Question

Ram, Madhav, and Keshav are partners sharing Profit and Losses in the ratio 5:3:2 respectively. Their Balance Sheet as on 31st March 2018 was as follows.

Balance Sheet as on 31st March 2018
Liabilities	Amount (₹)	Assets	Amount (₹)
General Reserve	25,000	Goodwill	50,000
Creditors	1,00,000	Loose Tools	50,000
Unpaid Rent	25,000	Debtor	1,50,000
Capital Accounts	-	Live Stock	1,00,000
Ram	100000	Cash	25,000
Madhav	75000
Keshav	50000
	3,75,000		3,75,000

Keshav died on 31^st July 2018 and the following Adjustment were agreed by as per partnership deed.

1. Creditors have increased by 10,000.

2. Goodwill is to be calculated at 2 years purchase of average profits of 5 years.

3. The Profits of the preceding 5 years was

2013-14	₹ 90,000
2014-15	₹ 1,00,000
2015-16	₹ 60,000
2016-17	₹ 50,000
2017-18	₹ 50,000 (Loss)

Keshav’s share in it was to be given to him.

4. Loose Tools and livestock were valued at ₹ 80,000 and ₹ 1,20,000 respectively.

5. R.D.D. was maintained at ₹ 10,000.

6. Commission’s ₹ 2000 p.m. was payable to Keshav Profit for 2018 -19 was estimated at ₹ 45000 and Keshav’s share in it up to the date of his death was given to him.

Prepare Revaluation A/c, Keshav’s capital A/c showing the amount payable to his executors.

Answer 1

In the books of the Partnership Firm
Dr.		Revaluation Account			Cr.
Particulars		Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To R.D.D. A/c			10,000	By Loose Tools A/c	30,000
To Creditors A/c			10,000	By Live Stock A/c	20,000
To Partners’ capital A/c – Profit
-Ram		15,000	30,000
-Madhav		9,000
-Keshav		6,000
			50,000		50,000

 

Dr.	Keshav’s Capital Account			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance c/d	82,000	By Balance b/d	50,000
		By General reserve A/c	5,000
		By Commission A/c (₹ 2,000 × 4 months)	8,000
		By Goodwill A/c	10,000
		By Revaluation A/c – Profit	6,000
		By Profit and Loss Suspense A/c	3,000
	82,000		82,000

Working Notes:

(1) Calculation of share of Goodwill:

(a) Average profit = `"Total profit"/" No. of years"`

= `(90,000 + 1,00,000 + 60,000 + 50,000  –  50,000)/ 5`

= `(2,50,000)/5`

=  ₹ 50,000

(b) Goodwill = Average profit × No. of years

= 50,000 × 2

= ₹ 1,00,000

∴ Increase in Goodwill = 1,00,000 – 50,000 = 50,000

(c) Share of Goodwill to Keshav

= Goodwill of the firm × Keshav’s share

= 50,000 × `2/10`

= ₹ 10,000

(2) Calculation of share of profit due to Keshav Share of profit

= Last year profit × Share of Keshav × Period

= ₹ 45,000 × `2/10xx 4/12`

= ₹ 3,000 (Profit and Loss Suspense Account)