Question

The Balance sheet of Mohan, Subhash and Babi as on 31^st December, 2011 was as under. They were sharing profits and losses in the ratio of 2:1:1.

            Balance Sheet as on 31^st December,2011

Liabilities	Amount (Rs)	Assets	Amount (Rs)
Capital		Investments	20000
Mohan	25,000	Buildings	33000
Subhash	15,000	Debtors	12000
Babi	15,000	Stock	28000
Creditors	30,000	Cash	8000
Reserve	16000
	101000		101000

Babi died on 1^st July, 2012 and partnership deed provided that in the event of death of the partner his executor will be entitled to be paid out.

1) Capital to the credit at the date of last balance sheet

2) Proportion of reserves

3) Proportion of goodwill to be calculated twice the average profits of last three years.

4) His proportion of profits to the date of death based on the average profits of the last three year plus 20%.

5) The net profits for last 3 years Rs 18,000, Rs 18,000, Rs 16,500.

6) Babi had withdrawn Rs 6,000/- to the date of her death.

7) The investments were sold at par and the amount was paid off to Babi’s executor and the balance was transferred to loan A/c.

Prepare: 
1) Babi’s Capital A/c only.

Answer 1

                        Babi’s Capital Account
Dr.                                                                               Cr.

Particulars	Amount	Particulars	Amount
Drawings	6000	Balance b/d	15000
Cash A/c	20000	Reserves	4,000
Executor's Loan A/c	4375	Goodwill	8,750
		Profit and Loss Suspense A/c	2,625
	30,375		30,375

Working Notes:

WN 1: Calculation of Share of goodwill of Babi

i) Total Profit = 18000 + 18000 + 16500 =Rs 52500

ii) Average Profit = `52500/3 = "Rs" 17500`

iii) Goodwill = 17500 × 2 = Rs 35000

iv) Babi's share of Goodwill = `35000 xx 1/4 = "Rs" 8750`

WN 2: Calculation of Share of Profit of Babi

`"Average Profit" = (18000 + 18000 + 16500)/3 = "Rs" 17500`

Profit For the Period = `17500 xx 6/12 = "Rs" 8750`

Share of Babi's Profit =`8750 xx 1/4 + 20% (8750 xx 1/4) = Rs 2625`

WN 3: Babi’s Share of Reserve:

Babi's Share of reserve =`16000 xx 1/4 = "Rs" 4000`

Note: As no information is given regarding the New Ratio of Mohan and Subhash, hence, it is 2:1 and Gaining Ratio is same as the New Ratio.