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Question
P, Q and R were partners in a firm sharing profits and losses in the ratio of 2:1:2. Their balance sheet on 31st March, 2022 was as follow:
| Balance sheet of P, Q and R as on 31.3.2022 | |||||
| Liabilities | Amount (₹) | Amount (₹) | Assets | Amount (₹) | Amount (₹) |
| Creditors | 48,000 | Bank | 25 000 | ||
| Bills Payable | 22,000 | Debtors | 75,000 | ||
| General Reserve | 80,000 | Stock | 2,00,000 | ||
| Profit for 2021-22 | 2,00,000 | Machinery | 3,00,000 | ||
| Capitals: | Land and Building | 10,00,000 | |||
| p | 5,00,000 | 12,50,000 | |||
| Q | 2,50,000 | ||||
| R | 5,00,000 | ||||
| 16,00,000 | 16,00,000 | ||||
On 30th June, 2022, Q died. The partnership deed provided that on the death of a partner his executors will be entitled for the following:
- Balance in his capital account.
- Interest on capital @ 6% p.a.
- His share in the profits of the firm till the date of his death calculated on the basis of last year's profit.
- His share in the goodwill of the firm calculated on the basis of the three years purchase of the average profits of last four years.
Profits for 2018-19 were ₹ 3,00,000, for 2019-20 were ₹ 4,00,000 and for 2020-21 were ₹ 1,00,000.
On 1.6.2022 Q withdrew ₹ 50,000 for meeting his medical expenses.
Prepare Q's Capital account on his death to be presented to his executors.
Solution
Interest on capital =`2,50,000 xx 6/100 xx 3/12 = ₹ 3,750`
Share of profit =`2,00,000 xx1/5 xx3/12 = ₹ 10,000`
| Dr. | Q's Capital Account | Cr. | |
| Particulars | Amount (₹) | Particulars | Amount (₹) |
| To Drawings A/c | 50,000 | By Balance b/d | 2,50,000 |
| To Q's Executors A/c | 4,19,750 | By Interest on Capital A/c | 3,750 |
| By Profit & Loss Suspense A/c | 10,000 | ||
| By General Reserve | 16,000 | ||
| By P's Capital A/c (Goodwill) | 75,000 | ||
| By A's Capital A/c (GoodWill) | 75,000 | ||
| By Profit for 2021-22 (2,00,000 × 1/5) | 40,000 | ||
| 4,69,750 | 4,69,750 | ||
Working Note:
Average Profit = `(3,00,000 + 4,00,000 + 1,00,000 + 2,00,0000)/4 = ₹ 2,50,000`
Goodwill = `3xx2,50,000 = ₹ 7,50,000`
Share of Q = `7,50,000 xx1/5 = ₹ 1,50,000` [Given by P and Q equally]
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