Question

Raja, Bharat, and Vedika were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. Their Balance Sheet as on 31st March, 2024, was as follows:

Balance Sheet of Raja, Bharat, and Vedika as on 31st March 2024
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)
Creditors		80,000	Bank	15,000
General Reserve		50,000	Stock	70,000
Capitals:		3,00,000	Debtors	85,000
Raja	1,10,000		Furniture	1,20,000
Bharat	1,00,000		Machinery	1,40,000
Vedika	90,000
		4,30,000		4,30,000

Vedika died on 31st July, 2024. According to the partnership deed, her legal representatives are entitled to the following:

1. Balance in her capital account
2. Interest on capital @ 8% p.a.
3. Her share in the profit up to the date of death is to be calculated on the basis of last year’s profit. Vedika’s share of profit was ₹ 3,000.
4. Her share of goodwill is calculated on the basis of two years’ purchase of the average profits of the last three years. The average profit of the last three years was ₹ 40,000. Vedika’s drawings up to the date of death were ₹ 12,000. Prepare Vedika’s Capital Account to be rendered to her executors.

Answer 1

Dr.	Vedika’s Capital Account		Cr.
Particulars	Amount (₹ )	Particulars	Amount (₹ )
To Drawings A/c	12,000	By Balance b/d	90,000
To Vedika’s Executors’ A/c	1,07,400	By Interest on Capital A/c	2,400
		By Profit and Loss Suspense A/c	1,000
		By General Reserve A/C	10,000
		By Raja’s Capital A/c (GW)	8,000
		By Bharat’s Capital A/c (GW)	8,000
	1,19,400		1,19,400

Working Notes:

(i) Calculation of Interest on Capital:

Interest on Vedika’s Capital = `90,000 xx 8/100 xx 4/12`

= 2,400

(ii) Calculation of Vedika’s share of Profit:

= `3,000 xx 4/12`

= 1,000

(iii) Calculation of Vedika’s share of Goodwill:

Average Profit of the last three years = ₹ 40,000

Value of Firm’s Goodwill = Average Profit × Number of years’ Purchase

= 40,000 × 2

= ₹ 80,000

Which is to be contributed by Raja and Bharat in their gaining ratio, i.e., 1 : 1 Thus,

Raja’s contribution `16,000 xx 1/2`

= ₹ 8,000

Bhart’s contribution = `16,000 xx 1/2`

= ₹ 8,000