Question

Risha and Nisha were partners. The partnership deed provides:

1. That the accounts be balanced on 31st December each year.
2. The profits be divided as follows: Risha one-half, Nisha one-third and carried to Reserve account one-sixth.
3. That in the event of death of a partner, her executor will be entitled to the following:
   1. The capital to her credit at the date of death.
   2. Her proportion of profit to date of death based on the average profits of the last three completed years.
   3. Her share of goodwill based on three year’s purchase of the average profits for the three preceding completed years.

On 31st December, 2020 the Trial Balance was as under:

Particualrs	Dr. ₹	Cr. ₹
Risha’s Capital		90,000
Nisha’s Capital		60,000
Reserves		30,000
Bills Receivables	50,000
Investments	40,000
Cash	1,10,000
Creditors		20,000
	2,00,000	2,00,000

The profits for the three years were: 2018 ₹ 4,200; 2019 ₹ 3,900 and 2020 ₹ 4,500. Nisha died on 31st May, 2021. Draw up the deceased Partner’s Capital A/c and Executor’s A/c.

Answer 1

Nisha's Capital Account
Particulars	Dr. ₹	Particulars	Cr. ₹
To Nisha's Executor's A/c	77,740	By Balance b/d	60,000
		By Reserve A/c	12,000
		By Profit & Loss Suspense A/c	700
		By Goodwill A/c	5,040
Total	77,740	Total	77,740

 

Nisha's Executor's Account
Particulars	Dr. ₹	Particulars	Cr. ₹
To Balance c/d	77,740	By Nisha's Capital A/c	77,740
Total	77,740	Total	77,740

Working note:

1. Nisha's share of existing Reserve

Reserve = ₹ 30,000

`30,000 xx 2/5 = 12,000`

2. Nisha's share of profit up to date of death

Average profit of last 3 completed years:

`(4,200 + 3,900 + 4,500)/3 = (12,600)/3 = 4,200`

Nisha died on 31 May 2021, so profit is calculated for 5 months:

`4,200 xx 5/12 = 1,750`

Nisha's share:

`1,750 xx 2/5 = 700`

3. Nisha's share of Goodwill

Goodwill = 3 years' purchase of average profit:

₹ 4,200 × 3 = ₹ 12,600

Nisha's share:

`12,600 xx 2/5 = 5,040`