Question

Following is the Balance Sheet of Ravi, Navin and Sudhir as on 31st March, 2015. Their profit sharing ratio is 2 : 2 : 1.
$\begin{array}{ccccc}\text{Liabilities}& & \text{Amount}& \text{Assets}& \text{Amount}\\ & & \text{(Rs)}& & \text{(Rs)}\\ \text{Creditors}& & 24,000& \text{Bank}& 36,000\\ \text{Bills Payable}& & 16,000& \text{Stock}& 28,000\\ \text{General Reserve}& & 12,000& \text{Debtors}& 16,000\\ \text{Capital Accounts :}& & & \text{Land and Building}& 2,00,000\\ \text{Ravi}& 1,20,000& & \text{Profit and Loss A/c}& 64,000\\ \text{Navin}& 1,20,000& & & \\ \text{Sudhir}& \underset{–}{52,000}& \underset{–}{2,92,000}& & \\ & & 3,44,000& & \overline{3,44,000}\end{array}$

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.

Answer 1

Dr. NAVIN'S CAPITAL ACCOUNT Cr.
$\begin{array}{cccc}\text{Particulars}& \text{Amount}& \text{Particulars}& \text{Amount}\\ & \text{(Rs)}& & \text{(Rs)}\\ \text{To Profit and Loss A/c}(\text{Rs}64,000\times 2/5)& 25,600& \text{By Balance b/d}& 1,20,000\\ \text{To Profit and Loss Suspense A/c}& 6,400& \text{By General Reserve}(\text{Rs}12,000\times 2/5)& 4,800\\ \text{To Navin's Executors's A/c}& 1,12,000& \text{By Ravi's Capital A/c}& 12,800\\ & & \text{By Sudhir's Capital A/c}& 6,400\\ & \overline{1,44,000}& & \overline{1,44,000}\end{array}$

(i) Firms goodwill = Rs 24,000

(Average profit) $\times$ 2 = Rs 48,000

Navin's share of goodwill Rs $48,000\times \frac{2}{5}=\text{Rs}19,200$ which is contributed by Ravi and Sudhir in their gaining ratio 2 : 1.

Ravi's contribution Rs. 19,200 $\times \frac{2}{3}$ = Rs. 12,800

Sudhir's contribution Rs $19,200\times \frac{1}{3}=\text{Rs}6,400.$

(ii) Navin's share in loss (from 1st April, 2015 to 30th June, 2015)

= Rs $64,000\times \frac{3}{12}\times \frac{2}{5}=\text{Rs}6,400.$

(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.