Question

Mahendra, Surendra and Narendra were partners sharing profits and losses in the ratio of 5 : 3 : 2 respectively. Their Balance Sheet as on 31st March 2019 was as follows:

Balance Sheet as on 31st March 2019
Liabilities	Amount (₹)	Assets	Amount (₹)
Capital Account:		Stock	17,000
Mahendra	23,000	Furniture	18,000
Surendra	15,000	Land and Building	16,000
Narendra	12,000	Bank	37,000
Bills Payable	2,000
Creditors	8,000
Bank Loan	12,000
General Reserve	16,000
	88,000		88,000

Mr. Narendra died on 30th June 2019 and the following adjustments were agreed as per deed:

1. Stock, furniture, land and building are to be revalued at ₹ 16,700, ₹ 16,200 and ₹ 30,100 respectively.
2. Narendra’s share in goodwill is to be valued from firm’s goodwill which was valued at 3 times of the average profit of last four years. Profit of the last four years:
   

   I year	₹ 30,000
   II year	₹ 25,000
   III year	₹ 25,000
   IV year	₹ 40,000

3. His profit up to the death is to be calculated on the basis of profit of last year.
4. Narendra was entitled to get a salary of ₹ 1,200 per month.
5. Interest on capital at 10% p.a. to be allowed.
6. Narendra’s drawing up to the date of his death was ₹ 900 per month.

Prepare:

1. Narendra’s Capital Account showing amount payable to his executor.
2. Give working notes for:
   1. Share of goodwill due to Narendra
   2. Share of profit due to Narendra

Answer 1

Dr.	In the Books of the Firm Narendra’s Capital Account		Cr.
Particulars	Amt. (₹)	Particulars	Amt. (₹)
To Drawing A/c (₹ 900 × 3 months)	2,700	By Balance b/d	12,000
To Narendra’s Executor’s Loan A/c	38,800	By General Reserve	3,200
		By Revaluation A/c	2,400
		By Goodwill A/c	18,000
		By Profit and Loss Suspense A/c	2,000
		By Salary A/c (₹ 1200 × 3 months)	3,600
		By Interest on capital A/c	300
	41,500		41,500

Working Notes:

i.

Dr.	Revaluation A/c			Cr.
Particulars	Amt. (₹)	Amt. (₹)	Particulars	Amt. (₹)
To Stock		300	By Land and Building	14,100
To Furniture		1,800
To Partner’s Capital A/c		12,000
Mahendra	6,000
Surendra	3,600
Narendra	2,400
		14,100		14,100

ii. Calculation of share of goodwill:

a. Average Profit = `"Total Profit"/"No. of years"`

= `(30,000 + 25,000 + 25,000 + 40,000)/4`

= `(1,20,000)/4`

= ₹ 30,000

b. Goodwill of Firm = Average Profit × No. of Year Purchases

= 30,000 × 3 times

= ₹ 90,000

c. Share of Goodwill to Narendra = Goodwill of the firm × Narendra’s share

= `90,000 xx 2/10`

= ₹ 18,000

iii. Calculation of share of profit due to Narendra:

Share of profit = Last year profit × share of profit × period

= `40,000 xx 2/10 xx 3/12`

= ₹ 2,000

iv. Interest on capital:

= `12,000 xx10/100 xx 3/12`

= 100 × 3

= ₹ 300