Question

Roohi, Mona, Meena were partners in a business sharing profits and losses in the ratio of 2 : 1 : 1 respectively. Their balance sheet as on 31st March, 2019.

Balance sheet as on 31st March, 2019
Liabilities		Amount (₹)	Assets	Amount (₹)
Capital A/c:			Plant & Machinery	60,000
Roohi	60,000	1,64,000	Debtors	50,000
Mona	70,000		Furniture stock	30,000
Meena	34,000		Bank	60,000
Creditors		18,000
Bills Payable		2,000
General Reserve		16,000
		2,00,000		2,00,000

Meena died on 1st July, 2019:

1. Plant & machinery was to be revalued at ₹ 70,000 and RDD is to be created of ₹ 2,000.
2. The drawings of Meena up to the date of her death amounted to ₹ 10,000.
3. Charge interest on drawings ₹ 1,000.
4. Her share of goodwill should be calculated at three year purchase of the profits for the last four years which were: I year ₹ 1,50,000, II year ₹ 1,30,000, III year ₹ 70,000. IV ₹ 50,000.
5. The deceased partners' share of profit up to the date is to be calculated on the basis of average profit of last two years. (Ill & IV year)

Prepare Profit and Loss Adjustment account, Partners Capital Accounts and Balance Sheet of the continuing firm, give working note on share of profit and goodwill.

Answer 1

Dr.	Revaluation Account			Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
To RDD A/c		2,000	By Plant & Machinery A/c	10,000
To Profit (Transfer to Partners Capital A/c)
Roohi	4,000	8,000
Mona	2,000
Meena	2,000
		10,000		10,000

 

Dr.	Partner's Capital Accounts						Cr.
Particulars	Roohi (₹)	Mona (₹)	Meena (₹)	Particulars	Roohi (₹)	Mona (₹)	Meena (₹)
To Drawing A/c			10,000	By Balance b/d	60,000	70,000	34,000
To Interest on Drawing A/c			1,000	By General Reserve A/c	8,000	4,000	4,000
To Meena's Executors Loan A/c			1,07,750	By Revaluation A/c (Profit)	4,000	2,000	2,000
To Balance c/d	72,000	76,000		By Goodwill A/c			75,000
				By Profit & Loss Suspense A/c			3,750
	72,000	76,000	1,18,750		72,000	76,000	1,18,750

 

Balance Sheet as on 1st April, 2019
Liabilities	Amount (₹)	Assets		Amount (₹)
Creditors	18,000	Plant & Machinery	60,000	70,000
Bills Payable	2,000	Add: Appreciation	10,000
Capital A/c:		Debtors	50,000	48,000
Roohi	72,000	Less: R.D.D.	2,000
Mona	76,000	Furniture		30,000
Meena's Representative's Loan A/c	1,07,750	Bank		50,000
		Profit and Loss Suspense A/c (₹ 3,750 - 1,000 Int.)		2,750
		Goodwill		75,000
	2,75,750			2,75,750

Working Notes:

1. Calculation of Share of Profit:

Profit of Current Year = Average of the profit of Last 2 years

= `(70,000 + 50,000)/2`

= `(1,20,000)/2`

= ₹ 60,000

Profit for proportionate period from 1st April, 2019 to 1st July, 2019

= `60,000 xx 3/12` =  ₹ 15,000

Meena's share in proportionate profit = `15,000 xx 1/4` = ₹ 3,750

2. Valuation of Goodwill:

Total profit of 4 year = 1,50,000 + 1,30,000 + 70,000 + 50,000

Average Profit = `(4,00,000)/4` = ₹ 1,00,000

Goodwill = Average Profit × No. of Year Purchases

= 1,00,000 × 3

= ₹ 3,00,000

Meena's share in goodwill = `3,00,000 xx 1/4` 

=  ₹ 75,000