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Question
P, Q and R were partners in a water dispenser manufacturing firm. They were sharing profit and losses in the ratio of 2 : 2 : 1. On 31st March, 2022, their Balance Sheet was as follows:
| Balance Sheet. of P, Q and R as on 31st March 2022 | ||||
| Liabilities | Amount (₹) | Amount (₹) | Assets | Amount (₹) |
| Capitals: | Plant and Machinery | 1,25,000 | ||
| P | 50,000 | 2,75,000 | Land and Building | 1,50,000 |
| Q | 1,25,000 | Debtors | 40,000 | |
| R | 1,00,000 | Stock | 35,000 | |
| General Reserve | 1,25,000 | Cash at Bank | 75,000 | |
| Sundry Creditors | 25,000 | |||
| 4,25,000 | 4,25,000 | |||
Q died on 30th June, 2022. According to the partnership deed, his legal representative were entitled to:
- Interest on capital @ 12% p.a.
- ₹ 12,000 for his share of Goodwill.
- His share of profit till the date of death was to be calculated on the basis of sales. The sales from 1st April 2022 to 30th March 2022 were ₹ 62,500. The sales and profits of the firm for the year ending 31st March 2022 was ₹ 5,00,000 and ₹ 1,25,000 representatives.
Solution
| Dr. | Q's Capital Account | Cr. | |
| Particulars | Amount (₹) | Particulars | Amount (₹) |
| To Q's Executor's A/c | 1,97,000 | By Balance b/d | 1,25,000 |
| By General Reserve A/c | 50,000 | ||
| By Interest on Capital A/c | 3,750 | ||
| By P's Capital A/c (Goodwill) | 8,000 | ||
| By R's Capital A/c (Goodwill) | 4,000 | ||
| By Profit and Loss Suspense A/c | 6,250 | ||
| 1,97,000 | 1,97,000 | ||
Working Note:
(i) Q's Share in General Reserve = `₹ 1,25,000xx2/5 = ₹ 50,000`
(ii) Interest on Q's Capital = `₹ 1,25,000 xx 12/100 xx 3/12`= ₹ 3,750
(iii) Q's Share on Goodwill = ₹ 12,000 (Given)
This will be compensated by P and R in their gaining ratio, `i.e.`2 : 1
P will compensate = `₹ 12,000 xx 2/3 = ₹ 8,000`
R will compensate = `₹ 12,000 xx 1/3 = ₹ 4,000`
(iv) Calculation of Q's share of profit upto the date of death:
Percentage of Profit to Sales for the year ended 31st March, 2022
=`(₹ 1,25,000)/(5,00,000)xx100` = 25%
Profit upto the date of death = 25% of ₹ 62,500
=`25/100 xx ₹ 62,500 = ₹ 15,625`
Q' Share of Profit = `₹ 15,625 xx 2/5 = ₹ 6,250`
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