Question

Following given is the Balance Sheet of Raghuvir and Co. in which A, B and C were partners sharing profits and losses in the ratio of 2: 2: 1 as at 31-3-2025:

BALANCE SHEET as at 31-3-2025
Liabilities	Amount (₹)	Assets	Amount (₹)
Trade Creditors	76,000	Cash in Hand	54,000
Bills Payable	24,000	Debtors	82,000
Reserve Fund	28,000	Stock	52,000
Capitals:		Building	3,00,000
A	2,20,000	Investments	1,50,000
B	1,60,000
C	1,30,000
	6,38,000		6,38,000

B died on 30th September, 2025. His account has to be settled under the following terms:

1. Goodwill is to be calculated at 3 year’s purchase on the basis of average of last 3 year’s profit or loss. The profits are: 
   

   The year ending on		₹
   31-3-2023	Profit	37,000
   31-3-2024	Profit	25,000
   31-3-2025	(Loss)	8,000

2. Profit for the period from 1-4-2025 to 30-9-2025 shall be ascertained proportionately on the basis of average profits and losses of the preceding 3 years.
3. During 2024-25, a machinery costing ₹ 25,000 was purchased and debited to repairs account on which 25% depreciation is to be calculated.
4. Other values agreed on assets are:
   • Stock ₹ 60,000
   • Building ₹ 3,20,000
   • Investments ₹ 1,25,000

You are required to prepare Capital Accounts and Balance Sheet of the firm as at 30-9-2025, transferring the amount due to B to his Executor’s Account.

It is assumed that all other items of assets and liabilities remained the same.

Answer 1

Dr.	Partners’ Capital A/c						Cr.
Particulars	A	B	C	Particulars	A	B	C
To B’s Capital A/c	19,400	-	9,700	By Balance b/d	2,20,000	1,60,000	1,30,000
To B’s Executor’s A/c	-	2,13,850	-	By Revaluation A/c - Profit	8,700	8,700	4,350
To Balance c/d	2,20,500	-	1,30,250	By Reserve fund A/c	11,200	11,200	5,600
				By A’s Capital A/c	-	19,400	-
				By C’s Capital A/c	-	9,700	-
				By P & L Suspense A/c	-	4,850	-
	2,39,900	2,13,850	1,39,950		2,39,900	2,13,850	1,39,950

 

Balance sheet as at 30th September 2025
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)
Trade Creditors		76,000	Cash in Hand	54,000
Bills Payable		24,000	Debtors	82,000
B’s Executor’s A/c		2,13,850	Stock	60,000
Capitals A/cs:		3,50,750	Building	3,20,000
A	2,20,500		Investments	1,25,000
C	1,30,250		Machinery	18,750
			Profit & Loss Suspense A/c	4,850
		6,64,600		6,64,600

Working notes:

(i)

Dr.	Revaluation A/c			Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Investments A/c		25,000	By Stock A/c	8,000
To Depreciation on machinery A/c		6,250	By Building A/c	20,000
To Profit/f to Partner’s Capital A/cs:		21,750	By Machinery A/c	25,000
A	8,700
B	8,700
C	4,350
		53,000		53,000

(ii) Adjusted Profit for the year ending 31.3.2024:

	₹	₹
Profit as per Accounts		25,000
Add: Purchase of machinery to repairs	25,000
Less: Depreciation @ 25%	6,250	18,750
		43,750

(iii) Average Profit = `(37,000+43,750+(-8000))/3`

= `(72,750)/3`

Average Profit = ₹ 24,250

Goodwill = 24,250 × 3 = ₹ 72,750

B’s share of goodwill = `72,750xx2/5` = ₹ 29,100

A = `29,100xx2/3` = ₹ 19,400

C = `29,100xx1/3` = ₹ 9,700

(iv) B’s share of profit for 6 months upto the date of death

Average Profit [as calculated in (iii) above] = ₹ 24,250

Profit for 6 months = `24,250xx6/12` = ₹ 12,125

B’s share therein = `12,125xx2/5` = ₹ 4,850