On 31st March, 2014, the Balance Sheet of Pooja, Qureshi and Ross, who were partners in a firm was as under:

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Sundry Creditors

2,50,000
Building
2,60,000

Reserve Fund

2,00,000

Investment

1,10,000

Capital A/cs: Pooja
1,50,000
Qureshi's Loan 1,00,000

Qureshi 1,00,000 Debtors 1,50,000

Ross 1,00,000 3,50,000 Stock 1,20,000

Cash 60,000

8,00,000

8,00,000

Qureshi died on 1st July, 2014. The profit-sharing ratio of the partners was 2 : 1 : 1. On the death of a partner, the partnership deed provided for the following:
(i) His share in the profits of the firm till the date of his death will be calculated on the basis of average profits of last three completed years.
(ii) Goodwill of the firm will be calculated on the basis of total profit of last two years.
(iii) Interest on loan given by the firm to a partner will be charged at the rate of 6% p.a. or ₹ 4,000, whichever is more.
(iv) Profits for the last three years were ₹ 45,000; ₹ 48,000 and ₹ 33,000.
Prepare Qureshi's Capital Account to be rendered to his executors.

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Solution

Dr.

Qureshi’s Capital A/c

Cr.

Date

Particulars

Amount

(₹)

Date

Particulars

Amount

(₹)

2014

2014

July 01
To Qureshi’s Loan A/c (WN3)
1,04,000
April 01 By balance b/d
1,00,000

2015

July 01 By Pooja’s Capital A/c (WN1)
13,500

March 31
To balance c/d
68,875
July 01 By Ross’s Capital A/c (WN1)
6,750

July 01 By Profit & Loss Suspense A/c (WN2)
2,625

July 01 By Reserve Fund A/c
50,000

(2,00,000 × 1/4)

1,72,875

1,72,875

Working Notes:
1. Calculation of Qureshi’s Share of Goodwill

Goodwill = ₹ (48,000 + 33,000) = ₹ 81,000

Qureshi’s Share of Goodwill = ₹ (81,000 × 1/4) = ₹ 20,250

Gaining Ratio = Pooja : Ross = 2 : 1

Amount debited to Pooja’s Capital A/c = ₹ (20,250 × 2/3) = ₹ 13,500

Amount debited to Ross’s Capital A/c = ₹ (20,250 × 1/3) = ₹ 6,750

2. Calculation of Qureshi’’s Share of Loss till the date of his death

Average Profit of the last three years = ₹ (45,000 + 48,000 + 33,000)/3 = ₹ 42,000

Qureshi’s share of loss till the date of death = Previous year’s loss × Qureshi’s Share of Loss × Months till the date of his death/12

= ₹ (42,000 × 1/4 × 3/12)

= ₹ 2,625

3. Calculation of Amount due on account of Loan given to Qureshi

Loan given to Qureshi by a firm = ₹ 1,00,000

Amount of interest till 1^st July, 2014 = ₹ (1,00,000 × 6/100 × 3/12) = ₹ 1,500

Total Amount due to firm on 1^st July = Loan amount + Amount of Interest

= ₹ (1,00,000 + 4,000)= ₹ 1,04,000 [As 4,000 > Amount of Interest]

Suggest Corrections

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Trade Creditors		1,20,000	Cash at Bank	1,80,000
Bills Payable		80,000	Stock	1,40,000
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(c) Prepare Y's Capital Account at the time of his death to be presented to his executors.

Q. Akhil, Nikhil and Sunil were partners sharing profits and losses equally. Following was their Balance Sheet as at 31st March, 2018:

Liabilities		₹	Assets	₹
Trade Creditors		40,000	Building	2,00,000
General Reserve		45,000	Plant and Machinery	80,000
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(c) Share of goodwill calculated on the basis of three times the average profit of the last four years.
(d) Interest on deceased partner's capital @ 6% p.a.
(e) ₹ 50,000 to be paid to deceased's executor immediately and the balance to remain in his Loan Account.
Profits and Losses for the preceding years were: 2014-15 − ₹ 80,000 Profit; 2015-16 − ₹ 1,00,000 Loss; 2016-17 − ₹ 1,20,000 Profit; 2017-18 − ₹ 1,80,000 Profit.
Pass necessary Journal entries and prepare Sunil's Capital Account and Sunil's Executor Account.

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Dr.	Qureshi’s Capital A/c						Cr.
Date		Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2014				2014
July 01		To Qureshi’s Loan A/c (WN3)	1,04,000	April 01	By balance b/d	1,00,000
2015				July 01	By Pooja’s Capital A/c (WN1)	13,500
March 31		To balance c/d	68,875	July 01	By Ross’s Capital A/c (WN1)	6,750
				July 01	By Profit & Loss Suspense A/c (WN2)	2,625
				July 01	By Reserve Fund A/c	50,000
					(2,00,000 × 1/4)
			1,72,875			1,72,875

Goodwill	=	₹ (48,000 + 33,000) = ₹ 81,000
Qureshi’s Share of Goodwill	=	₹ (81,000 × 1/4) = ₹ 20,250
Gaining Ratio	=	Pooja : Ross = 2 : 1
Amount debited to Pooja’s Capital A/c	=	₹ (20,250 × 2/3) = ₹ 13,500
Amount debited to Ross’s Capital A/c	=	₹ (20,250 × 1/3) = ₹ 6,750

Average Profit of the last three years	=	₹ (45,000 + 48,000 + 33,000)/3 = ₹ 42,000
Qureshi’s share of loss till the date of death	=	Previous year’s loss × Qureshi’s Share of Loss × Months till the date of his death/12
	=	₹ (42,000 × 1/4 × 3/12)
	=	₹ 2,625

Loan given to Qureshi by a firm	=	₹ 1,00,000
Amount of interest till 1^st July, 2014	=	₹ (1,00,000 × 6/100 × 3/12) = ₹ 1,500
Total Amount due to firm on 1^st July	=	Loan amount + Amount of Interest
	=	₹ (1,00,000 + 4,000)= ₹ 1,04,000 [As 4,000 > Amount of Interest]