Question

Karan, Prateek and Umang were partners in a firm sharing profits in the ratio of 2 : 2 : 1. On 31st March, 2025, their Balance Sheet was as follows:

Liabilities	₹	₹	Assets	₹
Sundry Creditors		2,00,000	Cash at Bank	1,80,000
General Reserve		60,000	Stock	1,40,000
Capital A/cs:		14,60,000	Sundry Debtors	80,000
Karan	7,00,000		Building	3,00,000
Prateek	7,00,000		Advance to Prateek	7,00,000
Umang	60,000		Profit & Loss A/c	3,20,000
		17,20,000		17,20,000

Prateek died on 30th June, 2025. The Partnership Deed provided for the following on the death of a partner:

1. Goodwill of the business was to be calculated on the basis of 2 times the average profit of the past 5 years. Profits for the years ended 31st March, 2025, 31st March, 2024, 31st March, 2023, 31st March, 2022 and 31st March, 2021 were ₹ 3,20,000 (Loss); ₹ 1,00,000, ₹ 1,60,000; ₹ 2,20,000 and ₹ 4,40,000 respectively.
2. Prateek’s share of profit or loss from 1st April, 2025, till his death was to be calculated on the basis of the profit or loss for the year ended 31st March, 2025.

You are required to calculate the following:

1. Goodwill of the firm and Prateek’s share of goodwill at the time of his death.
2. Prateek’s share in the profit or loss of the firm till the date of his death.
3. Prepare Prateek’s Capital Account at the time of his death to be presented to his executors.

Answer 1

(a): Calculation of Goodwill

Total Profit of Past 5 Years:

Total Profit = (− 3,20,000 + ₹ 1,00,000 + ₹ 1,60,000 + ₹ 2,20,000 + ₹ 4,40,000)

= 6,00,000

Average Profit = `(6,00,000)/5`

= ₹ 1,20,000

Firm’s Goodwill = 2 × Average Profit

= 2 × 1,20,000

= ₹ 2,40,000

Prateek’s Share of Goodwill = `2,40,000 xx 2/5`

= ₹ 96,000

₹ 96,000 is contributed by Karan and Umang in their gaining ratio of 2 : 1.

Karan = `96,000 xx 2/3`

= ₹ 64,000

Umang = `96,000 xx 1/3`

= ₹ 32,000

(b): Prateek’s Share in Profit/Loss till Death

Time Period: 1st April 2025 to 30th June 2025 = 3 months

Prateek’s Share of Loss = `3,20,000 xx 3/12 xx 2/5`

= ₹ 32,000 (Loss)

(c): Prateek’s Capital Account

General Reserve = `60,000 xx 2/5`

= ₹ 24,000

Accumulated Profit & Loss = `3,20,000 xx 2/5`

= ₹ 1,28,000

Dr.	Prateek’s Capital Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Advance to Prateek A/c	7,00,000	By Balance b/d	7,00,000
To Profit & Loss A/c (Old Loss)	1,28,000	By General Reserve A/c	24,000
To Profit & Loss Suspense A/c (Current Loss)	32,000	By Karan’s Capital A/c	64,000
		By Umang’s Capital A/c	32,000
		By Prateek’s Executors’ A/c	40,000
	8,60,000		8,60,000