NCERT MOST IMPORTANT QUESTIONS CLASS – 12 | ACCOUNTANCY PART 2 IMPORTANT QUESTIONS | CHAPTER – 4 | RECONSTITUTION OF PARTNERSHIP FIRM : RETIREMENT/DEATH OF A PARTNER | EDUGROWN |

In This Post we are  providing Chapter- 4 RECONSTITUTION OF PARTNERSHIP FIRM : RETIREMENT/DEATH OF A PARTNER NCERT MOST IMPORTANT QUESTIONS for Class 12 ACCOUNTANCY which will be beneficial for students. These solutions are updated according to 2021-22 syllabus. These MCQS  can be really helpful in the preparation of Board exams and will provide you with a brief knowledge of the chapter

NCERT MOST IMPORTANT QUESTIONS ON RECONSTITUTION OF PARTNERSHIP FIRM : RETIREMENT/DEATH OF A PARTNER

Question 1:

Distinguish between sacrificing ratio and gaining ratio.

ANSWER:

Basis of Difference	Sacrificing ratio	Gaining Ratio
1. Meaning	It is the ratio in which old partners agree to sacrifice their share of profit in favour of new partners/partner	It is the ratio in which continuing partner acquires the share of profit from outgoing partner/partner
2. Calculation	Sacrificing Ratio = Old Ratio – New Ratio	Gaining Ratio = New Ratio – Old Ratio
3. Time	It is calculated at the time of admission of new partners/partner.	It is calculated at the time of retirement/death of old partners/partner.
4. Objective	It is calculated to ascertain the share of profit and loss given up by the existing partners in favour of new partners/partner.	It is calculated to ascertain the share of profit and loss acquired by the remaining partners (of the new firm in case of retirement) from the retiring or deceased partner.
5. Effect	It reduces the profit share of the existing partners.	It increases the profit share of the remaining partners.

Question 2:

Why do firm revaluate assets and reassess their liabilities on retirement or on the event of death of a partner?

ANSWER:

At the time of retirement or death of a partner, it becomes inevitable to revalue the assets and liabilities of the firm for ascertaining their true and fair values. The revaluation is necessary as the value of assets and liabilities may increase or decrease with the passage of time. Further, it may be possible that there are certain assets and liabilities that remained unrecorded in the books of accounts. The retiring or the deceased partner may be benefited or may bear loss due to change in the values of assets and liabilities. Therefore, the revaluation of the assets and liabilities is necessary in order to ascertain the true profit or loss that is to be divided among all the partners in their old profit sharing ratio.

Question 3:

Why a retiring/deceased partner is entitled to a share of goodwill of the firm?

ANSWER:

Goodwill is an intangible asset of a firm that is earned by the efforts of all the partners of the firm. After the retirement or death of a partner, the fruits of the past performance and reputation will be shared only by the remaining partners. Thus the remaining partners should compensate the retiring or the deceased partner by entitling him/her a share of firm’s goodwill.

Question 4:

Explain the treatment of goodwill at the time of retirement or on the event of death of a partner?

ANSWER:

At the time of retirement or at the event of death of a partner, the goodwill is adjusted among the partners in gaining ratio with the share of goodwill of the retiring or the deceased partner. As per Para 16 of Accounting Standard 10, it is mandatory to record goodwill in the books only when consideration in money or money’s worth has been paid for it.

In case of retirement and death of a partner, goodwill account cannot be raised. There are namely two probable situations on which the treatment of goodwill rests.

1. If goodwill already appears in the books of the firm.

2. If no goodwill appears in the books of the firm.

Situation 1: If goodwill already appears in the books of the firm.

Step 1: Write off the existing goodwill

If goodwill already appears in the old balance sheet of the firm (if mentioned in the question), then first of all, this goodwill should be written off and should be distributed among all the partners of the firm including the retiring or the deceased partner in their old profit sharing ratio. The following Journal entry is passed to write off the old/existing goodwill.

All Partners’ Capital A/c	Dr.
	To Goodwill A/c
(Goodwill written of among all the partners in theirold ratio)

Step 2: Adjusting goodwill through partner’s capital account.

After writing off the old goodwill, the goodwill need to be adjusted through the partner’s capital account with the share of the goodwill of the retiring or the deceased partner. The following Journal entry is passed.

