Donna, Jenny and Tony are partners of DJT Corporation sharing profit and losses in the ratio of 3:2:1. On 31 st March, 2025, their Balance Sheet was…

CA Foundation · Accounting · PYQS · May 2026
Donna, Jenny and Tony are partners of DJT Corporation sharing profit and losses in the ratio of 3:2:1. On 31 st March, 2025, their Balance Sheet was as under: Liabilities Amount (₹) Assets Amount (₹) Capital Accounts: Land and building 2,60,000 Donna 1,60,000 Plant and Machinery 1,15,000 Jenny 1,88,000 Furniture and Fixture 80,000 Tony 1,20,000 Joint Life Policy 60,000 General Reserve 1,44,000 Inventory 35,000 Trade Payables 38,000 Trade Receivables 48,000 Less: Provision for Doubtful Debts (4, 500) 43,500 Cash at Bank 56,500 Total 6,50,000 Total 6,50,000 Tony died on 31 st May, 2025. As per Partnership Deed the following arrangements were to be put into effect: (i) The remaining partners share profits and losses in the ratio of 3:2. (ii) The partners are allowed interest @10% p.a. on their capitals, but no interest be charged on drawings. (iii) Upon the death of a partner, the Goodwill of the firm be valued at three years' purchase of the average net profits (after charging interest on capital) for the4 years to 31 st March preceding the death of a partner. (iv) Goodwill to be credited to deceased partner's capital account with her share of goodwill, without using a goodwill account. (v) Profits till the date of death to be ascertained on the basis of average profit of previous four years. Additional Information: (1) The profits/(loss) of the firm before charging interest on capital were as follows: Year Amount (₹) 2021-22 Profit - 1,46,600 2022-23 Profit - 1,88,000 2023-24 Loss - 69,200 2024-25 Profit - 1,52,200 (2) Average capital during the preceding4 years to 31 st March preceding the death of the partner may be assumed at 3,50,000. (3) Upon the death of Tony, her capital account is to be credited with her share of profits, interest on capital etc. calculated till the date of death. (4) After the death of Tony, 2,00,000 was received from insurance company against Joint Life Policy. (5) The Firm's assets were revalued as under - Land and Building valued at 3,00,000;Plant and Machinery to be depreciated by 15% and Furniture & Fixtures to be depreciated by 10%;Inventory was valued at 45,000;Trade receivables are all considered good and no provision is required. (6) Amount payable to executor of Tony was paid immediately. You are required to prepare: (i) Revaluation Account; (ii) Partners' Capital Accounts after giving effect to the above transactions.

Suggested Answer and Working Notes:

