1

Solutions to
Text Book Exercises
Chapter – 9

Partnership Accounts – II
Solution – 1 :
Dr. Revaluation a/c Cr.
Particulars Rs. Rs. Particulars Rs.
To Stock a/c 12,000 By Buildings a/c 50,000
To Machinery a/c 20,000
To Bad debts reserve a/c 7,500
To Profit :
Padma 3,500
Meena 3,500
Gayatri 3,500 10,500
50,000 50,000

Dr. Capital Accounts Cr.

Particulars Padma Meena Gayatri Particulars Padma Meena Gayatri

Rs. Rs. Rs. Rs. Rs. Rs.
To Gayatri - - 2,23,500 By Balance 2,50,000 2,00,000 1,50,000
Loan a/c b/d
To Balance 3,23,500 2,73,500 - By Goodwill 40,000 40,000 40,000
c/d a/c
By Reserve 30,000 30,000 30,000
fund
By 3,500 3,500 3,500
Revaluation
a/c
3,23,500 2,73,500 2,23,500 3,23,500 2,73,500 2,23,500
By Balance 3,23,500 2,73,500 -
b/d

Dr. Gayatri’s Loan a/c

Cr.
Rs. Rs.
To balance c/d 2,23,500 By Gayatri’s capital a/c 2,23,500
2,23,500 2,23,500
By Balance b/d 2,23,500
 2

Balance Sheet of New Firm as on 1-4-2004

Liabilities Rs. RS. Assets Rs. Rs.
Creditors 1,00,000 Cash at bank 90,000
Gayatri’s loan a/c 2,23,500 Debtors 1,50,000
Capital accounts : Less : Reserve for 7,500 1,42,500
bad debts
Padma 3,23,500 Stock (1,20,000 – 1,08,000
12,000)
Meena 2,73,500 5,97,000 Buildings (2,30,000 2,80,000
+ 50,000)
Machinery (2,00,000 1,80,000
– 20,000)
Goodwill 1,20,000
9,20,500 9,20,500

Solution – 2 :
Journal Entries
Date Particulars L.F. Debit Credit
Rs. Rs.
1. Revaluation a/c Dr. 2,150
To Stock a/c 1,250
To Furniture a/c 300
To bad debts reserve a/c 600
(Being depreciation on assets, reserve
on debtors provided)
2. Plant & Machinery a/c Dr. 1,000
Land & Buildings a/c Dr. 10,000
To Revaluation a/c 11,000
(Being appreciation on assets value
taken into account)
3. Goodwill a/c Dr. 6,000
To Raju’s capital a/c 2,000
To Raghu’s capital a/c 2,000
To Rao’s capital a/c 2,000
(being goodwill created)
4. Revaluation a/c Dr. 8,850
To Raju’s capital a/c 2,950
To Raghu’s capital a/c 2,950
To Rao’s capital a/c 2,950
(Being revaluation profit distributed)
5. Rao’s capital a/c Dr. 14,950
To Rao’s loan a/c 14,950
(Being Rao’s capital transferred to his
loan a/c)

Dr. Revaluation a/c Cr.

Particulars Rs. Rs. Particulars Rs.
 3

To Stock a/c 1.250 By Plant & Machinery 1,000

a/c
To Furniture a/c 300 By Land & Buildings 10,000
a/c
To Bad debts reserve a/c 600
To Capital accounts
Raju 2,950
Raghu 2,950
Rao 2,950 8,850
11,000 11,000

Dr. Goodwill a/c Cr.

Rs. Rs.
To Raju’s capital a/c 2,000 By Balance c/d 6,000
To Raghu’s capital a/c 2,000
To Rao’s capital a/c 2,000
6,000 6,000
To Balance b/d 6,000

Dr. Capital Accounts Cr.

