Question

Virendra, Devendra, and Narendra were partners sharing Profit and Losses in the ratio of 3:2:1. Their Balance Sheet as on 31st March 2019 was as follows.

Balance Sheet as on 31st March 2019
Liabilities	Amount ₹	Assets	Amount ₹
Bank Loan	25,000	Furniture	50,000
Creditors	20,000	Land & Building	50,000
Bills Payable	5,000	Motor Car	20,000
Reserve Fund	30,000	Sundry Debtors	50,000
Capital Account:		Bills Receivable	20,000
Virendra	90,000	Investments	50,000
Devendra	60,000	Cash at Bank	20,000
Narendra	30,000
	2,60,000		2,60,000

Mr. Virendra died on 31^st August 2019 and the Partnership deed provided that. That the event of the death of Mr. Virendra his executors be entitled to be paid out.

1. The capital to his credit at the date of death.

2. His proportion of Reserve at the date of the last Balance sheet.

3. His proportion of Profits to date of death based on the average profits of the last four years.

4. His share of Goodwill should be calculated at two years purchase of the profits of the last four years for the year ended 31^st March were as follows -

2016	₹ 40,000
2017	₹  60,000
2018	₹ 70,000
2019	₹ 30,000

5. Mr. Virendra has drawn ₹ 3000 p.m. to date of death, There is no increase and Decrease the value of assets and liabilities.

Prepare Mr. Virendras Executors A/c

Answer 1

Dr	In the books of the Partnership Firm Virendra’s Capital Account				Cr
Particulars		Amount (₹)	Particulars	Amount (₹)
To Drawings A/c (₹ 3,000 × 5 months)		15,000	By Balance b/d	90,000
To Executor’s Loan A/c		1,50,417	By Goodwill A/c	50,000
			By Profit and Loss Suspense A/c	10,417
			By reserve Fund A/c	15,000
		1,65,417		1,65,417

Working Notes:

(1) Calculation of share of profit :

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

=` (40,000 + 60,000 + 70,000 + 30,000)/ 4`

= `(2,00,000)/4`

= ₹ 50,000

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

= 50,000 × 2

= ₹ 1,00,000

(c) Share of Goodwill to Virendra = Goodwill of the firm × Virendra’s share

= 1,00,000 ×`3/6`

= ₹ 50,000

(2) Share of profit due to Virendra

Share of profit = profit × Share of Virendra ratio × Period

= `50,000 xx3/6 xx 5/12`

=  ₹ 10,417 (Profit and Loss Suspense A/c)