Q. A, B and C are in partnership sharing profit in the proportions of two-thirds, one-sixth and one -sixth respectively.
A died on the 30th June 2011 , three months after the annual accounts had been prepared and in accordance with the partnership agreement, his share of the profit to the date of death was estimated on the basis of the profit for the preceding year. In addition to this the agreement provided for interest on capital at 5%. per annum on the balance standing to the credit of the capital account at the date of the last Balance Sheet and also for goodwill, which was to be brought into account at 2 year's purchase of the average profit of the last three years.
A's capital on 31st March,2011 stood at rs. 1,20,000, and his drawings from them to the date of death amounted to rs. 9,000.
The net profits of the business for the three preceding years amounted to Rs. 33,500; Rs. 41,500 and Rs. 40,500, respectively.
Dear Student
Regards
A's Capital A/c | |||||
Date | Particulars | Amount (in Rs) | Date | Particulars | Amount (in Rs) |
Drawings | 9,000 | Bal B/d | 120,000 | ||
B's Capital A/c | 25,667 | ||||
C's Capital A/c | 25,666 | ||||
Profit and Loss suspense A/c | 6,750 | ||||
A's Executors A/c | 170,583 | ||||
Interest on Capital (120,000 x 5% x 3/12) | 1,500 | ||||
179,583 | 179,583 |
Calculation of Goodwill | ||
Average Profit of Last 3 Years | 38,500 | |
Goodwill as sum of 2 Years profit | 77,000 | |
Share of A | (77,000 x 4/6) | 51,333 |
Gaining Ratio | 1:1 | |
Goodwill Adjustment for B | ||
B's Capital A/c | (51,333 x 1/2) | 25,667 |
C's Capital A/c | (51,333 x 1/2) | 25,667 |
Profit till Death | ||
Profit of Preceeding year | 40,500 | |
Profit of 3 months on the basis of above profit | (33,500 x 3/12) | 10,125 |
A's Share | (8,375 x 4/6) | 6,750 |
Regards