Question

X, Y and Z were partners in a firm sharing profits and losses in the 5 : 3 : 4.

Their Balance Sheet on 31st March, 2019 was as follows :

X died on 1st October, 2019 and Y and Z decide to share future profits in the

ratio of 5 : 7. It was agreed between his executors and the remaining partners

that:

(i) Goodwill of the firm be valued at 2½ years' purchase of average of four

completed years' profit which were: 2015-16 ₹ 1,70,000;

2016-17 ₹ 1,80,000; 2017-18 ₹ 1,90,000; 2018-19 ₹ 1,80,000

(ii) X's share of profit from the closure of last accounting year till date of

death be calculated on the basis of last year's profit.

(iii) Building undervalued by 2,00,000; Machinery overvalued by 1,50,000

and Furniture overvalued by 46,000.

(iv) A provision of 5% be created on Debtors for Doubtful Debts.

(v) Interest on Capital to be provided at 10% p.a.

(vi) Half of the net amount payable to X's executor was paid immediately

and the balance was transferred his loan account which was to be paid

later.

Pass necessary Journal Entries.

********************************

Liabilities ₹ Assets ₹

Creditors

Employees' Provident

Fund

General Reserve

Investment Fluctuation

Reserve

Capital A/cs:

X 3,00,000

Y 2,00,000

Z 3,00,000

2,00,000

1,50,000

36,000

14,000

8,00,000

Building

Machinery

Furniture

Investment (Market

Value * 86,000)

Debtors

Cash at Bank

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Suspense

2,00,00​

Answer 1

Answer:

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