Question

P, Q and R were partners in a firm sharing profits in the ratio of 5 : 6 : 9. On 31-3-2023, their Balance Sheet was as follows:

Liabilities	₹	₹	Assets	₹
Creditors		30,000	Cash	10,000
Bills Payable		40,000	Bank	80,000
General Reserve		60,000	Stock	40,000
Capitals:			Debtors	70,000
P	1,30,000		Building	2,00,000
Q	2,00,000		Land	3,00,000
R	4,00,000	7,30,000	Profit and Loss A/с	1,60,000
		8,60,000		8,60,000

R died on 30th April, 2023. The partnership deed provided for the following on the death of a partner:

1. Goodwill of the firm was to be valued at 3 year's purchase of the average profits of the last 5 years. The profits for the years ending 31-3-2022, 31-3-2021, 31-3-2020 and 31-3-2019 were ₹ 80,000, ₹ 80,000; ₹1,10,000 and ₹ 2,20,000 respectively.
2. R's share of profit or loss till the date of his death was to be calculated on the basis of the profit or loss for the year ending 31-3-2023.

You are required to calculate the following:

1. Goodwill of the firm and R's share of goodwill at the time of his death.
2. R's share in the profit or loss of the firm till the date of his death.

Answer 1

1. Goodwill Calculation

Total Profit for 5 Years = ₹ 2,20,000 + ₹ 1,10,000 + ₹ 80,000 + ₹ 80,000 − ₹ 1,60,000 (Loss)

Total Profit = ₹ 3,30,000

Average Profit = ₹ 3,30,000 + 5 years = ₹ 66,000

Goodwill of Firm = ₹ 66,000 × 3 years = ₹ 1,98,000

R's Share of Goodwill = `₹ 1,98,000 × 9/20 = ₹ 89,100`

Current Month Loss Calculation

• Time period = 1 month (1st April to 30th April)
• Base year loss = ₹ 1,60,000
• R's Share of Loss = `₹ 1,60,000 × 1/12  "months" × 9/20 = ₹6,000`

2. Statement of Amount Due to R's Executors

R's Opening Capital Balance = ₹ 4,00,000

Add: R's share of Goodwill = + ₹ 89,100

Add: R's share of General Reserve (₹ 60,000 × 9/20) = + ₹ 27,000

Less: R's share of accumulated loss (₹ 1,60,000 × 9/20) = − ₹ 72,000

Less: R's share of current month's loss = − ₹ 6,000

Amount Payable to R's Executors = ₹ 4,38,100