Remaining Partner’s Capital A/c	Dr.
	To Retiring/Deceased Partner’s Capital A/c
(Gaining Partner’s Capital A/c is debited in theirgaining share and retiring/deceased partner’s capitalaccount in credited for their share of goodwill)

Situation 2: If no goodwill appears in the books of the firm.

As no goodwill appears in the books of the firm, so the goodwill is adjusted through the partner’s capital account with the share of the goodwill of the retiring or the deceased partner. The following Journal entry is passed. 

Remaining Partner’s Capital A/c	Dr.
	To Retiring/Deceased Partner’s Capital A/c
(Gaining partner’s capital account is debited in their gainingshare and retiring/deceased partner’s capital account incredited for their share of goodwill)

Question 5:

Discuss the various methods of computing the share in profits in the event of death of a partner.

ANSWER:

In case of death of a partner during the year, his/her executer is entitled for share of profit up to the date of death of the partner.

The share of profit can be calculated by one of the two methods.

1) On time basis: Under this method, profit up to the date of the death of the partner is calculated on the basis of the last year’s/years’ profit or average profit of last few years. In this approach, it is assumed that the profit will be uniform throughout the current year. The deceased partner will be entitled for the share of the profit proportionately up to the date of his/her death.

Share of Deceased Partner in Profit =

Example- A, B and C are equal partners. The profit of the firm for the years 2008, 2009 and 2010 are Rs 10,00,000, Rs 7,00,000 and Rs 13,00,000 respectively. C dies on April 30, 2011. The share of C in the firm’s profit will be calculated on the basis of average profit of last three years. Firm closes its books every year on December 31.

In this case, C’s share in the profits will be calculated for four months, i.e. from January 01, 2011 to April 30, 2011.

2) On the sale basis: Under this method, profit is calculated on the basis of last year’s sale. In this situation, it is assumed that the net profit margin of the current year’s sale is similar to that of the last year’s.

Share of Deceased Partner’s Profit =×Sales from the beginning of the current year up to the date of death × Share of deceased partner

Example- X Y and Z are equal partners. The last year’s sales and profit were Rs 25,00,000 and Rs 2,50,000. Z died on the April 30, 2011. Sales of the current year till the date of Z’s death amounts to Rs 12,00,000. Firm closes its books on December 31 every year.

Question 6:

Digvijay, Brijesh and Parakaram were partners in a firm sharing profits in the ratio of 2:2:1. Their Balance Sheet as on March 31, 2017 was as follows:

Liabilities	AmountRs	Assets	AmountRs
Creditors	49,000	Cash	8,000
Reserves	18,500	Debtors	19,000
Digvijay’s Capital	82,000	Stock	42,000
Brijesh’s Capital	60,000	Buildings	2,07,000
Parakaram’s Capital	75,500	Patents	9,000
	2,85,000		2,85,000

Brijesh retired on March 31, 2017 on the following terms:

(i)    Goodwill of the firm was valued at Rs 70,000 and was not to appear in the books.

(ii)   Bad debts amounting to Rs 2,000 were to be written off.

(iii)  Patents were considered as valueless.

Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of Digvijay and Parakaram after Brijesh’s retirement.

ANSWER:

Books of Digvijay and ParakaramRevaluation Account
Dr.		Cr.
Particular	AmountRs	Particular	AmountRs
Bad Debts	2,000
Patents	9,000	Loss transferred to Capital Account:
		Digvijay	4,400
		Brijesh	4,400
		Parakaram	2,200
	11,000		11,000

Partners’ Capital Account
Dr.		Cr.
Particularss	Digvijay	Brijesh	Parakaram	Particularss	Digvijay	Brijesh	Parakaram
Brijesh’s Capital A/c	18,667		9,333	Balance b/d	82,000	60,000	75,500
Revaluation (Loss)	4,400	4,400	2,200	Digvijay’s Capital A/c		18,667
Brijesh’s Loan		91,000		Parakaram’s Capital A/c		9,333
Balance c/d	66,333		67,667	Reserves	7,400	7,400	3,700
	89,400	95,400	79,200		89,400	95,400	79,200

Balance Sheet as on March 31, 2017
Liabilities	AmountRs	Assets	AmountRs
Creditors	49,000	Cash	8,000
Brijesh’s Loan	91,000	Debtors	19,000
		Less: Bad Debts	2,000	17,000
Digvijay’s Capital A/c	66,333	Stock	42,000
Parakaram’s Capital A/c	67,667	Buildings	2,07,000
	2,74,000		2,74,000

Note: As sufficient balance is not available to pay the amount due to Brijesh, the balance of his Capital Account transferred to his Loan Account.

