Question

Babita, Chetan and David are partners in a firm sharing profits in the ratio of 2 : 1 : 1 respectively. Firm closes its accounts on 31st March every year. Chetan died on 30th September, 2020. There was a balance of ₹ 1,25,000 in Chetan's Capital Account in the beginning of the year. In the event of death of any partner, the Partnership Deed provides for the following:

1. Interest on capital will be calculated at the rate of 6% p.a.
2. The executor of deceased partner shall be paid ₹ 24,000 for his share of goodwill.
3. His share of Reserve Fund of ₹ 12,000, shall be paid to his executor.
4. His share of profit till the date of death will be calculated on the basis of sales. It is also specified that the sales during the year 2019-20 were ₹ 4,00,000. The sales from 1st April, 2020 to 30th September, 2020 were ₹ 1,20,000. The profit of the firm for the year ending 31st March, 2020 was ₹ 2,00,000.

Prepare Chetan's Capital Account to be presented to his executor.

Answer 1

Chetan's Capital Account
Particulars	Dr. ₹	Particulars	Cr. ₹
To Chetan's Executor's A/c	7,79,750	By Interest on Capital A/c	3,750
		By Reserve Fund A/c	12,000
		By Gaining Partners' Capital A/cs (Goodwill)	24,000
		By Profit & Loss Suspense A/c (Profit share)	15,000
	7,79,750		7,79,750

Working note:

1. Calculation of Interest on Capital

Chetan's Capital = ₹ 1,25,000

Period = 6 months (1st April, 2020 to 30th September, 2020)

Interest on Capital = `1,25,000 xx 6% xx 6/12  = 3,750`

2. Share of Goodwill & Reserve Fund

Chetan's share of Goodwill is directly specified in the problem as ₹ 24,000.

Chetan's share of Reserve Fund is directly specified in the problem as ₹ 12,000.

3. Calculation of Chetan's Share of Profit (On Sales Basis)

Profit Percentage on Sales for 2019-20:

`"Profit Ratio" = ("Profit of 2019-20")/("Sales of 2019-20") xx 100`

= `(2,00,000)/(4,00,000) xx 100 = 50%`

Estimated Profit up to date of death:

Estimated Profit up to date of death:

Profit for 6 months

= 50% of Sales from 1st April to 30th Sept

= 50% of 1,20,000 = 60,000

Chetan's Share of Profit:

Chetan's Share = `60,000 xx 1/4 = 15,000`