DEPARTMENT OF TECHNICAL

EDUCATION ANDHRA PRADESH

Name : J.SATYANARAYANA RAO
Designation : Sr.Lecturer
Branch : Commercial & Computer Practice
Institute : Govt polytechnic for Women Guntur
Year/Semester : IV Semester
Subject : Accountancy –III
Subject Code : CCP-402
Topic : Partnership- Retirement
Duration : 50 minutes
Sub Topic : Death of a Partner
Teaching Aids : PPT Animation
CCP402.59 & 60 1
Objectives

On the Completion of the Period, you

would be able to solve a problem on:
Death of a Partner

CCP402.59 & 60 2
Illustration
The Balance sheet of S, P and F as at 31.12.2006 was as under:

Liabilities Amount Assets Amount

Creditors 40,000 Fixed Assets 80,000

Reserve 10,000 Debtors 20,000
S’s Capital 50,000 B/R 8,000
P’s Capital 30,000 Stock 32,000
F’s Capital 30,000 Joint Life Policy 12,000
Cash 8,000
1,60,000 1,60,000

CCP402.59 & 60 3
Adjustments
 Joint Life Policy was for Rs.60,000 and the premium was
payable every year on 1st August. Profit sharing ratio was 5/10,
3/10 and 2/10.
On 1st May 2007 P died.
It was agreed that Goodwill showed be valued at 3 years
purchase of average profits for 4 years. The profits
were:Rs.20,000, Rs.26,000, Rs.24,000, & Rs.30,000.
The deceased partner be given share of profits upto the date
of death on the basis of profits for the previous year.

CCP402.59 & 60 4
Adjustments contd.

Fixed assets were to be depreciated by 10%.

A Bill for Rs.2,000 was found to be worthless.
A sum of Rs.49,900 was to be paid immediately, the balance
was to remain as a loan with the firm at 9% p.a.
Prepare capital accounts and the Balance Sheet of S and F

CCP402.59 & 60 5
Working Notes

1. Calculation of Goodwill:
Total profit = 20,000 + 26,000 + 24,000 + 30,000
= Rs.1,00,000
Average profit = 1,00,000/4 = Rs.25,000
Goodwill = 25,000 X 3 = Rs.75,000

CCP402.59 & 60 6
Working Notes contd.

2. Calculation of profit to the date of death:

From 1st Jan. 2007 to 1st May, 2007 = 4 months
Profit for the year 2006 = Rs.30,000
Profit for 4 months = 30,000 X 4/12 = Rs.10,000
P’s share = 10,000 X 3/10 = Rs.3,000

CCP402.59 & 60 7
 Profit and Loss Adjustment A/c

Particulars Amount Particulars Amount

To Fixed Assets 8,000 By Capital Accounts

To B/R 2,000 (Loss)
S 5,000
P 3,000
F 2,000 10,000
10,000 10,000

CCP402.59 & 60 8
 S’s Capital Account

Particulars Amount Particulars Amount

To P&L Adj. a/c 5,000 By Bal. b/d 50,000

To Bal.c/d 1,11,500 By Reserve 5,000
By Goodwill 37,500
By Joint life policy 24,000

1,16,500 1,16,500
By Bal.b/d 1,11,500

CCP402.59 & 60 9
 P’s Capital Account
Particulars Amount Particulars Amount

To P&L Adj. a/c 3,000 By Bal. b/d 30,000

To P’s 69,900 By Reserve 3,000
Executor’s a/c By Goodwill 22,500
By Joint life policy 14,400
By P&L Suspense a/c 3,000
72,900 72,900

CCP402.59 & 60 10
 F’s Capital Account
Particulars Amount Particulars Amount

To P&L Adj. a/c 2,000 By Bal. b/d 30,000

To Bal.c/d 54,600 By Reserve 2,000
By Goodwill 15,000
By Joint life policy 9,600

56,600 56,600

CCP402.59 & 60 11
 P’s Executor’s Account
Particulars Amount Particulars Amount

To Cash a/c 49,900 By P’s Capital a/c

To Bal.c/d 20,000 (Transfer) 69,900

69,000 69,900

By Bal. b/d 20,000

CCP402.59 & 60 12
 Cash Account
Particulars Amount Particulars Amount

To Bal.b/d 8,000 By P’s Executor’s a/c 49,900

To Joint Life policy 60,000 By Bal. c/d 18,100

68,000 68,000
To Bal. b/d 18,100

CCP402.59 & 60 13
Balance Sheet of S and F as on 1st May, 2007

Liabilities Amount Assets Amount

Creditors 40,000 Cash 18,100

P’s Executors’s 20,000 B/R 6,000
a/c 1,11,500 Debtors 20,000
S’s Capital a/c 54,600 Stock 32,000
F’s Capital a/c Fixed Assets 72,000
Goodwill 75,000
P&L Suspense a/c 3,000

2,26,100 2,26,100

CCP402.59 & 60 14