Revaluation A/c Particulars ₹ Particulars ₹ To Plant and Machinery 17,250 By Land & Building 40,000 To Furniture & Fixtures 8,000 By Inventory 10,000 To Profit on Revaluation By Provision for Doubtful Debts 4,500 Donna 14,625 Jenny 9,750 Tony 4,875 29,250 54,500 54,500 Partners Capital A/c Particulars Donna ₹ Jenny ₹ Tony ₹ Particulars Donna ₹ Jenny ₹ Tony ₹ By Bal. b/d 1,60,000 1,88,000 1,20,000 By Gen Reserve 72,000 48,000 24,000 By Interest on capital - - 2,000 By Revaluation Profit 14,625 9,750 4,875 By Joint Life Policy 70,000 46,667 23,333 To Tony’s capital A/c (Goodwill) (WN.2) 20,820 13,880 - By Donna & Jenny Capital a/c (WN - 2) - - 34,700 To Bank 2,10,508 By P&L Susp A/c (WN - 3) - - 1,600 To Bal c/d 2,95,805 2,78,537 3,16,625 2,92,417 2,10,508 3,16,625 2,92,417 2,10,508 Working Notes: 1. Goodwill valuation 2021-221,46,600 2022-231,88,000 2023-24 ₹(69, 200) 2024-251,52,200 Total - 4,17,600 Average = 4,17,600/4 = 1,04,400 Less: Interest on Capital - 3,50,000 x 10% (35, 000) Adjusted Average Profit - 69,400 Goodwill (3 year’s purchase) = 2,08,200 Tony’s share (1/6) = 34,700 2. Journal entry for adjustment of goodwill Particulars Particulars ₹ Donna’s Capital A/c Dr.20,820 Jenny’s Capital A/c Dr.13,880 To Tony’s Capital A/c 34,700 (Share of goodwill adjusted) 3. Tony’s share of profit till the date of death Average profit for full year before interest on capital = 1,04,400 2 month’s profit = 17,400 Less: interest on capital - 4,68,000 X 10% X 2/12 = ₹(7, 800) Adjusted profit till the date of death = 9,600 Tony’s share - 1/6th = 1,600 4. The Joint life policy amount shown in the balance sheet shall be deducted from the JLP proceeds received from insurance co, on the death of a partner. 2,00,000-60,000 (Balance Sheet value) = 1,40,000 (divided in profit sharing ratio between the partners.) Calculation of Gaining ratio Partners New share Old Share Gain/ (Sacrifice) Donna 3/5 3/6 3/30 (gain) Jenny 2/5 2/6 2/30 (gain) Tony 0 1/6 -1/6(sacrifice) Alternatively , the amount received from Joint Life policy can also be routed through the Revaluation Account instead of directly crediting partner’s share in respective Partner’s capital Accounts . In that case the solution shall be: Revaluation A/c Particulars ₹ Particulars ₹ To Plant and Machinery 17,250 By Land & Building 40,000 To Furniture & Fixtures 8,000 By Inventory 10,000 To Profit on Revaluation By Provision for Doubtful Debts 4,500 Donna 84,625 By Joint Life Policy 1,40,000 Jenny 56,417 Tony 28,208 1,69,250 1,94,500 1,94,500 Partners Capital A/c Particulars Donna ₹ Jenny ₹ Tony ₹ Particulars Donna ₹ Jenny ₹ Tony ₹ By Bal. b/d 1,60,000 1,88,000 1,20,000 By Gen Reserve 72,000 48,000 24,000 By Interest on capital - - 2,000 By Revaluation profit 84,625 56,417 28,208 To Tony’s capital A/c (Goodwill) (WN.2) 20,820 13,880 - By Donna & Jenny Capital a/c (WN - 2) - - 34,700 To Bank 2,10,508 By P&L Susp A/c (WN - 3) - - 1,600 To Bal. c/d 2,95,805 2,78,537 Total 3,16,625 2,92,417 2,10,508 Total 3,16,625 2,92,417 2,10,508 Working Notes: 1. Goodwill valuation 2021-221,46,600 2022-231,88,000 2023-24 ₹(69, 200) 2024-251,52,200 Total - 4,17,600 Average = 4,17,600/4 = 1,04,400 Less: Interest on Capital - 3,50,000 X 10% = 35,000 Adjusted Average Profit - 69,400 Goodwill (3 year’s purchase) = 2,08,200 Tony’s share (1/6) = 34,700 2. Journal entry for adjustment of goodwill Particulars Particulars ₹ Donna’’s Capital A/c Dr.20,820 Jenny’’s Capital A/c Dr.13,880 To Tony’’s Capital A/c 34,700 (Share of goodwill adjusted) 3. Tony’s share of profit till the date of death Average profit for full year before interest on capital = 1,04,400 2 month’s profit = 17,400 Less: interest on capital - 4,68,000 X 10% x 2/12 = ₹(7, 800) Adjusted profit till the date of death = 9,600 Tony’s share - 1/6th = 1,600 4. The Joint life policy amount shown in the balance sheet shall be deducted from the JLP proceeds received from insurance co, on the death of a partner. 2,00,000-60,000 (Balance Sheet value) = 1,40,000 (divided in profit sharing ratio between the partners.) Calculation of Gaining ratio Partners New share Old Share Gain/ (Sacrifice) Donna 3/5 3/6 3/30 (gain) Jenny 2/5 2/6 2/30 (gain) Tony 0 1/6 -1/6(sacrifice)

Topics: Death of a Partner

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