Working Note:

1. Brijesh’s Share of Goodwill

Total goodwill of the firm ´ Retiring Partner’s Share 

2. Gaining Ratio = New Ratio – Old Ratio

Digvijay’s Share

Parakaram’s Share

Gaining ratio between Digvijay and Parakaram = 4 : 2 or 2 : 1

Question 7:

The Balance Sheet of Rajesh, Pramod and Nishant who were sharing profits in proportion to their capitals stood as on March 31, 2015:

Books of Rajesh, Pramod and NishantBalance Sheet as on March 31, 2015
Liabilities	AmountRs	Assets	AmountRs
Bills Payable	6,250	Factory Building	12,000
Sundry Creditors	10,000	Debtors	10,500
Reserve Fund	2,750	Less: Reserve	500	10,000
Capital Accounts:		Bills Receivable	7,000
Rajesh	20,000		Stock	15,500
Pramod	15,000		Plant and Machinery	11,500
Nishant	15,000	50,000	Bank Balance	13,000
	69,000		69,000

Pramod retired on the date of Balance Sheet and the following adjustments were made:

a) Stock was valued at 10% less than the book value.

b) Factory buildings were appreciated by 12%.

c) Reserve for doubtful debts be created up to 5%.

d) Reserve for legal charges to be made at Rs 265.

e) The goodwill of the firm be fixed at Rs 10,000.

f) The capital of the new firm be fixed at Rs 30,000. The continuing partners decide to keep their capitals in the new profit sharing ratio of 3:2.

Pass journal entries and prepare the balance sheet of the reconstituted firm after transferring the balance in Pramod’s Capital account to his loan account.

ANSWER:

Journal
Date	Particulars	L.F.	AmountRs	AmountRs
2015
Mar. 31	Revaluation A/c	Dr.		1,840
	To Stock A/c				1,550
	To Reserve for Doubtful Debts A/c				25
	To Reserve for Legal Charges A/c				265
	(Assets and Liabilities are revalued)
Mar. 31	Factory Building A/c	Dr.		1,440
	To Revaluation A/c				1,440
	( Factory Building appreciated)
Mar. 31	Rajesh’s Capital A/c	Dr.		160
	Pramod’s Capital A/c	Dr.		120
	Nishant’s Capital A/c	Dr.		120
	To Revaluation A/c				400
	(Loss on Revaluation adjusted to Partners’ Capital Account)
Mar. 31	Rajesh’s Capital A/c	Dr.		2,000
	Nishant’s Capital A/c	Dr.		1,000
	To Pramod Capital’s A/c				3,000
	(Pramod’s share of goodwill adjusted to Rajesh’s and Nishant’s Capital Account in their gaining ratio)
Mar. 31	Reserve Fund A/c	Dr.		2,750
	To Rajesh’s Capital A/c				1,100
	To Pramod’s Capital A/c				825
	To Nishant’s Capital A/c				825
	(Reserve Fund distributed all the partners)
Mar. 31	Pramod’s Capital A/c	Dr.		18,705
	To Pramod’s Loan A/c				18,705
	(Pramod’s Capital transferred to his Loan Account)
Mar. 31	Rajesh’s Capital A/c	Dr.		940
	Nishant’s Capital A/c	Dr.		2,705
	To Rajesh’s Current A/c				940
	To Nishant’s Current A/c				2,705
	(Excess in Capital Account is transferred to Current Account)

