firm be valued 2 years purchase of average of four completed years profits which were : 2014-15 – ₹ 1,00,000; 2015-16 – ₹ 80,000; 2016-17 – ₹ 82,000.
(ii) Stock undervalued by ₹ 14,000 and machinery overvalued by ₹ 13,600.
All debtors are good. A debtor whose dues of ₹ 400 were written off as bad debts paid 50% in full settlement.
Out of the amount of insurance premium which was debited entirely to Profit and Loss Account ₹ 2,200 be carried forward as an unexpired insurance premium.
₹ 1,000 included in Sundry Creditors is not likely to arise.
A claim of ₹ 1,000 on account of Workmen Compensation to be provided for.
(iii) Investment be sold for ₹ 8,200 and a sum of ₹ 11,200 be paid to execution of Z immediately. The balance to be paid in four equal half-yearly installments together with interest @ 8% p.a. at half year rest.
Show Reavaluation Account, Capital Accounts of Partners and the Balance Sheet of the new firm.

Answer 1

Explanation:

Working Notes:

1. Calculation of Gaining Ratio and Share of Goodwill

Gaining Ratio = New Ratio - Old Ratio

$X^{\prime} s=\frac{3}{8}-\frac{5}{10}=\frac{15-20}{40}=-\frac{5}{40}(\text { Sacrifice })$

$Y^{\prime} s=\frac{5}{8}-\frac{3}{10}=\frac{25-12}{40}=\frac{13}{40}(\text { Gain })$

$Z^{\prime} \text { 's Goodwill }=70,000 \times \frac{2}{10}=14,000$

$\mathrm{X}^{\prime} \mathrm{s} \text { Goodwill }=70,000 \times \frac{5}{40}=8,750$

2. Calculation of Goodwill

$Goodwill = Average Profit \times Number of years Purchase$

$=28,000 \times 2.5=\mathrm{Rs} .70,000$

Average Profit = $\frac {Total Profits of previous 4 years }{\text { No. of years }}$

$=\frac{1,00,000+80,000+82,000-1,50,000}{4}=\frac{1,12,000}{4}=28,000$