Question

Balance Sheet of Sudhir, Deepak and Manu as on 31st March, 2025 who were sharing profits in the ratio of 7 : 3 : 4 was as follows:

Liabilities	₹	₹	Assets	₹
Sundry Creditors		43,000	Cash at Bank	83,000
General Reserve		28,000	Stock	70,000
Employees’ Provident Fund		82,000	Sundry Debtors	57,000
Loan		22,000	Building	1,50,000
Capital A/cs:		2,25,000	Manu’s Loan	40,000
Sudhir	75,000
Deepak	85,000
Manu	65,000
		4,00,000		4,00,000

Manu died on 1st September, 2025. The partnership deed provided for the following on the death of a partner:

Goodwill of the firm was to be valued at two years’ purchase of average profit for the last three years which was ₹ 70,000.

Manu’s share of profit or loss till the date of his death was to be calculated on the basis of sales. Sales for the year ended 31st March, 2025 amounted to ₹ 8,00,000 and that from 1st April to 1st September, 2025 to ₹ 4,00,000. Profit for the year ended 31st March, 2025 was ₹ 2,24,000.

Interest on capital was to be provided @ 8% p.a.

At the time of death, there was unrecorded furniture estimated value of which was ₹ 7,500, half of which was given in settlement of the unrecorded liability of ₹ 7,500 out of total unrecorded liability of ₹ 15,000 and the remaining half was given to Manu’s executors at a discount of 10% in part satisfaction of their claim.

Prepare Manu’s Capital Account and Manu’s Executors’ Account.

Answer 1

Dr.	Manu’s Capital Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Manu’s Loan A/c	40,000	By Balance b/d	65,000
To Revaluation Alc	2143	By General Reserve A/c `(28,000 × 4/14)`	8,000
To Manu’s Executors’ Alc (Balancing figure)	1,05,024	By Sudhir’s Capital A/c	28,000
		By Deepak’s Capital A/c	12,000
		By Profit & Loss Suspense A/c	32,000
		By Profit & Loss Suspense A/c	2,167
	1,47,167		1,47,167

 

Dr.	Manu’s Executors’ Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Unrecorded Furniture A/c (Taken over)	3,375	By Manu’s Capital A/c	1,05,024
To Balance c/d	1,01,649
	1,05,024		1,05,024

Working Notes:

Valuation of Goodwill & Manu’s Share

Average Profit of 3 Years: ₹ 70,000

Goodwill of Firm = 2 years’ purchase × ₹ 70,000

= ₹ 1,40,000

Manu’s Share of Goodwill = `1,40,000 xx 4/14`

= ₹ 40,000

Contributed by continuing partners in their gaining ratio (7 : 3):

Sudhir’s contribution = `40,000 xx 7/10`

= ₹ 28,000

Deepak’s contribution = `40,000 xx 3/10`

= ₹ 12,000

Manu’s Share of Profit till Death:

Profit Percentage Last Year = `"Profit"/"Sales" xx 100`

= `(2,24,000)/(8,00,000) xx 100`

= 28%

Estimated Profit for 5 Months = `4,00,000 xx 28/100`

= ₹ 1,12,000

Manu’s Share of Profit = `1,12,000 xx 4/14`

= ₹ 32,000

Interest (for 5 months @ 8% p.a.) = `65,000 xx 8/100 xx 5/12`

= 2,167

Revaluation of Unrecorded Items:

Net Loss on Revaluation = ₹15,000 − ₹ 7,500

= ₹ 7,500

Manu’s Share of Loss = `7,500 xx 4/14`

= ₹ 2,143

Furniture Taken Over by Executors:

Book Value of remaining half furniture = `(7,500)/2`

= ₹ 3,750

Less: 10% Discount =  ₹ 375

Value taken by Executors = ₹ 3,750 − ₹ 375

= ₹ 3,375