Question

X and Y shared profits in the ratio of 2 : 1. Following is their Balance Sheet as at 31st March, 2024:

BALANCE SHEET
Liabilities	₹	Assets	₹	₹
Creditors	6,200	Bank		10,800
Workmen Compensation Reserve	18,000	Debtors	10,000
Capitals:		Less: Provision	600	9,400
X	50,000	B/R		2,000
Y	27,000	Goodwill		9,000
		Fixed Assets		70,000
	1,01,200			1,01,200

Y died on 30th June, 2024. Besides his capital and reserves, his legal representatives are entitled to:

1. His share of goodwill based on 2 years purchase of the last 3 years average profits less 10%. Last three years profits were ₹ 9,000; ₹ 20,000 and ₹ 16,000.
2. Fixed Assets are revalued at ₹ 76,000. There is no need of provision for doubtful debts, as the debtors are all good.
3. He is to be allowed interest at 12% p.a. upto the date of death.

Prepare Y’s A/c to be rendered to his legal representatives.

Answer 1

Dr.	Y’s A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Goodwill A/c	3,000	By Balance b/d	27,000
To Y’s Executor’s A/c	42,010	By Workmen Compensation Reserve	6,000
		By X’s Capital A/c	9,000
		By Interest on Capital A/c	810
		By Revaluation A/c	2,200
	45,010		45,010

Working Note:

(i)

Dr.	Revaluation A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Profit t/f to Capital A/cs:		By Fixed Assets A/c	6,000
X	4,400	By Provision for Doubtful Debts A/c	600
Y	2,200
	6,600		6,600

(ii) Average Profit = `(9,000+20,000+16,000)/3`

= `(45,000)/3`

= ₹ 15,000

= 15,000 × 10% = 1,500

= 15,000 – 1,500

Average Profit = ₹ 13,500

(iii) Goodwill = 13,500 × 2

= ₹ 27,000

Y’s share of Goodwill = `27,000xx1/3`

= ₹ 9,000

(iv) Interest on Capital = `27,000xx12/100xx3/12`

= ₹ 810