A, B and C are partners in a trading firm. The firm has a fixed total capital of Rs. 60,000 held equally by all the partners. Under the partnership deed the partners were entitled to-

a) A and B to a salary of Rs.1,800 and Rs. 1,600 per month respectively.
b) in the event of death of a partner, goodwill was to be valued at 2 years purchase of the average profits of the last 3 years.
c) profit upto the date of death based on the profit of the previous year.
d) partners were to be charged interest on drawings @ 5% pa and allowed interest on capitals @ 6% pa.

B died on 1.1.2011. his drawings to the date of death were rs. 2,000 and the interest thereon was Rs. 60.
The profits for the three years ending 31.3.2008., 2009 and 2010 were 21,200 , 3,200 (Dr.), and Rs. 9.000 respectively.

Prepare B's capital account to calculate the amount to be paid to his executors.

Hey Shagun, the solution of your query is here. 
B’s Capital Account
Dr.     Cr.
Particulars Amount
Rs
Particulars Amount
Rs
Drawings 2,000    
Interest on Drawings 60 Balance b/d 20,000
Executor’s A/c 41,490 Salary (1,600 × 9) 14,400
    Interest on Capital 900
    Profit and Loss  Suspense A/c (Share of Profit) 2,250
    A’s Capital A/c 3,000
    B’s Capital A/c 3,000
       
  43,550   43,550
       


Working Notes:

Calculation of Gaining Ratio 
Old Ratio 1:1:1
Ratio = 1:1
Gaining Ratio = New Ratio - Old Ratio A = 12-13=16C= 12-13=16


Calculation of Goodwill of the Firm

Average Profit = 21,200-3,200+9,0003=Rs 9,000Goodwill = Average Profit ×Number of Years' Purchase                 = 9,000×2 = Rs 18,000        

B's Share of Goodwill = 18,000×13=6,000
A will pay = 6,,000×12=Rs 3,000C will pay = 6,000×12=Rs 3,000

 

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