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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.

 

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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
  Is there an error in this question or solution?
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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
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