Particulars Raju Raghu Rao Particulars Raju Raghu Rao

Rs. Rs. Rs. Rs. Rs. Rs.
To Rao’s loan - - 14,950 By Balance 30,000 20,000 10,000
a/c b/d
To Balance 34,950 24,950 - By Goodwill 2,000 2,000 2,000
c/d a/c
34,950 24,950 14,950 34,950 24,950 14,950
By Balance 34,950 24,950 -
b/d

Dr. Rao Loan a/c Cr.

Rs. Rs.
To Balance c/d 14,950 By Rao’s capital a/c 14,950
14,950 14,950
By Balance b/d 14,950

Balance Sheet of New Firm as on 31-12-2003

Liabilities Rs. Rs.. Assets Rs. Rs.
Creditors 30,000 Cash at bank 5,000
Bills payable 10,000 Stock (25,000 – 23,750
1,250)
Bank overdraft 5,000 Debtors 12,000
Rao’s loan a/c 14,950 Less : Reserve 600 11,400
Capital accounts Furniture (3,000 – 2,700
300)
Raju 34,950 Buildings (50,000 + 60,000
10,000)
 4

Raghu 24,950 59,900 Plant, Machinery 11,000

(10,000 + 1,000)
Goodwill 6,000
1,19,850 1,19,850

Solution – 3 :

Dr. Revaluation a/c Cr.

Particulars Rs. Rs. Particulars Rs.
To Bad debts reserve a/c 800 By Land, Buildings a/c 8,000
To Plant, machinery a/c 2,500 By creditors a/c 1,000
To Furniture a/c 700
To Capital a/cs
A 2,500
B 1,500
C 1,000 5,000
9,000 9,000

Dr. Capital Accounts Cr.

Particulars A B C Particulars A B C
Rs. Rs. Rs. Rs. Rs. Rs.
To B’s loan - 58,500 - By Balance 50,000 45,000 40,000
a/c b/d
To Balance 72,500 - 49,000 By General 20,000 12,000 8,000
c/d reserve,
Profit & Loss
a/c
By Profit & 2,500 1,500 1,000
Loss
adjustment
a/c
72,500 58,500 49,000 72,500 58,500 49,000
By Balance 72,500 - 49,000
b/d

Balance Sheet of A, C as on 1-7-2003

Liabilities Rs. Rs.. Assets Rs. Rs.
Creditors (20,000 – 19,000 Cash at bank 3,000
1,000)
B’s loan a/c 58,500 Debtors 36,000
Less : Reserve 1,800 34,200
Capital Accounts Stock 20,000
A 72,500 Furniture (7,000 – 6,300
700)
C 49,000 1,21,500 Plant, Machinery 47,500
(50,000 – 2,500)
Land, Buildings 88,000
(80,000 + 8,000)
1,99,000 1,99,000
 5

Solution – 4 :
Dr. Revaluation a/c Cr.
Particulars Rs. Particulars Rs. Rs.
To Plant & Machinery 3,000 By Stock a/c 2,000
To Furniture 600 By Capital accounts
To Bad debts reserve 600 A 1,100
B 1,100 2,200
4,200 4,200

Dr. Capital Accounts Cr.

Particulars A B Particulars A B
Rs. Rs. Rs. Rs.
To Profit & Loss a/c 1,100 1,100 By Balance b/d 20,000 14,000
To B’s loan a/c - 15,900 By General fund 3,000 3,000
To balance c/d 21,900 -
23,000 17,000 23,000 17,000
By Balance b/d 21,900 -

Dr. B Loan a/c Cr.

Rs. Rs.
To Balance c/d 15,900 By B’s capital a`/c 15,900
15,900 15,900
By Balance b/d 15,900

Balance Sheet of A, as on 1-1-2004

Liabilities Rs. Assets Rs. Rs.
Creditors 7,000 Cash 4,000
B’s loan a/c 15,900 Debtors 12,000
A’s capital a/c 21,900 Less : Reserve fund 600 11,400
Stock (10,000 + 2,000) 12,000
Plant, Machinery (15,000 – 12,000
3,000)
Furniture (6,000 – 600) 5,400
44,800 44,800

Solution – 5 :
Journal Entries
Date Particulars L.F. Debit Credit
2004 Rs. Rs.
 6

Jan.1 Anand’s capital a/c Dr. 4,000

Vinod’s capital a/c Dr. 3,000
Gopichand capital a/c Dr. 3,000
To Goodwill a/c (Rs.30,000 – 10,000
Rs.20,000)
(Being additional goodwill shown in the
books written off to all partners capital
accounts in the old sharing ratio)

Note : Since the present goodwill value is less than the book value, the additional
amount was to be written off.

