Question

Kavita, Ravita and Sunita were partners in a firm sharing profits in 2:1:2 ratio. On 31.3.2014 their Balance Sheet was as follows :

Liabilities	Amount Rs	Assets	Amount Rs
Creditors Bills Payable Capitals   Kavita 1,40,000   Ravita 1,80,000   Sunita    90,000	83,000 19,000       4,10,000	Cash Debtors Bills payable Furniture Machinery Agarwal’s Capital	45,000 34,000 15,000 2,10,000 2,00,000 8,000
	5,12,000		5,12,000

On 31.9.2014, Sunita died. The partnership deed provided for the following to the executors of the deceased partner:

(a) Her share in the goodwill of the firm, calculated on the basis of three years' purchase of the average profits of the last four years. The profits of the last four years were Rs 1,98,000; Rs 2,24,000: Rs 2,76,000 and Rs 3,27,000 respectively.
(b) Her share in the profit of the firm till the date of her death, calculated on the basis of the average profits of the last four years.
(c) Interest @ 6% per annum on the credit balance, if any, in her Capital account.
(d) Interest on her loan @ 12% per annum.
Prepare Sunita's Capital Account to be presented to her executors

Answer 1

Sunita’s Capital Account
Dr.			Cr.
Particulars	Rs	Particulars	Rs
To Sunita’s Loan A/c	8,000	By Balance c/d	90,000
To Interest on Loan A/c	480	By Interest on Capital	2,700
To Sunita’s Executor A/	4,42,970	By Profit and Loss Suspense A/c	51,250
		By Kavita’s Capital A/c	2,05,000
		By Ravita’s Capital A/c	1,02,500
	4,51,450		4,51,450

Working Notes:

WN 1 Calculation of Interest on Sunita’s Loan

Interest on Loan = `90000 xx 6/100 xx 6/12 = 2700`

WN2 Calculation of Interest on Sunita’s Loan

Interest on Loan = `8000 xx 12/100 xx 6/12 = 480`

WN 3 Calculation of Sunita’s Share in Profits

Average Profit = `"1,98,000 + 2,24,000 + 2,76,000 + 3,27,000"/4 = 256250`

Share of Sunita in profits = `256250 xx 2/5 xx 6/12 = 480`

WN3 Adjustment of Goodwill

Average Profit = 2, 56,250
Goodwill of the firm = Average Profit x Number of year’s purchase

= 2, 56,250 x 3 = 7,68,750

Sunita's Share of Goodwill = `768750 xx  2/5 = 307500`

Kavita will pay = `307500 xx 2/3 = 20500`

Ravita will pay = `307500 xx 1/3 = 102500`