Question

Ashish, Satish and Manish were partners in business profits and losses in the ratio of 3 : 1 : 1 respectively. Their Balance Sheet as on 31st March, 2016 was as follows:

Balance Sheet as on 31st March, 2016

Liabilities	Amount	Assets	Amount
Capital accounts:		Plant and machinery	70,000
Ashish	80,000	Stock	50,000
Satish	60,000	Debtors	40,000
Manish	50,000	Cash	60,000
Creditors	10,000
Reserve fund	20,000
	2,20,000		2,20,000

Manish died on 1st October, 2016 and the partnership deed provided that:

1. The deceased partner to be given his share of profit upto the date of death on the basis of the profit of the previous year.
2. His share of goodwill will be calculated on the basis of two years purchase of average profit of the last four years
   The net profits for the last four years were:
   • First year: Rs 1,40,000
   • Second year: Rs 1,10,000
   • Third year: Rs 90,000
   • Fourth year: Rs  60,000
3.  Plant and machinery to be valued at Rs. 80,000. Reserve for doubtful debts of Rs. 4,000 to be created.
4. The drawings of Manish upto the date of death amounted to Rs 40,000.
5. Interest on capital is to be allowed at 10% p.a. and interest on drawings is charged at 6% p.a.

Prepare:

1. Profit and Loss Adjustment Account.
2. Manish’s Capital Account.
3. Working of Manish's share in profit and goodwill.

Answer 1

In the books of the firm.

Profit and Loss Adjustment A/c

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To R.D.D. A/c		4000	By Machinery A/c		10000
To Revaluation Profit:
Ashish Capital A/c	3600
Satish Capital A/c	1200
Manish Capital A/c	1200	6000
		10000			10000

Manish’s Capital A/c

Particulars	Rs.	Particulars	Rs.
To Drawings A/c	40000	By Balance b/d	50000
To Interest on Drawings A/c	1200	By Reserve Fund A/c	4000
To Executor’s Loan A/c	62500	By Profit and Loss Suspense A/c	6000
		By Goodwill A/c	40000
		By Profit and Loss Adjustment A/c	1200
		By Interest on Capital A/c	2500
	103700		103700

Working of manish’s share of profit:

= previous year's profit x profit sharing ratio x period 

`60000xx1/5xx6/12= Rs. 6000`

Working of manish’s share of goodwill: 

`= (140000+110000+90000+60000)/4xx2`

`=400000/4xx2`

`=200000xx1/5 = 40000`

= ₹ 40000