Question

Hiren, Suren and Chaman were partners sharing profits and losses in the ratio of 2 : 1 : 1. They closed their books on 31st March each year. Hiren died on 31st August, 2013, when their Balance Sheet was as follows:

Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)
Creditors		4,550	Bank	22,000
General Reserve		6,400	Sundry Debtors	6,600
Profit for 5 months – from 1-4-13 to 31 -8-13 (before interest and salaries)		4,050	Advertisement Suspense A/c	6,400
Capital Accounts:
Hiren	6,000
Suren	10,000
Chaman	4,000	20,000
		35,000		35,000

According to the partnership deed:

1. Interest on capital was allowed to all partners @ 6% p.a.
2. Hiren and Chaman were entitled to salaries at ₹ 100 and ₹ 50 per month respectively.
3. In the event of death of a partner goodwill was to be valued at 3 year’s purchase of the average net profits of 2 completed years preceding death. The net profits for the years 2011-12 and 2012-13 were ₹ 4,000 and ₹ 6,000 respectively.

Hiren’s share was paid to his executors.

You are required to prepare:

1. Hiren’s Capital Account.
2. Hiren’s Executor’s Account.

Answer 1

Dr.	Hiren’s Capital A/c				Cr.
Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2013			2013
Aug. 31	Advertisement Suspense A/c	3,200	Aug. 31	By Balance b/d	6,000
Aug. 31	To Hiren’s Executor’s A/c (balance transferred)	15,550	Aug. 31	By General Reserve	3,200
			Aug. 31	By Interest on Capital (6% on 6,000 for 5 months)	150
			Aug. 31	By Salary	500
			Aug. 31	By P & L Appropriation A/c	1,400
				By Suren’s Capital A/c (Goodwill)	3,750
				By Chaman’s Capital A/c (Goodwill)	3,750
		18,750			18,750

 

Dr.	Hiren’s Executor’s A/c				Cr.
Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2013			2013
Aug. 31	To Bank A/c	15,550	Aug. 31	By Hiren’s Capital A/c	15,550

Working Notes:

(1) 

		₹
Profit for 5 months		4,050
Less: Interest on Capital 6% on (₹ 6,000 + ₹ 10,000 + ₹ 4,000)
for 5 months: `20,000xx6/100xx5/12`	500
Salary for 5 months: 5 × (100 + 50)	750	1,250
		2,800
Hiren’s share of profit = `2,800xx2/4`		1,400

(2)

	₹
Valuation of Goodwill:
Total profits for the two preceding years (₹ 4,000 + ₹ 6,000)	10,000
Average Profit = 10,000 + 2	5,000
Goodwill at 3 year’s purchase = 5,000 × 3	15,000
Hiren’s share of goodwill = `15,000xx2/4`	7,500
It will be debited to Suren and Chaman in their gaining ratio i.e., 1 : 1.