Balance Sheet of Anand, Vinod as on 1-1-2004

Liabilities Rs. Rs. Assets Rs.

Anand’s capital a/c 50,000 Goodwill (30,000 – 20,000
10,000)
Less : Share of goodwill 4,000 46,000 Other assets 1,20,000
Vinod 35,000
Less : Share of goodwill 3,000 32,000
Gopichand’s loan a/c 32,000
(Rs.35,000 – 3,000)
Other Liabilities 30,000
1,40,000 1,40,000

Solution – 6 :

Dr. Revaluation a/c Cr.

Particulars Rs. Rs. Particulars Rs.
To Patents 1,000 By Bad debts reserve 2,000
a/c
To Outstanding expenses 400
a/c
To A’s capital a/c 200
To B’s capital a/c 200
To C’s capital a/c 200 600
2,000 2,000

Dr. Capital Accounts Cr.

Particulars A B C Particulars A B C
Rs. Rs. Rs. Rs. Rs. Rs.
To 5% A’s 18,533 - - By Balance 15,000 15,000 15,000
loan a/c b/d
To Balance - 18,533 18,534 By General 3,333 3,333 3,334
c/d reserve
By Profit & 200 200 200
Loss
adjustment
 7

a/c
18,533 18,533 18,534 18,533 18,533 18,534
By Balance - 18,533 18,534
b./d

Dr. A’s Loan a/c Cr.

Rs. Rs.
To Balance c/d 18,533 By A’s capital a/c 18,533
18,533 18,533
By Balance b/d 18,533

Balance sheet of B,C as on 31-12-2004

Liabilities Rs. Rs. Assets Rs.

Creditors 8,000 Bank balance 5,000
5% A’s loan a/c 18,533 Plant, Machinery 20,000
Capital accounts Furniture 8,000
B 18,533 Debtors 25,000
C 18,534 37,067 Goodwill 6,000
Outstanding expenses 400
64,000 64,000

Solution – 7 :

Dr. Revaluation a/c Cr.

Particulars Rs. Rs. Particulars Rs.
To Plant 3,500 By Stock 5,000
To Motor vehicle 1,200 By Buildings 4,500
To Doubtful debts 1,950
To Profit :
Varma’s capital a/c 1,425
Sarma’s capital a/c 950
Sastry’s capital a/c 475 2,850
9,500 9,500

Dr. Capital Accounts Cr.

Particulars Varma Sarma Sastry Particulars Varma Sarma Sastry

Rs. Rs. Rs. Rs. Rs. Rs.
To Sastry’s - - 30,475 By Balance 40,000 30,000 25,000
loan a/c b/d
To Balance 56,425 40,950 - By Goodwill 9,000 6,000 3,000
c/d
By Reserve 6,000 4,000 2,000
fund
 8

By Profit & 1,425 950 475

Loss
adjustment
a/c
56,425 40,950 30,475 56,425 40,950 30,475
To Balance 56,425 40,950 -
b/d

Balance Sheet of Varma, Sarma as on 31-12-2003

Liabilities Rs. Assets Rs. Rs.
Creditors 19,000 Bank 2,500
Bills payable 5,000 Debtors 16,000
Sastry Loan a/c 30,475 Less : Reserve fund 2,450 13,550
Varma;s capital a/c 56,425 Stock 30,000
Sarm’s capital a/c 40,950 Motor vehicle (8,000 – 1,200) 6,800
Plant, Machinery 31,500
Buildings 49,500
Goodwill 18,000
1,51,850 1,51,850

Solution – 8 :

Dr. Revaluation a/c Cr.

