Question

Virad, Vishad and Roma were partners in a firm sharing profits in the ratio of 5 : 3 : 2 respectively. On 31st March, 2013, their Balance Sheet was as under:

Liabilities		₹	Assets		₹
Capital A/cs:			Buildings		2,00,000
Virad	3,00,000		Machinery		3,00,000
Vishad	2,50,000		Patents		1,10,000
Roma	1,50,000	7,00,000	Stock		1,00,000
Reserve Fund		60,000	Debtors		80,000
Creditors		1,10,000	Cash		80,000
		8,70,000			8,70,000

​Virad died on 1st October, 2013. It was agreed between his executors and the remaining partners that:
(i) Goodwill of the firm be valued at 21/2212 years purchase of average profits for the last three years. The average profits were ₹ 1,50,000.
(ii) Interest on capital be provided at 10% p.a.
(iii) Profits for the 2013-14 be taken as having accrued at the same rate as that of the previous year which was ₹ 1,50,000.
Prepare Virad's Capital Account to be presented to his Executors as on 1st October, 2013.

Answer 1

Virad’s Capital Account

Dr.					Cr.
Particulars		Amount (Rs)	Particulars	Amount (Rs)
			Balance b/d	3,00,000
Executor’s A/c		5,70,000	Vishad’s Capital A/c	1,12,500
			Roma’s Capital A/c	75,000
			Profit and Loss Suspense A/c	37,500
			Reserve Fund	30,000
			Interest on Capital	15,000
		5,70,000		5,70,000

Calculation of gaining ratio of vishad and roma:

`"Old Ratio" = "Virad"  :  "Vishad"  :   "Roma"`

                          `5       :        3         :        2`

`"New Ratio"                        3         :        2`

`"Gaining Ratio" = "New Ratio" - "Old Ratio"`

`"Vishad's Gain" = 3/5 - 3/10 = 3/10`

`"Roma's Gain" = 2/5 - 2/10 = 2/10`

`"Gaining Ratio" = 3 : 2`

WN1 : Calculation of virad's share of goodwill:

`"Goodwill of the firm" = "Average profit" xx "Number of year's Purchase"`

`"Goodwill of the firm" = 1,50,000 xx 2(1/2) = "Rs"  3,75,000`

`"Share of goodwill of virad" = 3,75,000 xx 5/10 = "Rs"  1,87,500`

`"Vishad will give" = 1,87,500 xx 3/5 = "Rs" 1,12,500`

`"Roma will give" = 1,87,500 xx 2/5 = "Rs" 75,000`

WN2: Calculation of profit share of virad:

`"Profit for the year" = "Rs"  1.50,000`

`"Virad's share of profit" = 1,50,000 xx 6/12 xx 5/10 = "Rs" 37,500`

WN3 : Calculation of interest on Virad's Capital

`"Virad's Capital" = 3,00,000`

`"Interest on capital" = 3,00,000 xx 6/12 xx 10/100 = "Rs" 15,000`

WN4 "Virad's share of reserve fund: 

`"Share of reserve fund" = 60,000 xx 5/10 = "Rs" 30,000`