Puneet, Pankaj and Pammy are partners in a business sharing profits and losses in the ratio of 2:2:1 respectively-Solution

Q.8. Puneet, Pankaj and Pammy are partners in a business sharing profits and losses in the ratio of 2:2:1 respectively. Their balance sheet as on March 31, 2017 was as follows:

Books of Puneet, Pankaj and Pammy
Balance Sheet as on March 31, 2017

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Sundry Creditors	1,00,000	Cash at Bank	20,000
Capital Accounts:		Stock	30,000
Puneet     60,000		Sundry Debtors	80,000
Pankaj  1,00,000		Investments	70,000
Pammy   40,000	2,00,000	Furniture	35,000
Reserve	50,000	Buildings	1,15,000
	3,50,000		3,50,000

Mr. Pammy died on September 30, 2017. The partnership deed provided the following:
(i) The deceased partner will be entitled to his share of profit up to the date of death calculated on the basis of previous year’s profit.
(ii)  He will be entitled to his share of goodwill of the firm calculated on the basis of 3 years’ purchase of average of last 4 years’ profit. The profits for the last four financial years are given below: for 2013–14; Rs 80,000; for 2014–15, Rs 50,000; for 2015–16, Rs 40,000; for 2016–17, Rs 30,000.
The drawings of the deceased partner up to the date of death amounted to Rs 10,000. Interest on capital is to be allowed at 12% per annum. Surviving partners agreed that Rs 15,400 should be paid to the executors immediately and the balance in four equal yearly instalments with interest at 12% p.a. on outstanding balance.
Show Mr. Pammy’s Capital account, his Executor’s account till the settlement of the amount due.

SOLUTION

Mr. Pammy’s Capital account

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Drawings	10,000	By balance b/d	40,000
To Executor’s A/c	75,400	By Reserve	10,000
		By Interest on Capital	2,400
		By Pankaj’s Capital A/c	15,000
		By Puneet’s Capital A/c	15,000
		By Profit and loss A/c	3,000
	85,400		85,400

Pammy’s Executor Account

Date	Particulars	J.F.	Amount (Rs.)	Date	Particulars	J.F.	Amount (Rs.)
2017-18 Sep. 30	Bank		15,400	2017-18 Sep. 30	Pammy’s Capital A/c		75,400
Mar. 31	Balance c/d		63,600	Mar. 31	Interest		3,600
			79,000				79,000
2018-19 Sep. 30	Bank (15,000+3,600+3,600)		22,200	April 01	Balance b/d		63,600
				Sep. 30	Interest		3,600
Mar. 31	Balance c/d		47,700	Mar. 31	Interest		2,700
			69,900				69,900
2019-20 Sep. 30	Bank		20,400	2019-20 April 01	Balance b/d		47,700
Mar. 31	Balance c/d		31,800	Sep. 30	Interest		2,700
				Mar. 31	Interest		1,800
			52,200				52,200
2020-21 Sep. 30	Bank (15,000+1,800+1,800)		18,600	2020-21 April 01	Balance b/d		31,800
				Sep. 30	Interest		1,800
Mar. 31	Balance c/d		15,900	Mar. 31	Interest		900
			34,500				34,500
2021-22 Sep. 30	Bank (15,000+900+900)		16,800	2021-22 April 01	Balance b/d		15,900
				Sep. 30	Interest		900
			16,800				16,800

Working Notes:

1) Pammy’s Share of Profit
= Previous Year’s Profit x  Proportionate Period x  Share of Deceased Partner 
= 30,000 x 6/12 x 1/5

= Rs. 3,000

2) Pammy’s Share of Goodwill
Goodwill of the firm = Average Profit  x Numbers of Year’s Purchase
Average Profit = 80,000+50,000+40,000+30,0004

=2,00,000/4

=Rs.50,000

Goodwill of the firm = 50,000  x  3

= Rs 1,50,000
Pammy’s Share = 1,50,000 x 1/5

= Rs. 30,000.

3) Gaining Ratio = New Ratio – Old Ratio

Puneet’s Share = 2/4-2/5

=2/20

Pankaj’s Share = 2/4-2/5

=2/20

Gaining Ratio between Puneet and Pankaj = 2 : 2 or 1 : 1

4) Interest on Capital for 6 months, i.e. from April 1, 2007 to September 30, 2007
Amount of Capital x  Rate of Interest x Period
= 40,000 x 12100 x 612 = Rs. 2,400.

5) Interest Amount
The firm closes its books every year on March 31, while installments to Pammy’s Executor are paid on September 30 every year.
Amount outstanding on 30 September = 75,400 – 15,400 = Rs 60,000

Calculation of Interest

Periods	Amount Outstanding	Yearly Interest
2017-18	60,000	60,000 x 12/100 = 7,200
2018-19	45,000	45,000 x 12/100 = 5,400
2019-20	30,000	30,000 x 12/100 = 3,600
2020-21	15,000	15,000 x 12/100 = 1,800

5 6 7 8 9 10