Question

Madhav, Raghav and Purav were partners in a firm sharing profits and losses in the ratio of 3 : 1 : 1. Their Balance Sheet as at 31^st March, 2023 was as follows:

Balance Sheet of Madhav, Raghav and Purav as at 31st March, 2023
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Creditors		1,00,000	Bank		20,000
General Reserve		50,000	Stock		1,10,000
Capitals:			Investment		70,000
Madhav	60,000	2,00,000	Furniture		35,000
Raghav	1,00,000		Building		1,15,000
Purav	40,000
		3,50,000			3,50,000

Purav died on 30^th September, 2023. According to Partnership deed, his legal representatives are entitled to the following:

1. Balance in his Capital Account.
2. Share of profit upto the date of death to be calculated on the basis of last year's profit.
3. Share of goodwill calculated on the basis of three years' purchase of average profits of the last four years.
4. Interest on capital @ 12% p.a.

Purav's share of profit was ₹ 3,000 and the average profit of last four years were ₹ 50,000. Purav's drawings upto the date of death were ₹ 10,000.

Prepare Purav's Capital Account to be rendered to his legal representatives.

Answer 1

Dr.	Purav's Capital Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Drawings A/c	10,000	By Balance b/d	40,000
To Purav's Executor's A/c	75,400	By Profit and Loss Suspense A/c	3,000
		By Interest on Capital `[40,000 xx 12/100 xx 6/12]`	2,400
		By Madhav's Capital A/c	22,500
		By Raghav's Capital A/c	7,500
		By General Reserve A/c	10,000
	85,400		85,400

Firm's Goodwill = 50,000 × 3 = ₹ 1,50,000

Purav's share in goodwill = ₹ 30,000 to be compensated by Madhav and Raghav in 3 : 1.