Ashish, Satish and Manish Were Partners in Business Profits and Losses in the Ratio of 3 : 1 : 1 Respectively. Their Balance Sheen as on 31st March, 2016 Was as Follows : - Book Keeping and Accountancy

Ashish, Satish and Manish were partners in business profits and losses in the ratio of 3 : 1 : 1 respectively. Their Balance Sheet as on 31st March, 2016 was as follows :

Balance Sheet as on 31st March, 2016

 Liabilities Amount Assets Amount Capital accounts : Plant and machinery 70,000 Ashish 80,000 Stock 50,000 Satish 60,000 Debtors 40,000 Manish 50,000 Cash 60,000 Creditors 10,000 Reserve fund 20,000 2,20,000 2,20,000

Manish died on 1st October, 2016 and the partnership deed provided that :

(1) The deceased partner to be given his share of profit upto the date of death on the basis of the profit of the previous year.
(2) His share of goodwill will be calculated on the basis of two years' purchase of average profit of the last four years
The net profits for the last four years were :

First year : Rs 1,40,000,      Second year : Rs 1,10,000

Third year : Rs 90,000.            Fourth year : Rs  60,000.

(3) Plant and machinery to be valued at Rs. 80,000. Reserve for doubtful debts of Rs. 4,000 to be created.

(4) The drawings of Manish upto the date of death amounted to Rs 40,000.

(5) Interest on capital is to be allowed at 10% p.a. and interest on drawings is charged at 6% p.a.

Prepare :
(1) Profit and Loss Adjustment Account.
(2) Manish's Capital Account.
(3) Wording of Manish's share in profit and goodwill.

Solution

In the books of the firm.
 Particulars Rs. Rs. Particulars Rs. Rs. To R.D.D. A/c 4000 By Machinery A/c 10000 To Revaluation Profit: Ashish Capital A/c 3600 Satish Capital A/c 1200 Manish Capital A/c 1200 6000 10000 10000
Manish’s Capital A/c
 Particulars Rs. Particulars Rs. To Drawings A/c 40000 By Balance b/d 50000 To Interest on Drawings A/c 1200 By Reserve Fund A/c 4000 To Executor’s Loan A/c 62500 By Profit and Loss Suspense A/c 6000 By Goodwill A/c 40000 By Profit and Loss Adjustment A/c 1200 By Interest on Capital A/c 2500 103700 103700

Working of manish's share of profit :

= previous year's profit x profit sharing ratio x period

60000xx1/5xx6/12= Rs. 6000

Working of manish's share of goodwill :

= (140000+110000+90000+60000)/4xx2

=400000/4xx2

=200000xx1/5= Rs. 40000`

Concept: Retirement Or Death of a Partner - Treatment of Goodwill
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