Question

Simar, Tanvi and Umara were partners in a firm sharing profits and losses in the ratio of 5: 6 : 9. On 31st March, 2024 their Balance Sheet was as follows:

Balance sheet of Simar, Tanvi and Umara as at 31st March, 2024
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)
Capitals:		39,00,000	Fixed Assets	25,00,000
Simar	13,00,000		Stock	10,00,000
Tanvi	12,00,000		Debtors	8,00,000
Umara	14,00,000		Cash	7,00,000
General Reserve		7,00,000	Profit and Loss Account (2023-24)	2,00,000
Trade Payables		6,00,000
		52,00,000		52,00,000

Umara died on 30^th June, 2024. The partnership deed provided for the following on the death of a partner:

1. Goodwill of the firm be valued at 3 years purchase of average profits for the last 5 years. The profit/loss for the previous four years were:
   

   2022-23: ₹ 3,10,000 (loss)	2021-22: ₹ 3,00,000 (profit)
   2020-21: ₹ 4,00,000 (profit)	2019-20: ₹ 2,50,000 (profit)

2. Umara’s share of profit or loss till the date of her death was to be calculated on the basis of profit or loss for the year ended 31^st March 2024.
   1. Calculate Goodwill of the firm.
   2. Pass the necessary journal entry for the treatment of goodwill on Umara’s death.
   3. Calculate Umara’s share in the profit or loss of the firm till the date of her death.
   4. Pass the necessary journal entry to record Umara’s share of profit or loss till the date of her death.

Answer 1

(a) Calculation of Goodwill: 

Goodwill = Average Profits × Number of Year’s Purchase

Average Profit = `-(("₹ 3,10,000 + ₹ 3,00,000 + ₹ 4,00,000 + ₹ 2,50,000 - ₹ 2,00,000"))/5`

= `(₹4,40,000)/5`

= ₹ 88,000

Goodwill = ₹ 88,000 × 3

= ₹ 2,64,000

(b)

Journal
Date	Particulars	L.F.	Amount (₹)	Amount (₹)
	Simar’s Capital A/c    ...Dr.		54,000	-
	Tanvi’s Capital A/c    ...Dr.		64,800	-
	To Umara’s Capital A/c		-	1,18,800
	(Being goodwill credited to Umar by Simar and Tanvir in gaining ratio)

Umara’s Share in Goodwill = ₹ 2,64,000 × `9/20`

= ₹ 1,18,800

Gaining Ratio of Simar and Tanvir = 5 : 6

(c) Calculation of Umar’s Share in Loss 

Loss for the year ended 31^st March 2024 = ₹ 2,00,000

Umar’s Share in Loss = ₹ `2,00,000xx9/20xx3/12`

= ₹ 22,500

(d)

Journal
Date	Particulars	L.F.	Amount (₹)	Amount (₹)
	Umara’s Capital A/c    ...Dr.		22,500	-
	To Profit and Loss Suspense A/c		-	22,500
	(Being loss recorded for Umar’s share in loss)