Parters’ Capital Account
Dr.	Cr.
Particulars	Rajesh	Pramod	Nishant	Particulars	Rajesh	Pramod	Nishant
Revaluation (Loss)	160	120	120	Balance b/d	20,000	15,000	15,000
Pramod’s Capital A/c	2,000		1,000	Reserve Fund	1,100	825	825
Pramod’s Loan A/c		18,705		Rajesh’s Capital A/c		2,000
Rajesh’s Current A/c	940			Nishant’s Capital A/c		1,000
Nishant’s Current A/c			2,705
Balance c/d	18,000		12,000
	21,100	18,825	15,825		21,100	18,825	15,825

Balance Sheet as on March 31, 2015
Liabilities	AmountRs	Assets	AmountRs
Bills Payable	6,250	Plant and Machinery	11,500
Sundry Creditors	10,000	Debtors	10,500
Reserve for Legal Charges	265	Less: Reserve	(525)	9,975
Pramod’s Loan	18,705	Bills Receivable	7,000
Current Account:		Stock	15,500
Rajesh	940		Less: 10% Depreciation	(1,550)	13,950
Nishant	2,705	3,645
Capital Account:		Factory Building	12,000	13,440
Rajesh	18,000		Add: 12% Appreciation	1,440
Nishant	12,000	30,000	Bank Balance	13,000
	68,865		68,865

Working Notes:

1) Pramod’s share of goodwill = Total goodwill of the firm × Retiring Partner’s Share = 

2) Gaining Ratio = New Ratio − Old Ratio

Gaining Ratio between Rajesh and Nishant = 2:1

NOTE: In the above solution, in order to adjust the capital of remaining partners in the new firm according to their new profit sharing ratio, the surplus or the deficit of Capital Account is transferred to their Current Account. But, in order to match the answer with that of given in the book, the surplus or the deficit amount of the Partners’ Capital Account, will either be withdrawn or brought in by the old partners. This treatment will be shown in the Partners’ Capital itself and no need to transfer the surplus or deficit capital balance to their Current Accounts. The following Journal entry is passed to record the withdrawal of surplus capital by the partners.

If existing partners withdraw their excess capital

Journal entry

Rajesh’s Capital A/c	Dr.	940
Nishant’s Capital A/c	Dr.	2,705
To Bank A/c		3,645
(Surplus Capital withdrawn)

Balance Sheet as on March 31, 2015
Liabilities	AmountRs	Assets	AmountRs
Bills Payable	6,250	Plant and Machinery	11,500
Sundry Creditors	10,000	Debtors	10,500
Reserve for Legal Charges	265	Less: Reserve	(525)	9,975
Pramod’s Loan	18,705	Bills Receivable	7,000
Capital:		Stock	15,500
Rajesh	18,000		Less: 10% Depreciation	(1,550)	13,950
Nishant	12,000	30,000
			Factory Building	12,000
		Add: 12% Appreciation	1,440	13,440
		Bank Balance	9,355
	65,220		65,220

Question 8:

Following is the Balance Sheet of Jain, Gupta and Malik as on March 31, 2016.

Books of Jain, Gupta and MalikBalance Sheet as on March 31, 2016
Liabilities	AmountRs	Assets	AmountRs
Sundry Creditors	19,800	Land and Building	26,000
Telephone Bills Outstanding	300	Bonds	14,370
Accounts Payable	8,950	Cash	5,500
Accumulated Profits	16,750	Bills Receivable	23,450
		Sundry Debtors	26,700
Capitals :		Stock	18,100
Jain	40,000		Office Furniture	18,250
Gupta	60,000		Plants and Machinery	20,230
Malik	20,000	1,20,000	Computers	13,200
	1,65,800		1,65,800

The partners have been sharing profits in the ratio of 5:3:2. Malik decides to retire from business on April 1, 2016 and his share in the business is to be calculated as per the following terms of revaluation of assets and liabilities : Stock, Rs 20,000; Office furniture, Rs 14,250; Plant and Machinery Rs 23,530; Land and Building Rs 20,000.

A provision of Rs 1,700 to be created for doubtful debts. The goodwill of the firm is valued at Rs 9,000.

The continuing partners agreed to pay Rs 16,500 as cash on retirement of Malik, to be contributed by continuing partners in the ratio of 3:2. The balance in the capital account of Malik will be treated as loan.

Prepare Revaluation account, capital accounts, and Balance Sheet of the reconstituted firm.

