Question

Dhiraj, Suraj and Leena were partners sharing profits and losses in the ratio 2 : 1 : 1 respectively. Their Balance Sheet as on 31^st March, 2022 was as under:

Balance Sheet as on 31st March 2022
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)
Capital Accounts:		50,000	Stock	17,000
Dhiraj	23,000		Furniture	18,000
Suraj	15,000		Land and Building	16,000
Leena	12,000		Bank	37,000
Creditors		22,000
General Reserve		16,000
		88,000		88,000

Leena died on 30^th June, 2022 and the following adjustments were agreed as per deed:

1. Stock, furniture and Land and Building are to be revalued at ₹ 16,700, ₹ 16,200, ₹ 30,100 respectively.
2. Leena’s share in goodwill is to be valued from firm’s goodwill which was valued at three years’ purchases of average profits of last 4 years. 
   Profits for last four years:
   

   Year	Amount of Profit (₹)
   I	30,000
   II	25,000
   III	25,000
   IV	40,000

3. Leena’s profit upto the death is to be calculated on the basis of profit of last year.
4. Interest on capital at 10% p.a. is to be allowed. 
5. Leena’s drawings upto the date of death was ₹ 2,700. 

Prepare:

1. Leena’s Capital Account
2. Leena’s share of goodwill
3. Leena’s share of profit upto the date of her death. 

Answer 1

In the books of the Partnership Firm
Dr.	Leena’s Capital Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Drawings A/c	2,700	By Balance b/d	12,000
To Leena’s Executor’s Loan A/c (Bal. fig.)	41,600	By General Reserve	4,000
		By Profit and loss adjustment A/c (W.N. 3)	3,000
		By Goodwill A/c (W.N. 1)	22,500
		By Profit and Loss Suspense A/c (W.N. 2)	2,500
		By Interest on Capital A/c	300
	44,300		44,300

Working Notes:

(1) Calculation of Goodwill:

(a) Average profit = `"Total profit"/"No. years"`

= `(1,20,000)/4`

= ₹ 30,000

(b) Firm’s Goodwill = Average Profit × No. of years of Purchases

= 30,000 × 3

= ₹ 90,000

(c) In Goodwill = Goodwill of the firm × Leena’s share

= `90,000xx1/4`

= ₹ 22,500

(2) Calculation of Leena’s share in profit upto the death:

Leena’s share of profit = Last year’s profit × Leena’s share × Period

= ₹ `40,000xx1/4xx3/12`

= ₹ 2,500

(3) Profit and Loss Adjustment A/c:

	DR	CR
Stock	300	-
Furniture	1,800	-
Land and Building Revaluation Profit (Bal. fig.)	12,000	14,100
	14,100	14,100

∴ Leena’s share = `12,000xx1/4`

= ₹ 3,000