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Keith, Bina, and Veena Were Partners in Firm Sharing Profits and Losses Equally. Their Balance Sheet as on 31-3-2019 Was as Follows: - Accountancy

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Keith, Bina, and Veena were partners in firm sharing profits and losses equally. Their balance sheet as on 31-3-2019 was as follows: 

Balance Sheet of Keith, Bina, and Veena as on 31-3-2019 

Liabilities

Amount(₹)

Assets Amount(₹)
Capitals :

 

Plant and Machinery 2,40,000
Keith - 1,50,000   Stock  60,000
Bina - 1,00,000   Sundry debtors 35,000
Veena - 75,000

3,25,000

Cash at bank  50,000
General Reserve

30,000

   
Sundry creditors

30,000

   
  3,85,000   3,85,000

Veena died on 30th June 2019. According to the partnership deed, the executors of the deceased partner were entitled to :
(a) Balance in the capital account
(b) Salary till the date of death @ ₹ 25,000 per annum.
(c) Share of goodwill calculated on the basis of twice the average profits of the past three years.
(d) Share of profit from the closure of the last accounting year till the date of death on the basis of the average of three completed years profits before death.
(e) Profits for 2016-17, 2017-18 and 2018-19 were ₹ 1,20,000, ₹ 90,000 and ₹ 1,50,000 respectively.
Veena withdrew ₹ 15,000 on 1st June 2019 for paying her daughter's school fees.
Prepare Veena's capital account to be rendered to her executors.

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Solution

Dr. Veena’s Capital A/c Cr.
Particulars

Amount(₹)

Particulars Amount(₹)
To Drawings A/c

15,000

By balance b/d 75,000
 

 

By General Reserve A/c 10,000
To Veena’s Executors A/c

1,85,000

By Salary A/c 25,000
 

 

By Keith’s Capital A/c (WN1) 40,000
 

 

By Bina’s Capital A/c (WN1) 40,000
 

 

By Profit & Loss Suspense A/c
(Share of profit) (WN2)
10,000
 

 

 

2,00,000

  2,00,000

Working Notes: 

1) Calculation of deceased Veena’s share of goodwill

Average Profit for the last three years = `(1,20,000 + 90,000 + 1,50,000)/3`
= ₹ 1,20,000
   
Goodwill of the firm = Average Profits of the last three years × Number of Years’ Purchase
= ₹ (1,20,000 × 2) = ₹ 2,40,000
   
Veena’s share of goodwill = ₹ (2,40,000 × 1/3) = ₹ 80,000
Gaining Ratio among the partners will be same as old ratio = 1 : 1

2) Calculation of Veena’s Share of Profit

Average Profits of last three years = ₹ 1,20,000
Profits till the date of death = ₹ (1,20,000 × 3/12) = ₹ 30,000
Veena’s Share of Profits = ₹ (30,000 × 1/3) = ₹ 10,000
Concept: Concept of Goodwill
  Is there an error in this question or solution?

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