Question

‘A’, ‘B’ and ‘C’ were partners sharing profits and losses in the ratio of 3 : 2 : 1 respectively. Their Balance Sheet as on 31st March, 2022 was as follows:

Balance Sheet as on 31st March, 2022
Liabilities	Amount (₹)	Assets	Amount (₹)
Capital Accounts:		Building	80,000
A	60,000	Motor Car	40,000
B	40,000	Debtors	28,000
C	20,000	Furniture	36,000
Creditors	56,000	Bank	28,000
Reserve fund	36,000
	2,12,000		2,12,000

‘C’ died on 1st August, 2022 and the following adjustments were made:

1. Assets revalued as under:
   Building ₹ 88,000
   Motor Car ₹ 36,000
   Furniture ₹ 35,000
2. Goodwill of the firm is valued at 2 times of average profit of the last 4 years.
3. ‘C’s share of profit is to be calculated on the basis of the average profit of the last 3 years.
4. Profits for 4 years were : ₹ 22,000, ₹ 34,000, ₹ 24,000 and ₹ 32,000

Prepare:

1. Profit and Loss adjustment Account
2. C’s Capital Account
3. Give working of C’s share of goodwill
4. C’s profit upto his date of death.

Answer 1

Dr.	Profit and Loss Adjustment Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Motor car A/c		4,000	By Building A/c		8,000
To Furniture A/c		1,000
To Partners’ Capital A/cs (Profit)		3,000
A	1,500
B	1,000
C	500
		8,000			8,000

 

Dr.	C’s Capital Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To C’s Executor’s Loan A/c	37,500	By Balance b/d	20,000
		By Reserve Fund A/c	6,000
		By Goodwill A/c	9,333
		By Profit and loss suspense A/c	1,667
		By Profit and loss adjustment A/c	500
	37,500		37,500

Working Notes:

(1) Calculation of C’s share in Goodwill:

(i) `"Average Profit" = "Total Profit of given no. of years"/"No. of years given"`

= `(22,000 + 34,000 + 24,000 + 32,000)/4`

= `(1,12,000)/4`

= ₹ 28,000

(ii) Goodwill = Average Profit × No. of Year

= 28,000 × 2

= ₹ 56,000

(iii) C’s share of Goodwill = Goodwill of the firm × C’s share

= `56,000 xx 1/6`

= ₹ 9,333

(2) Calculation of C’s Profit upto the date of his death:

(i) Total Profit of Last 3 years = 34,000 + 24,000 + 32,000

= ₹ 90,000

(ii) Average Profit = `"Total Profit"/"No. of Years"`

= `(90,000)/3`

= ₹ 30,000

(iii) C’s share in Profit:

= Average Profit × Share of Profit × Period

= `30,000 xx 1/6 xx 4/12`

= ₹ 1,667