Question

P, Q and R were partners sharing profits in the ratio of 2 : 2 : 1. The firm closes its books on March 31 every year. On June 30, 2017, R died. The following information is provided on R's death:

1. Balance in his capital account in the beginning of the year was ₹ 6,50,000.
2. He withdrew ₹ 60,000 on May 15, 2017 for his personal use.

On the date of death of a partner the partnership deed provided for the following:

1. Interest on capital @ 10% per annum.
2. Interest on drawings @ 12% per annum.
3. His share in the profit of the firm till the date of death, to be calculated on the basis of the rate of Net Profit on Sales of the previous year, which was 25%. The Sales of the firm till June 30, 2017 were ₹ 6,00,000.

Prepare R's Capital Account on his death to be presented to his executors.

Answer 1

R’s Capital Account
Particulars	Dr. ₹	Particulars	Cr. ₹
To Drawings A/c	60,000	By Balance b/d	6,50,000
To Interest on Drawings A/c	900	By Interest on Capital A/c	16,250
To R’s Executor’s A/c	6,35,350	By Profit & Loss Suspense A/c	30,000
Total	6,96,250	Total	6,96,250

Working note:

R’s share in profits:

2 : 2 : 1 =  R's Share = `1/5`

1. Interest on Capital

R’s opening capital = ₹ 6,50,000

Interest = 10% p.a. for 3 months, from 1 April to 30 June:

`6,50,000 xx 10/100 xx 3/12 = 16,250`

2. Interest on Drawings

R withdrew ₹ 60,000 on 15 May 2017.

Period from 15 May to 30 June = 1½ months

`60,000 xx 12/100 xx 1.5/12 = 900`

This interest is debited to R’s Capital Account.

3. R’s Share of Profit up to Death

Previous year’s Net Profit on Sales = 25%

Sales up to 30 June 2017 = ₹ 6,00,000

Estimated profit:

₹ 6,00,000 × 25% = ₹ 1,50,000

R’s share:

`1,50,000 xx 1/5 = 30,000`