Question

Mahendra, Jitendra, and Hitendra are in partnership sharing profits and losses in the ratio of 3 : 2 : 1 respectively. Their Balance Sheet as on 31st March 2022 was as follows:

Balance Sheet as on 31st March 2022
Liabilities	Amount (₹)	Assets	Amount (₹)
Capital Accounts:		Debtors	90,000
Mahendra	2,20,000	Machinery	85,000
Jitendra	2,10,000	Investment	3,50,000
Hitendra	2,40,000	Motor Lorry	1,00,000
Creditors	80,000	Building	80,000
Bills Payable	7,000	Bank	1,48,000
General Reserve	96,000
	8,53,000		8,53,000

On 1^st October 2022, Hitendra died, and the partnership deed provided that:

1. Machinery valued at ₹ 80,000 and creditors valued at ₹ 69,000.
2. Profit for 2022-23 was estimated at ₹ 1,20,000. Hitendra’s share in it up to the date of his death was given to him.
3. Goodwill of the firm was valued at two times the average profit of the last 5 years. Firm’s profit of the last 5 years were:
   1. year ₹ 1,80,000,
   2. year ₹ 1,50,000,
   3. year ₹ 2,00,000,
   4. year ₹ 1,20,000
   5. year ₹ 2,50,000.
      Hitendra’s share in it was to be given to him.
4. Drawings made by Hitendra up to his death are ₹ 30,000.
5. Interest on drawings of Hitendra charged ₹ 2,000.

Prepare: Hitendra’s Capital Account and show the working of:

1. Hitendra’s share in goodwill.
2. Hitendra’s share in profit.

Answer 1

Hitendra’s Share in Goodwill:

Calculate the average profit of the last 5 years, then the firm’s goodwill, and finally Hitendra’s share `(1/6).`

Average Profit = `(1,80,000 + 1,50,000 + 2,00,000 + 1,20,000 + 2,50,000)/5`

= `(9,00,000)/5`

= 1,80,000

Firm’s Goodwill = 1,80,000 × 2 year

= 3,60,000

Hitendra’s Share = `3,60,000 xx 1/6`

= 60,000

Hitendra’s Share in Accrued Profit:

Calculate profit from 1st April 2022 to 1st October 2022 (6 months) based on the estimate.

Estimated Profit for 6 months = `1,20,000 xx 6/12`

= 60,000

Hitendra’s Share = `60,000 xx 1/6`

= 10,000

Revaluation Profit/Loss:

Machinery = Reduced from ₹ 85,000 to ₹ 80,000 (Loss ₹ 5,000)

Creditors = Reduced from ₹ 80,000 to ₹ 69,000 (Gain ₹ 11,000)

Net Profit on Revaluation = 11,000 − 5,000

= 6,000

Hitendra’s Share = `6,000 xx 1/6`

= 1,000

Distribute General Reserve `(96,000 xx 1/6)` and record all adjustments.

Hitendra’s Capital Account
Particulars	Amount (₹)	Particulars	Amount (₹)
To Drawings A/c	30,000	By Balance b/d	2,40,000
To Interest on Drawings	2,00,000	By General Reserve	16,000
To Hitendra’s Executor’s Loan A/c	2,95,000	By Goodwill A/c	60,000
		By Profit & Loss Suspense A/c	10,000
		By Revaluation A/c (Profit)	1,000
	3,27,000		3,27,000