ANSWER:

In the books of Jain and Gupta Revaluation Account
Dr.	Cr.
Particulars	AmountRs	Particulars	AmountRs
Office Furniture	4,000	Stock	1,900
Land and Building	6,000	Plant and Machinery	3,300
Provision for Doubtful Debts	1,700	Loss transferred to
		Jain’s Capital A/c	3,250
		Gupta’s Capital A/c	1,950
		Malik’s Capital A/c	1,300	6,500
	11,700		11,700

Partners’ Capital Account
Dr.	Cr.
Particulars	Jain	Gupta	Malik	Particulars	Jain	Gupta	Malik
Revaluation (Loss)	3,250	1,950	1,300	Balance b/d	40,000	60,000	20,000
Malik’s Capital	1,125	675		Accumulated Profits	8,375	5,025	3,350
Cash			16,500	Jain’s Capital A/c			1,125
Malik’s Loan			7,350	Gupta’s Capital A/c			675
Balance c/d	53,900	69,000		Cash	9,900	6,600
	58,275	71,625	25,150		58,275	71,625	25,150

Balance Sheet
Liabilities	AmountRs	Assets	AmountRs
Sundry Creditors	19,800	Stock (18,100 + 1,900)	20,000
Telephone Bills Outstanding	300	Bonds	14,370
Accounts Payable	8,950	Cash	5,500
Malik’s Loan	7,350	Bills Receivable	23,450
		Sundry Debtors	26,700
Partners’ Capital:		Less: Provision for Bad Debts	1,700	25,000
Jain	53,900		Land and Building (26,000 – 6,000)	20,000
Gupta	69,000	1,22,900	Office Furniture (18,250 – 4,000)	14,250
		Plant and Machinery (20,230 + 3,300)	23,530
		Computers	13,200
	1,59,300		1,59,300

Working Note:

1) Malik’s share of goodwill = Total Goodwill × Retiring Partner Share = 

2) Gaining Ratio = New Ratio – Old Ratio

Gaining Ratio between Jain and Gupta = 10:6 or 5:3

Question 9:

Arti, Bharti and Seema are partners sharing profits in the proportion of 3:2:1 and their Balance Sheet as on March 31, 2016 stood as follows:

Books of Arti, Bharti and SeemaBalance Sheet as on March 31, 2016
Liabilities	AmountRs	Assets	AmountRs
Bills Payable	12,000	Buildings	21,000
Creditors	14,000	Cash in Hand	12,000
General Reserve	12,000	Bank	13,700
Capitals:		Debtors	12,000
Arti 20,000		Bills Receivable	4,300
Bharti	12,000		Stock	1,750
Seema	8,000	40,000	Investment	13,250
	78,000		78,000

Bharti died on June 12, 2016 and according to the deed of the said partnership, her executors are entitled to be paid as under:

(a) The capital to her credit at the time of her death and interest thereon @ 10% per annum.

(b) Her proportionate share of reserve fund.

(c) Her share of profits for the intervening period will be based on the sales during that period, which were calculated as Rs 1,00,000. The rate of profit during past three years had been 10% on sales.

(d) Goodwill according to her share of profit to be calculated by taking twice the amount of the average profit of the last three years less 20%. The profits of the previous years were:

2013 – Rs 8,200

2014 – Rs 9,000

2015 – Rs 9,800

The investments were sold for Rs 16,200 and her executors were paid out. Pass the necessary journal entries and write the account of the executors of Bharti.

ANSWER:

Books of Arti and SeemaJournal
Date	Particulars	L.F.	AmountRs	AmountRs
2016
June 12	Interest on Capital A/c	Dr.		240
	General Reserve A/c	Dr.		4,000
	Profit and Loss (Suspense) A/c	Dr.		3,333
	To Bharti’s Capital A/c				7,573
	(Profit, interest and general reserve are in credited toBharti’s Capital account)
June 12	Arti’s Capital A/c	Dr.		3,600
	Seema’s Capital A/c	Dr.		1,200
	To Bharti’s Capital A/c				4,800
	(Bharti’s share of goodwill adjusted to Arti’s andSeema’s Capital Account in their gaining ratio, 3:1)
June 12	Bharti’s Capital A/c	Dr.		24,373
	To Bharti’s Executor’s A/c				24,373
	(Bharti’s capital account is transferred to her executor’saccount)
June 12	Bank A/c	Dr.		16,200
	To Investment A/c				13,250
	To Profit on Sale of Investment				2,950
	(Investment sold)
June 12	Bharti’s Executor A/c	Dr.		24,373
	To Bank A/c				24,373
	(Bharti Executor paid)

