Question

Satnam, Harnam and Gurunam were partners in a firm sharing profits and losses in the ratio of 5 : 2 : 3. The firm closes its books on 31^st March every year. On 1-7-2019 Harnam died. On his death goodwill of the firm was valued on the basis of average profits of last four years. The profits of the last four years were as follows:

	₹
2015-16	50,000
2016-17	80,000
2017-18	40,000
2018-19	1,70,000

His share in the profits of the firm till the date of his death were ₹ 57,000. The total amount payable to Harnam’s executors was ₹ 3,40,000. It was paid on 15-7-2019.

Pass necessary journal entries for the above transactions in the books of the firm.

Answer 1

Books of Firm Journal Entries
Date	Particulars	L.F.	Amount Dr. (₹)	Amount Cr. (₹)
2019
July 1	Profit & Loss Suspense A/c    ...Dr.		57,000	-
	To Harnam’s Capital A/c		-	57,000
	(Being Harnam’s share in profit credited to him)
	Satnam’s Capital A/c    ...Dr.		10,625	-
	Gurnam’s Capital A/c    ...Dr.		6,375	-
	To Harnam’s Capital A/c		-	17,000
	(Being Harnam’s share in goodwill adjusted)
	Harnam’s Capital A/c    ...Dr.		3,40,000	-
	To Harnam’s Executor’s A/c		-	3,40,000
	(Being amount due harnam to his Executor’s A/c)
	Harnam’s Executor’s A/c    ...Dr.		3,40,000	-
	To Bank A/c		-	3,40,000
	(Being amount due to Harnam’s executor’s paid off)

Working Note:

Calculation of Goodwill

Firm’s Goodwill = `(₹(50,000+80,000+40,000+1,70,000))/4`

= ₹ 85,000

Harnam’s share in Goodwill = `85,000xx2/10`

= 17,000