# B, C And D Were Partners in a Firm Sharing Profits in the Ratio of 5 :3 : 2. on 31st December, 2008, Their Balance Sheet Was as Follows: - Accountancy

Numerical

B, C and D were partners in a firm sharing profits in the ratio of 5 :3 : 2. On 31st December, 2008, their Balance Sheet was as follows:

 Liabilities Amount (₹) Assets Amount(₹) Creditors 43,000 Cash 10,200 Bills Payable 17,000 Stock 24,500 General Reserve 70,000 Debtors 27,300 Capital A/cs: Land and Building 1,40,000 B 40,000 Profit and Loss A/c 70,000 C 50,000 D 52,000 1,42,000 2,72,000 2,72,000

B died on 31st March, 2009. The Partnership Deed provided for the following on the death of a partner:
(a) Goodwill of the firm was to be valued at 3 years' purchase of the average profit of last 5 years. The  profits for the years ended 31st December, 2007, 31st December, 2006, 31st December, 2005, and 31st December, 2004 were ₹ 70,000; ₹ 60,000; ₹ 50,000 and ₹ 40,000 respectively.
(b) B's share of profit or loss till the date of his death was to be calculated on the basis of the profit or loss for the year ended 31st December, 2008.
You are required to calculate the following:
(i) Goodwill of the firm and B's share of goodwill at the time of his death.
(ii) B's share in the profit or loss of the firm till the date of his death.
(iii) Prepare B's Capital Account at the time of his death to be presented to his Executors.

#### Solution

(i) Calculation of Goodwill

Goodwill = Average Profit × Number of Year’s Purchase

"Average profit" = (-70,000 + 70,000 + 60,000 + 50,000 + 40,000)/5 = (1,50,000)/5 = "Rs" 30,000

∴ Goodwill = Average Profit × Number of Years’ Purchase

= 30,000 × 3 = Rs 90,000

Old Ratio (B, C and D) = 5 : 3 : 2

B Died.

New Ratio (C and D) = 3 : 2

B’s Share in Goodwill = 90,000 xx 5/10 = "Rs" 45,000

This share of goodwill is to be distributed between C and D in their gaining ratio (i.e. 3 : 2).

C's share in goodwill = 45,000 xx 3/5 = "Rs"  27,000
D's share in goodwill = 45,000 xx 2/5 = "Rs"  18,000
(ii) Calculation of B’s Share of Profit or Loss

Loss for the Year (2008) = Rs 70,000

B's share of loss = "Loss of 2008" xx 5/10 xx 3/12
= 70,000 xx 5/10 xx 3/12 = "Rs"  8,750
(iii)

B’s Capital Account

 Dr. Cr. Particulars Amount Rs Particulars Amount Rs Profit and Loss A/c 35,000 Balance b/d 40,000 Profit and Loss Suspense A/c 8,750 General Reserve 35,000 C’s Capital A/c (Goodwill) 27,000 B’s Executor’s A/c 76,250 D’s Capital A/c (Goodwill) 18,000 1,20,000 1,20,000
Concept: Retirement and Death of a Partner - Calculation of New Profit Sharing Ratio
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#### APPEARS IN

TS Grewal Class 12 Accountancy - Double Entry Book Keeping Volume 1
Chapter 6 Retirement/Death of a Partner
Exercise | Q 78 | Page 99