Particulars Rs. Rs. Particulars Rs.
To Machinery 15,000 By Buildings 50,000
To Stock 9,000
To Bad debts reserve 14,000
To provision for 2,600
outstanding expenses
To Profit
X’s capital a/c 4,700
Y’s capital a/c 3,133
Z’s capital a/c 1,567 9,400
50,000 50,000

Dr. Capital Accounts Cr.

Particulars X Y Z Particulars X Y Z
Rs. Rs. Rs. Rs. Rs. Rs.
To Z a/c 12,000 8,000 - By Balance 3,00,000 2,00,000 1,00,000
b/d
To Z’s loan - - 1,41,567 By General 60,000 40,000 20,000
a/c reserve
To Balance 3,52,700 2,35,133 - By Profit & 4,700 3,133 1,567
c/d Loss
adjustment
a/c
By X’s 12,000
capital a/c
By Y’s 8,000
 9

capital a/c
3,64,700 2,43,133 1,41,567 3,64,7600 2,43,133 1,41,567
By Balance 3,52,700 2,53,133 -
b/d

Balance Sheet of X,Y as on 31-12-2001

Liabilities Rs.Assets Rs. Rs.

Creditors 2,00,000Cash in hand 1,55,000
Bank overdraft 4,00,000Debtors 2,80,000
Bills payable 95,000Less : Bad debts 14,000 2,66,000
reserve
Z’s loan a/c 1,41,567 Stock (1,80,000 - 1,71,000
9,000)
Provision for 2,600 Machinery (3,00,000 – 2,85,000
outstanding expenses 15,000)
X’s capital a/c 56,425 Buildings (5,00,000 + 5,50,000
50,000)
Y’s capital a/c 2,35,133
14,27,000 14,27,000

Working Notes :

Z’s share of goodwill = Rs.1,20,000 x 1/6 = Rs.20,000

X = Rs.20,000 x 3/5 = Rs.12,000

Y = Rs.20,000 x 2/5 = Rs.8,000

Solution – 9 :
Dr. Revaluation a/c Cr.
Particulars Rs. Rs. Particulars Rs.
To Provision for court 800 By Buildings 2,400
expenses
To Machinery 800 By Goodwill 2,100
To Profit :
Ramana’s capital (4/7) 1,657.15
Ranga’s capital (3/7) 1,242.85 2,900
4,500 4,500

Dr. Capital Accounts Cr.

 10

Particulars Ramana Ranga Particulars Ramana Ranga

Rs. Rs. Rs. Rs.
To Cash - 3,000.00 By Balance b/d 12,000.00 14,000.00
To Ranga’s loan a/c - 13,957.15 By Reserve 2,285.70 1,714.30
To balance c/d 15,942.85 By Profit & Loss 1,657.15 1,242.85
adjustment a/c
15,942.85 16,957.15 15,942.85 16,975.15
To balance b/d 15,942.85 -

Balance Sheet of Ramana as on 31-12-2004

Liabilities Rs. Assets Rs.

Bills payable 6,000.00 Cash 2,000.00
Outstanding salaries 1,000.00 Machinery 7,200.00
Provision for court expenses 800.00 Furniture 2,000.00
Ranga’s loan a/c 13,957.15 Buildings 18,400.00
Ramana’s capital a/c 15,942.85 Goodwill 8,100.00
37,700.00 37,700.00

Solution – 10 :
Journal Entries
Date Particulars L.F. Debit Credit
2004 Rs. Rs.
Mar.31 General Reserve a/c Dr. 1,600
To Sai’s captial a/c 832
To Siva’s capital a/c 448
To Sarma’s capital a/c 320
(being the distribution of reserves to
partners)
Goodwill a/c Dr. 19,800
To Sai’s capital a/c 10,296
To Siva’s capital a/c 5,544
To Sarma’s capital a/c 3,960
(Being the creation of goodwill)
Sai’s capital a/c Dr. 11,880
Sarma’s capital a/c Dr. 7,920
To Goodwill a/c 19,800
(Being the goodwill written of in the
new sharing ratio)
Profit & Loss adjustment a/c Dr. 1,600
To Stock a/c 1,600
(being the depreciation of stock)
Machinery a/c Dr. 4,500
To Profit & Loss adjustment a/c 4,500
(Being the appreciation of machinery)
Profit & Loss Adjustment a/c Dr. 2,900
 11