Bharti’s Capital Account
Dr.	Cr.
Date	Particulars	J.F.	AmountRs	Date	Particulars	J.F.	AmountRs
2016				2016
June 12	Bharti’s Executor’s A/c		24,373	Mar. 31	Balance b/d		12,000
				June 12	Interest on Capital		240
					Profit and Loss (Suspense)		3,333
					General Reserve		4,000
					Arti’s Capital A/c		3,600
					Seema’s Capital A/c		1,200
			24,373				24,373

Bharti’s Executor’s Account
Dr.	Cr.
Date	Particulars	J.F.	AmountRs	Date	Particulars	J.F.	AmountRs
2016				2016
June 12	Bank		24,373	June 12	Bharti’s Capital A/c		24,373
			24,373				24,373

Working Notes:

1. Bharti’s share of profit = Profit is 10% of sales

Sales during the last year for that period were Rs 1,00,000

If sales are Rs 1,00,000, then the profit is Rs 10,000

2. Bharti’s Share of Goodwill

Goodwill of the firm = Average Profit × Number of Years Purchase

Or, 9,000 − 20% of 9,000 = 9,000 − 1,800 = Rs 7,200

Goodwill of the firm = 7,200 × 2 = Rs 14,400

3. Gaining Ratio = New Ratio − Old Ratio

Gaining ratio between Arti and Seema = 3:1

4. Interest on Capital for 73 days, i.e. from April 1, 2016 to June 12, 2016

Interest on capital = Amount of Capital × Ratio of Interest × Period 

Question 10:

Nithya, Sathya and Mithya were partners sharing profits and losses in the ratio of 5:3:2. Their Balance Sheet as on March 31, 2015 was as follows:

Books of Nithya, Sathya and Mithya Balance Sheet at March 31, 2015
Liabilities	AmountRs	Assets	AmountRs
Creditors	14,000	Investments	10,000
Reserve Fund	6,000	Goodwill	5,000
Capitals:		Premises	20,000
Nithya	30,000		Patents	6,000
Sathya	30,000		Machinery	30,000
Mithya	20,000	80,000	Stock	13,000
		Debtors	8,000
		Bank	8,000
	1,00,000		1,00,000

Mithya dies on August 1, 2015. The agreement between the executors of Mithya and the partners stated that:

(a) Goodwill of the firm be valued at  times the average profits of last four years. The profits of four years were : in 2011-12, Rs 13,000; in 2012-13, Rs 12,000; in 2013-14, Rs 16,000; and in 2014-15, Rs 15,000.

(b) The patents are to be valued at Rs 8,000, Machinery at Rs 25,000 and Premises at Rs 25,000.

(c) The share of profit of Mithya should be calculated on the basis of the profit of 2014-15.

(d) Rs 4,200 should be paid immediately and the balance should be paid in 4 equal half-yearly instalments carrying interest @ 10%.

Record the necessary journal entries to give effect to the above and write the executor’s account till the amount is fully paid. Also prepare the Balance Sheet of Nithya and Sathya as it would appear on August 1, 2015 after giving effect to the adjustments.

ANSWER:

