Question

In the partnership agreement between X, Y and Z who were sharing profits in the ratio of 5 : 3 : 2, the goodwill was to be valued on the death of any partner on the basis of such partner’s share of 2 year’s profits calculated on the average of 5 year’s profits immediately preceding the year of death less 10%. The firm’s profits were 2019 ₹ 10,000; 2020 ₹ 30,000; 2021 ₹ 43,000 and in 2022 and 2023 losses of ₹ 6,000 and ₹ 4,000 respectively. The deceased partner’s share of profits for the period of his life-time in the year of death was to be based on the average of the profits of the previous 3 years plus 10%.

X died on 31st August, 2023. His Capital A/c showed a credit of ₹ 50,000 on 1st April, 2023 and he had drawn ₹ 4,000 since that date.

Calculate the amount due to his legal representatives.

Answer 1

Dr.	X’s Capital A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To X’s Executor’s A/c	61,661	By Balance b/d	46,000
		By Y’s Capital A/c	1,260
		By Z’s Capital A/c	1,261
		By Y’s Capital A/c	6,570
		By Z’s Capital A/c	6,570
	61,661		61,661

Working Note: 

(i) Share of Profit = `((4000) + (5000) + 43000)/3` = ₹ 11000 

X’s Share = `(1,100)/(12,100)xx 5/10xx 5/12` = ₹ 2,521

(ii) Average profit for the 5 years = `(10,000+30,000+43,000-6,000-4,000)/5`

= ₹ 14,600

X’s share of 2 years’ profits = `14,600xx2xx5/10`

= ₹ 13,140