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Aditi, Kavya ...

Question

Aditi, Kavya and Sohail were partners in a firm sharing profits in the ratio of 2 : 2 : 1. The firm closes its books on 31st March every year. On 30th September, 2017 Sohail died. According to the partnership deed, his legal representatives are entitled to the following :

(a) Capital as per Balance Sheet (Rs 60,000)

(b) Interest on capital @ 6 $%$ p.a., till the date of death.

(c) Share of profit to the date of death on the basis of the average profits of the last four years.

(d) Share of goodwill to be determined on the basis of the three years purchase of the average profits of last four years. The profits of last four years were : Rs 30,000, Rs 50,000, Rs 40,000 and Rs 60,000

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Solution

SOHAIL'S CAPITAL ACCOUNT
$D r . C r .$
$\begin{matrix} Particulars & Amount & Particulars & Amount (Rs) & (Rs) To Sohail's Executor A/c & 93, 300 & By Balance b/d & 60, 000 By Interest on Capital A/c & 1, 800 (60, 000 \times 6 % \times \frac{6}{12}) By Profit and Loss Suspense A/c & 4, 500 By Aditi's Capital A/c (Goodwill) & 13, 500 By Kavya's Capital A/c & 13, 500 (Goodwill) Total & 93, 300 & Total & 93, 300 \end{matrix}$

Working Note:

Calculation of Average Profit = $\frac{(30, 000 + 50, 000 + 40, 000 + 60, 000)}{4} = R s 45, 000$

Profit and Loss suspense A/c = $45, 000 \times \frac{6}{12} \times \frac{1}{5} = R s 4, 500$

Goodwill = $3 \times 45, 000 = R s 1, 35, 000 Sohail's Share of Goodwill = 1, 35, 000 \times \frac{1}{5}$

= Rs 27,000 (to be shared in gaining ratio of 2 : 2)

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Karam died on 12th June, 2014 and according to the Partnership Deed his executors were entitled to be paid as under :

(a) His share in the profits of the firm till the date of his death which will be calculated on the basis of average profits of last three completed years.

(b) His share in the goodwill of the firm which will be calculated on the basis of two years' purchase of total profits of last three years.

Prepare Karam's Capital A/c to be rendered to his executors.

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.

A, B and C are partners in a firm whose books are closed on 31st March each year. C died on 30th September, 2009 and according to the agreement, the share of profit of a deceased partner up to the date of the death is to be calculated on the basis of the average profits for the last four years. The net profits for the last 4 years have been 2006 : Rs. 16,000; 2007 : Rs. 12,000; 2008 : Rs. 1,000 (loss) and 2009 : Rs. 23,000. Calculate C’s share of profits upto the date of death.

PRACTICAL PROBLEM

Sheetal, Anjali, Rajendra were sharing profits and losses as 7:5:4. Their Balance sheet as on 31^st March, 2011:

Balance Sheet as on 31^st March 2012
Dr.				Cr.
Liabilities	Amount Rs	Assets	Amount Rs
Capital		Furniture	17,000
Sheetal	23,000	Machinery	18,000
Anjali	15,000	Building	16,000
Rajendra	12,000	Cash	37,000
Bills Payable	4,000
Creditors	8,000
Loan	10,000
General Reserve	16,000
	88,000		88,000

Rajendra died on 30^th June 2012 and the following adjustments were agreed as per deed.

1) Furniture, Machinery and Building are to be revalued at Rs 16,700/-, Rs 16,200, to Rs 30,100.

2) Rajendra’s share is goodwill to be valued from firm’s goodwill which was valued at two times the average profit of last three years. Profits of last three years Rs 30,000, Rs 25,000, Rs 20,000/-.

3) His profit upto the date of death is to be calculated on the basis of last years profit.

4) Rajendra was entitled to get a salary of Rs 800/-per month.

5) Interest on capital at 10% be allowed.

6) Rajendra’s drawing upto date of death were Rs 600 p.m.

Prepare:

1) Rajendra’s Capital A/c showing amount payable to his executor

2) Give working of share of goodwill and profit

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