Question

Het, Heet and Hari are partners sharing profits and losses in the ratio 5 : 3 : 2 respectively. Their Balance Sheet as on 31st March, 2023 was as follows:

Balance Sheet as on 31st March, 2023
Liabilities	Amount (₹)	Assets	Amount (₹)
General Reserve	35,000	Goodwill	70,000
Creditors	1,40,000	Loose Tools	70,000
Unpaid Rent	35,000	Debtors	2,10,000
Capital Accounts:		Livestock	1,40,000
Het	1,40,000	Cash	35,000
Heet	1,05,000
Hari	70,000
	5,25,000		5,25,000

Hari died on 3lst July, 2023 and the following adjustments were agreed by as per partnership deed:

(1) Creditors have increased by ₹ 14,000.

(2) Goodwill is to be calculated at 2 years purchase of average profits of 5 years.

(3) The profits of the preceding 5 years was

2018-19	₹ 1,26,000
2019-20	₹ 1,40,000
2020-21	₹ 84,000
2021-22	₹ 70,000
2022-23	₹ 70,000 (Loss)

Hari's share in it was to be given to him.

(4) Loose Tools and Livestock were valued at ₹ 1,12,000 and ₹ 1,68,000 respectively.

(5) R.D.D. was maintained at ₹ 14,000.

( 6) Commission ₹ 2,800 p.m. was payable to Hari. Profit for 2023-24 was estimated at ₹ 63,000 and Bari's share in it up to the date of his death was given to him.

Prepare Revaluation Ale, Bari's Capital Ale showing the amount payable to his executors.

Answer 1

Dr.	In the books of the Partnership Firm Revaluation Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To R.D.D. A/c		14,000	By Loose Tools A/c		42,000
To Creditors A/c		14,000	By Livestock A/c		28,000
To Partner's capital A/c (Profit)
Het	21,000	42,000
Heet	12,600
Hari	8,400
		70,000			70,000

 

Dr.	Hari’s Capital Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance c/d [Executor’s Loan A/c]	1,28,800	By Balance b/d	70,000
		By General Reserve A/c	7,000
		By Commission A/c (₹ 2,800 × 4 months)	11,200
		By Goodwill A/c	28,000
		By Revaluation A/c (Profit)	8,400
		By Profit and Loss Suspense A/c	4,200
	1,28,800		1,28,800

Working Notes:

1) Calculation of share of Goodwill:

(a) Average profit = `"Total profit of given no. of years"/"No. of years given"`

`(1,26,000 + 1,40,000 + 84,000 + 70,000  –  70,000)/5`

`(3,50,000)/5 = ₹ 70,000`

(b) Goodwill = Average profit × No. of years

= 70,000 × 2 = ₹ 1,40,000

(c) Share of Goodwill to Hari = Goodwill of the firm × Hari’s share

`= 1,40,000 xx 2/10 = ₹ 28,000`

Calculation of share of profit due to Hari

Share of profit = Last year profit (estimated) × Share of Hari × Period

`= 63,000 xx 2/10 xx 4/12`

= ₹ 4,200 (Profit and Loss Suspense Account)