Books of Nithya and Sathya Journal
Date	Particulars	L.F.	AmountRs	AmountRs
2015
Aug. 1	Nithya’s Capital A/c	Dr.		2,500
	Sathya’s Capital A/c	Dr.		1,500
	Mithya’s Capital A/c	Dr.		1,000
	To Goodwill A/c				5,000
	(Goodwill written off among all the partners)
Aug. 1	Patents A/c	Dr.		2,000
	Premises A/c	Dr.		5,000
	To Revaluation A/c				7,000
	(Increase in the value of patents and premises)
Aug. 1	Revaluation A/c	Dr.		5,000
	To Machinery A/c				5,000
	(Decrease in the value of machinery)
Aug. 1	Revaluation A/c	Dr.		2,000
	To Nithya’s Capital A/c				1,000
	To Sathya’s Capital A/c				600
	To Mithya’s Capital A/c				400
	(Profit on revaluation of assets and liabilities transferredto Partners’ Capital Account)
Aug. 1	Reserve Fund A/c	Dr.		6,000
	To Nithya’s Capital A/c				3,000
	To Sathya’s Capital A/c				1,800
	To Mithya’s Capital A/c				1,200
	(Reserve Fund transferred to Partners’ Capital Account)
Aug. 1	Nithya’s Capital A/c	Dr.		4,375
	Sathya’s Capital A/c	Dr.		2,625
	To Mithya’s Capital A/c				7,000
	(Mithya’s share of goodwill adjusted to Nithya’s andSathya’s Capital Account in their gaining ratio, 5:3)
Aug. 1	Profit and Loss A/c (Suspense)	Dr.		1,000
	To Mithya’s Capital A/c				1,000
	(Profit till date of death credited to Mithya’s CapitalAccount)
Aug. 1	Mithya’s Capital A/c	Dr.		28,600
	To Mithya Executors A/c				28,600
	(Mithya’s Capital Account transferred to her executoraccount)
Aug. 1	Mithya Executor’s A/c	Dr.		4,200
	To Cash A/c				4,200
	(Cash paid to Mithya’s executor)

Mithya Executor’s Account
Dr.	Cr.
Date	Particulars	J.F.	AmountRs	Date	Particulars	J.F.	AmountRs
2015				2015
Aug. 1 2016	Bank		4,200	Aug. 1 2016	Mithya’s Capital A/c		28,600
Jan. 31	Bank (6,100 + 1220)		7,320	Jan. 31	Interest (24,400×10100×612)(24,400×10100×612)		1,220
Mar. 31	Balance c/d		18,605	Mar. 31	Interest (18,300×10100×212)(18,300×10100×212)		305
			30,125					30,125
2016				2016
July 31 2017	Bank (6,100 + 305 + 610)		7,015	April 01 July 31 2017	Balance b/d Interest (18,300×10100×412)(18,300×10100×412)		18,605 610
Jan. 31	Bank (6,100 + 610)		6,710	Jan. 31	Interest (12,200×10100×612)(12,200×10100×612)		610
Mar. 31	Balance c/d		6202	Mar. 31	Interest (6,100×10100×212)(6,100×10100×212)		102
			19,927				19,927
2017				2017
July 31	Bank (6,100 + 102 + 203)		6,405	April 01	Balance b/d		6,202
				July 31	Interest (6,100×10100×412)(6,100×10100×412)		203
			6,405					6,405

Balance Sheet As on August 31, 2015
Liabilities	AmountRs	Assets	AmountRs
Creditors	14,000	Investments	10,000
Mithya’s Executor’s Loan A/c	24,400	Premises	25,000
Partners’ Capital A/c		Machinery	25,000
Nithya	27,125		Stock	13,000
Sathya	28,275	55,400	Debtors	8,000
		Patents	8,000
		Bank (8,000 – 4,200)	3,800
		Profit and Loss (Suspense)	1,000
	93,800		93,800

Working Notes:

1.

Partners’ Capital Accounts
Dr.	Cr.
Particulars	Nithya	Sathya	Mithya	Particulars	Nithya	Sathya	Mithya
Goodwill	2,500	1,500	1,000	Balance b/d	30,000	30,000	20,000
Mithya’s Capital A/c	4,375	2,625		Revaluation A/c	1,000	600	400
Mithya’s Executor’s A/c			28,600	Reserve Fund	3,000	1,800	1,200
Balance c/d	27,125	28,275		Profit and Loss A/c (Suspense)			1,000
				Nithya’s Capital A/c			4,375
				Sathya’s Capital A/c			2,625
	34,000	32,400	29,600		34,000	32,400	29,600

2. Mithya’s Share of Profit:

Previous year’s profit × Proportionate Period × Share of Profit 

3. Mithya’s share of Goodwill

Goodwill of a firm = Average Profit × Number of Year’s Purchase

4. Gaining Ratio = New Ratio – Old Ratio

Gaining Ratio between Nithya and Sathya = 5:3