Question

Ravi, Sam and Tukai were in partnership sharing profits and losses in the ratio of 6 : 5 : 4. The annual rent due to Sam for using his personal property for the use of the business is ₹ 9,000 and this is treated as a business expense.

Accounts of the business are closed annually on 31st March.

The partnership deed provides that the representatives of a deceased partner are entitled to:

1. The deceased partner’s capital as appearing in the last Balance Sheet.
2. Interest on capital @ 6% per annum to the date of his death.
3. Interest on drawings @ 5% per annum.
4. His share of profits calculated till the date of his death on the average of the last three year’s profits.
5. Share of goodwill calculated at two year’s purchase of the average profits for the last three years prior to charging the rent but after charging interest on capital.

The profits of the firm for the years 2014-15, 2015-16 and 2016-17 after charging rent and interest on capital amounted to ₹ 62,000, ₹ 63,000 and ₹ 73,000 respectively.

Sam died on 30th June, 2017.

His drawings from 1st April 2017 to the date of his death amounted to ₹ 3,000.

His capital shown in the Balance Sheet of 31st March 2017, was ₹ 90,000.

You are required to prepare Sam’s Capital Account to show the amount due to his estate from the firm.

Answer 1

Dr.	Sam’s Capital A/c				Cr.
Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2017			2017
June 30	To Drawings	3,000	April 1	By Balance b/d	90,000
June 30	To Interest on Drawings	19	June 30	By Interest on Capital A/c	1,350
June 30	To Sam’s Executor’s A/c (Balance transferred)	1,46,081	June 30	By Profit & Loss Suspense A/c	5,500
			June 30	By Rent	2,250
			June 30	By Ravi’s Capital (Goodwill)	30,000
			June 30	By Tukai’s Capital (Goodwill)	20,000
		1,49,100			1,49,100

Working Notes:

(1) Interest on Capital for 3 months = `90,000xx6/100xx3/12` = ₹ 1,350

(2) Since the date of drawings is not given, interest on drawings will be calculated for an average period of `1/2` 3 months = 1.5 months

`3,000xx5/100xx1.5/12` = ₹ 19

(3) Sam’s share of profit upto the date of his death:

Average Profits = `(62,000+63,000+,73,000)/3` = ₹ 66,000

Share of Profit = `66,000xx3/12xx5/15` = ₹ 5,500

(4) Rent due for 3 month = `9,000xx3/12` = ₹ 2,250

(5) Calculation of Sam’s share of Goodwill:  

	₹
Average Profit after charging Rent	66,000
+ Rent	9,000
Average Profit prior to charging Rent	75,000

Goodwill at 2 year’s purchase = ₹ 75,000 × 2 = ₹ 1,50,000

Sam’s share of goodwill = ₹ `1,50,000xx5/15` = ₹ 50,000

It will be contributed by Ravi and Tukai in their gaining ratio of 6 : 4.

Thus Ravi’s Contribution = `50,000xx6/10` = ₹ 30,000

Tukai’s Contribution = `50,000xx4/10` = ₹ 20,000