To Sai’s capital a/c 1,508

To Siva’s capital a/c 812
To Sarma’s capital a/c 580
(Being the distribution of revaluation
profit)
Bank a/c Dr, 19,304
To Sai’s capital a/c 7,244
To Sarma’s capital a/c 12,060
(being the capital brought in)
Siva’s capital a/c Dr. 14,804
To Bank a/c 10,000
To Siva’s loan a/c 4,804
(Being the part payment of cash to
retiring partner and transfer of balance
to his loan a/c)

Dr. Revaluation a/c Cr.

Particulars Rs. Particulars Rs.
To Stock a/c 1,600 By Machinery a/c 4,500
To Sai a/c 1,508
To Siva’s a/c 812
To Sarma’s a/c 580
4,500 4,500

Dr. Bank a/c Cr.

Particulars Rs. Particulars Rs.
To Balance b/d 7,500 By Sarma’s capital a/c 10,000
To Sai’s capital a/c 7,244 By Balancec/d 16,804
To Sarma’s capital a/c 12,060
26,804 26,804
To Balance b/d 16,804

Dr. Capital Accounts Cr.

Particulars Sai Siva Sarma Particulars Sai Siva Sarma

Rs. Rs. Rs. Rs. Rs. Rs.
To Goodwill 11,880 - 7,920 By Balance 10,000 8,000 3,000
b/d
To Bank - 10,000 - By General 832 448 320
reserve
To Loan a/c - 4,804 - By Goodwill 10,296 5,544 3,960
To Balance 18,000 - 12,000 By Profit & 1,508 812 580
c/d Loss
adjustment
a/c
By Bank a/c 7,244 - 12,060
29,880 14,804 19,920 29,880 14,804 19,920
By Balance 18,000 - 12,000
b/d
 12

Balance Sheet of Sai, Sarma as on 1-4-2004

Liabilities Rs. Assets Rs.

Creditors 5,000 Bank 16,804
Siva’s loan a/c 4,804 Stock 10,500
Capital accounts : Machinery 12,500
Sai 18,000
Sarma 12,000
39,804 39,804

Notes :

1. The general reserve is distributed to all the old partners in their old sharing ratio.
2. Goodwill raised is credited to the old partners and written off by debiting the same to
the continuing partners in the new sharing ratio.
3. Sai’s capital Rs.30,000 x 3/5 = Rs.18,000
Sarma’s capital Rs.30,000 x 2/5 = Rs.12,000

Solution – 11 :

Journal Entries
Date Particulars L.F. Debit Credit
Rs. Rs.
1-4-03 X’s capital a/c Dr. 35,800
To Cash a/c 15,800
To X’s loan a/c 20,000
(Being the partial payment to X and the
transfer of remaining balance to his
loan a/c)
31-3-04 Interest a/c Dr. 2,400
To X’s Loan a/c 2,400
(Being the calculation of interest on
loan)
X’s loan a/c Dr. 12,400
To Cash a/c 12,400
(Being the payment of 1st Installment
with interest)
31-3-05 Interest a/c Dr. 1,200
To X’s Loan a/c 1,200
(Being the calculation of interest on
loan)
X’s loan a/c Dr. 11,200
To Cash a/c 11,200
(Being the payment of 2nd installment
with interest)
 13

Dr. X’s loan a/c Cr.

