Question

Keith, Bina, and Veena were partners in firm sharing profits and losses equally. Their balance sheet as on 31-3-2019 was as follows: 

Balance Sheet of Keith, Bina, and Veena as on 31-3-2019
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)
Capitals:		3,25,000	Plant and Machinery	2,40,000
Keith	1,50,000		Stock	60,000
Bina	1,00,000		Sundry debtors	35,000
Veena	75,000		Cash at bank	50,000
General Reserve		30,000
Sundry creditors		30,000
		3,85,000		3,85,000

Veena died on 30^th June 2019. According to the partnership deed, the executors of the deceased partner were entitled to :

1. Balance in the capital account
2. Salary till the date of death @ ₹ 25,000 per annum.
3. Share of goodwill calculated on the basis of twice the average profits of the past three years.
4. Share of profit from the closure of the last accounting year till the date of death on the basis of the average of three completed years profits before death.
5. Profits for 2016-17, 2017-18 and 2018-19 were ₹ 1,20,000, ₹ 90,000 and ₹ 1,50,000 respectively.

Veena withdrew ₹ 15,000 on 1^st June 2019 for paying her daughter’s school fees. 

Prepare Veena’s capital account to be rendered to her executors.

Answer 1

Dr.	Veena’s Capital A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Drawings A/c	15,000	By balance b/d	75,000
To Veena’s Executors A/c	1,66,250	By General Reserve A/c (`30,000xx1/3`)	10,000
		By Salary A/c (`25,000xx3/12`)	6,250
		By Keith’s Capital A/c (WN: 1)	40,000
		By Bina’s Capital A/c (WN1)	40,000
		By Profit & Loss Suspense A/c (Share of profit) (WN: 2)	10,000
	1,81,250		1,81,250

Working Notes: 

1) Calculation of deceased Veena’s share of goodwill

Average Profit for the last three years	= `(1,20,000 + 90,000 + 1,50,000)/3` = ₹ 1,20,000
Goodwill of the firm	= Average Profits of the last three years × Number of Years’ Purchase = ₹ (1,20,000 × 2) = ₹ 2,40,000
Veena’s share of goodwill	= ₹ (2,40,000 × 1/3) = ₹ 80,000
Gaining Ratio among the partners will be same as old ratio	= 1 : 1

2) Calculation of Veena’s Share of Profit

Average Profits of last three years	= ₹ 1,20,000
Profits till the date of death	= ₹ (1,20,000 × 3/12) = ₹ 30,000
Veena’s Share of Profits	= ₹ (30,000 × 1/3) = ₹ 10,000