Question

Mahendra, Jitendra, and Hitendra are in partnership sharing profits and losses in the ratio of 3 : 2 : 1 respectively. Their Balance Sheet as on 31st March 2022 was as follows:

Balance Sheet as on 31st March 2022
Liabilities	Amount (₹)	Assets	Amount (₹)
Capital Accounts:		Debtors	90,000
Mahendra	2,20,000	Machinery	85,000
Jitendra	2,10,000	Investment	3,50,000
Hitendra	2,40,000	Motor Lorry	1,00,000
Creditors	80,000	Building	80,000
Bills Payable	7,000	Bank	1,48,000
General Reserve	96,000
	8,53,000		8,53,000

On 1st October 2022, Hitendra died, and the partnership deed provided that:

1. Machinery valued at ₹ 80,000 and creditors valued at ₹ 69,000.
2. Profit for 2022-23 was estimated at ₹ 1,20,000. Hitendra’s share in it up to the date of his death was given to him.
3. Goodwill of the firm was valued at two times the average profit of the last 5 years. Firm’s profits of the last 5 years were:
   I year - ₹ 1,80,000,
   II year - ₹ 1,50,000,
   III year - ₹ 2,00,000,
   IV year - ₹ 1,20,000
   V year - ₹ 2,50,000
   Hitendra’s share in it was to be given to him.
4. Drawings made by Hitendra up to his death are ₹ 30,000.
5. Interest on drawings of Hitendra is charged at ₹ 2,000.

Prepare: Hitendra’s Capital Account and show the working of:

1. Hitendra’s share in goodwill.
2. Hitendra’s share in profit.

Answer 1

(i) Hitendra’s Share in Goodwill:

Average Profit of 5 years:

Average Profit = `(1,80,000 + 1,50,000 + 2,00,000 + 1,20,000 + 2,50,000)/5`

= `(9,00,000)/5`

= 1,80,000

Goodwill = 1,80,000 × 2 year

= 3,60,000

Hitendra’s Share = `3,60,000 xx 1/6`

= 60,000

(ii) Hitendra’s Share in Accrued Profit:

Period: 1st April 2022 to 1st October 2022 (6 months)

Estimated Profit for 6 months = `1,20,000 xx 6/12`

= 60,000

Hitendra’s Share = `60,000 xx 1/6`

= 10,000

Revaluation Profit/Loss:

Machinery = ₹ 85,000 − ₹ 80,000

= ₹ 5,000

Creditors = ₹ 80,000 − ₹ 69,000

= ₹ 11,000

Net Profit on Revaluation = 11,000 − 5,000

= 6,000

Hitendra’s Share = `6,000 xx 1/6`

= 1,000

Distribute General Reserve `(96,000 xx 1/6)` and record all adjustments.

Hitendra’s Capital Account
Particulars	Amount (₹)	Particulars	Amount (₹)
To Drawings A/c	30,000	By Balance b/d	2,40,000
To Interest on Drawings	2,00,000	By General Reserve	16,000
To Hitendra’s Executor’s Loan A/c	2,95,000	By Goodwill A/c	60,000
		By Profit and Loss Suspense A/c	10,000
		By Revaluation A/c (Profit)	1,000
	3,27,000		3,27,000