Following is the Balance Sheet of Ravi, Navin and Sudhir as on 31st March, 2015. Their profit sharing ratio is 2 : 2 : 1.
LiabilitiesAmountAssetsAmount(Rs)(Rs)Creditors24,000Bank36,000Bills Payable16,000Stock28,000General Reserve12,000Debtors16,000Capital Accounts :Land and Building2,00,000 Ravi1,20,000Profit and Loss A/c64,000 Navin1,20,000 Sudhir52,000––––––––2,92,000––––––––––3,44,000¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯3,44,000
Navin died on 30th June 2015. The partnership deep provided for the following on the death of partner.
(i) Goodwill of the firm was valued at 2 years' purchase of the average profit of the last 5 years. The profit for the year ended 31st March, 2014; 31st March, 2013; 31st March 2012 and 31st March, 2011 were Rs 20,000; Rs 32,000; Rs 44,000 and Rs 88,000 respectively.
(ii) Navin's share of profit or loss till the date of his death was to be calculated on the basis of profit or loss for the year ended 31st March 2015. Prepare Navin's Capital Account till the time of his death to be presented to his executors.
Dr. NAVIN'S CAPITAL ACCOUNT Cr.
ParticularsAmount ParticularsAmount(Rs)(Rs)To Profit and Loss A/c (Rs 64,000×2/5)25,600By Balance b/d1,20,000To Profit and Loss Suspense A/c6,400By General Reserve (Rs 12,000×2/5)4,800To Navin's Executors's A/c1,12,000By Ravi's Capital A/c12,800By Sudhir's Capital A/c6,400¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯1,44,000¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯1,44,000
(i) Firms goodwill = Rs 24,000
(Average profit) × 2 = Rs 48,000
Navin's share of goodwill Rs 48,000×25=Rs 19,200 which is contributed by Ravi and Sudhir in their gaining ratio 2 : 1.
Ravi's contribution Rs. 19,200 ×23 = Rs. 12,800
Sudhir's contribution Rs 19,200×13=Rs 6,400.
(ii) Navin's share in loss (from 1st April, 2015 to 30th June, 2015)
= Rs 64,000×312×25=Rs 6,400.
(iii) The profit and loss shows a debit balance in the Balance Sheet as at 31st March, 2015. It means , the firm incurred a loss of Rs 64,000 in the year ended 31st March, 2015.