Date Particulars Rs. Date Particulars Rs.
31-3-03 To Cash a/c 12,400 1-4-03 By Capital a/c 20,000
To Balance c/d 10,000 31-3-04 By Interest a/c 2,400
22,400 22,400
31-3-05 To Cash a/c 11,200 1-4-04 By Balance b/d 10,000
31-3-05 By Interest 1,200
11,200 11,200

Solution – 12 :
Dr. Revaluation a/c Cr.
Particulars Rs. Particulars Rs.
To Stock a/c 2,300 By M’s capital a/c 4,200
To Furniture a/c 500 By N’s capital a/c 2,800
To Plant, Machinery a/c 750 By O;s capital a/c 1,400
To Buildings a/c 4,000
To Bad debts reserve a/c 850
8,400 8,400

Dr. Goodwill a/c Cr.

Particulars Rs. Particulars Rs.
To M’s capital a/c 3,000 By Balance c/d 6,000
To N’s capital a/c 2,000
To O’s capital a/c 1,000
6,000 6,000
To Balance b/d 6,000

Dr. Capital Accounts Cr.

Particulars M N O Particulars M N O
Rs. Rs. Rs. Rs. Rs. Rs.
To Profit & 4,200 2,800 1,400 By Balance 40,000 25,000 20,000
Loss B/d
adjustment
a/c
To Bank a/c 11,050 - - By Profit & 2,250 1,500 750
Loss a/c
To M;s loan 30,000 - - By Goodwill 3,000 2,000 1,000
a/c a/c
To balance - 25,700 20,350
c/d
45,250 28,500 21,750 45,250 28,500 21,750
By Balance - 25,700 20,350
b/d

Dr. Bank a/c Cr.

Particulars Rs. Particulars Rs.
To Balance b/d 25,500 By M’s capital a/c 11,050
By Balance c/d 14,450
25,500 25,500
 14

To Balance b/d 14,450

Balance Sheet of N, O as on 1-7-2003

Liabilities Rs. Rs.. Assets Rs. Rs.
Bills payable 6,400 Cash in hand 150
Creditors 12,500 Cash at bank 14,450
M’s loan a/c 30,000 Bills receivable 5,400
Capital Accounts Debtors 17,800
N 25,700 Less : Reserve 850 16,950
O 20,350 46,050 Stock 20,000
Furniture 3,000
Plant, Machinery 9,000
Buildings 20,000
Goodwill 6,000
94,950 94,950

Dr. M’s loan a/c Cr.

Date Particulars Rs. Date Particulars Rs.
2001 2001
July 1 To bank a/c 11,050 July 1 By M’s capital a/c 41,050
To Balance c/d 30,000
41,050 41,050
2002 2001
June 30 To Bank a/c 11,500 July 1 By Balance b/d 30,000
To Balance c/d 20,000 2002
June 30 By Interest 1,500
31,500 31,500
2003 2002
June 30 To bank a/c 11,000 July 1 By Balance b/d 20,000
To Balance c/d 10,000 2003
June 30 By Interest 1,000
21,000 21,000
2004 2003
June 30 To Bank a/c 10,500 July 1 By Balance b/d 10,000
2004
June 30 By Interest 500
10,500 10,500

Solution – 13 :

Dr. Revaluation a/c Cr.

Particulars Rs. Rs. Particulars Rs.
To Plant, Machinery 2,500 By Buildings 5,000
To Furniture 187 By stock 3,375
To Bad debts reserve 500
 15

To Capital accounts
X 2,504
Y 865
Z 1,729 5,188
8,375 8,375

Dr. Capital Accounts Cr.

Particulars X Y Z Particulars X Y Z
Rs. Rs. Rs. Rs. Rs. Rs.
To Goodwill 5,000 1,667 - By balance 25,000 20,000 35,000
b/d
To Z’s loan - - 47,396 By Loan a/c 2,594 865 1,729
a/c
To Balance 38,594 24,531 - By Goodwill 10,000 3,333 6,667
c/d a/c
By Reserve 6,000 2,000 4,000
fund a/c
43,594 26,198 47,396 43,594 26,198 47,396
By Balance 38,594 24,531 -
b/d

Dr. Z’s loan a/c Cr.

