Question

Shirish, Harit and Asha were partners in a firm sharing profits in the ratio of 5 : 4 : 1. Shirish died on 30th June, 2025. On this date, their Balance Sheet was follows:

Liabilities	₹	₹	Assets	₹
Capitals:		6,00,000	Plant and Machinery	5,60,000
Shirish	1,00,000		Stock	90,000
Harit	2,00,000		Sundry Debtors	10,000
Asha	3,00,000		Cash	40,000
Profits for the year 2024-25		80,000
Sundry Creditors		20,000
		7,00,000		7,00,000

According to the Partnership Deed, in addition to the deceased partner’s capital, his executor is entitled to:

1. Share in profits in the year of death on the basis of average of last two years’ profit. Profit for the year 2023-24 was 60,000.
2. Goodwill of the firm was to be valued at 2 years’ purchase of average of last two years’ profits.

Prepare Shirish’s Capital Account to be presented to his executor.

Answer 1

Dr.	Shirish’s Capital Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Shirish’s Executor’s A/c (Balancing figure)	2,18,750	By Balance b/d	1,00,000
		By Profits for 2024-25 A/c	40,000
		By Harit’s Capital A/c	56,000
		By Asha’s Capital A/c	14,000
		By Profit & Loss Suspense A/c	8,750
	2,18,750		2,18,750

Working Notes:

1. Share in Accumulated Profits (from Balance Sheet):

Profit for 2024–25 shown in liabilities = ₹ 80,000

Shirish’s Share = `80,000 xx 5/10`

= ₹ 40,000

2. Calculation of Average Profit:

Profit for 2024–25 = ₹ 80,000

Profit for 2023–24 = ₹ 60,000

Average Profit = `(80,000 + 60,000)/2`

= `(1,40,000)/2`

= ₹ 70,000

3. Shirish’s Share of Profit (till date of death):

Shirish died on 30th June, 2025, the basis of average profits for 3 months

Shirish’s Share of Profit = `70,000 xx 3/12 xx 5/10`

= ₹ 8,750

4. Valuation and Adjustment of Goodwill:

Firm’s Goodwill = 2 years’ purchase × Average Profit

= 2 × 70,000

= 1,40,000

Shirish’s Share of Goodwill = `1,40,000 xx 5/10`

= ₹ 70,000

5. This amount will be contributed by the gaining partners (Harit and Asha) in their gaining ratio (4 : 1):

Harit’s Contribution = `70,000 xx 4/5`

= 56,000

Asha’s Contribution = `70,000 xx 1/5`

= 14,000