Particulars Rs. Particulars Rs.
To balance c/d 47,396 By Z’s capital a/c 47,396
47,396 47,396
By Balance b/d 47,396

Dr. Goodwill a/c Cr.

Particulars Rs. Particulars Rs.
To X’s capital a/c 10,000 By X’s capital a/c 5,000
To Y’s capital a/c 3,333 By Y’s capital a/c 1,667
To Z’s capital a/c 6,667 By Balance c/d 13,333
20,000 20,000
To Balance b/d 13,333

Dr. Reserve fund a/c Cr.

Particulars Rs. Particulars Rs.
To X’s capital a/c 6,000 By Balance b/d 12,000
To Y’s capital a/c 2,000
To Z’s capital a/c 4,000
12,000 12,000

Balance Sheet of X, Y as on 31-12-2003

Liabilities Rs. Rs.. Assets Rs. Rs.
Bills payable 10,000 Cash 3,500
Creditors 20,500 Debtors` 20,000
Z’s loan a/c 47,396 Less : Reserve 1,500 18,500
Capital accounts Stock (Rs.22,500 – 25,875
3,375)
X 38,594 Furniture (Rs.2,500 2,313
 16

– 187)
Y 24,531 63.125 Plant, Machinery 22,500
(Rs.25,000 –
2,500)
Buildings (Rs.50,000 55,000
+ 5,000)
Goodwill 13,333
1,41,021 1,41,021

Notes :

1. Adjusted to nearest rupee for convenience.

2. When goodwill is created to its full value, it should be credited to all partners’ capital
accounts unless otherwise mentioned.
3. The goodwill is written off to the extent of retiring partner’s share in the gaining ratio.
Gaining ratio is ½ : 1/6 = 3:1

Solution – 14 :
Journal Entries
Date Particulars L.F. Debit Credit
Rs. Rs.
General Reserve a/c Dr. 1,500
To Sarma’s capital a/c 1,500
(Being the share in reserve adjusted)
Interest a/c Dr. 160
To Sarma’s capital a/c 160
(Being interest allowed)
Sastry’s capital a/c Dr. 3,500
Murthy’s capital a/c Dr. 3,500
To Sarma’s capital a/c 7,000
(Being goodwill adjusted)
Profit & Loss a/c Dr. 2,000
To Sarma’s capital a/c 2,000
(Being profit adjusted)
Sarma’s capital a/c Dr. 18,660
To Sarma’s Executor a/c 18,660
(Being Sarma’s capital transferred to
his executor’s a/c)
Sarma’s executor a/c Dr. 18,660
To Bank a/c 5,000
To Sarma’s Executor loan a/c 13,660
(Being part of the amount paid and
remaining transferred to his loan a/c)

Dr. Sarma’s capital a/c Cr.

Particulars Rs. Particulars Rs.
To Sarma’s executor a/c 18,660 By Balance b/d 8,000
By General Reserve a/c 1,500
 17

By Interest on capital a/c 160

By Sastry’s capital a/c 3,500
By Murthy’s capital a/c 3,500
By Profit & Loss a/c 2,000
18,660 18,660

Dr. Sarma executor a/c Cr.

Particulars Rs. Particulars Rs.
To Bank a/c 5,000 By Sarma’s capital a/c 18,660
To Sarma’s executor loan a/c 13,660
18,660 18,660

Working Notes :

1. Calculation of Goodwill :

Profits for 4 years = Rs.28,000

Average profit = Rs.28,000/4 = Rs.7,000
Goodwill = Average profit x 3 = Rs.7,000 x 3 = Rs.21,000
Sarma’s share of goodwill = Rs.21,000 x 1/3 = Rs.7,000

As goodwill is not created, it is adjusted by the continuing partners.

2. Interest on capital = Rs.8,000 x 6/00 x 4/12 = Rs.160

3. Share in profits :

Profit during 2003 is Rs.18,000

4
4 months profit  Rs.18,000   Rs.6,000
12
1
Sarma share is  Rs.6,000 x  Rs.2,000
3