Question

A, B and C are partners in a firm sharing profits in the proportion of 3 : 2 : 1. Their Balance Sheet as at 31st March, 2018 stood as follows:
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B died on 30th June, 2018 and according to the deed of the said partnership his executors are entitled to be paid as under:
(a) The capital to his credit at the time of his death and interest thereon @ 10% per annum.
(b) His proportionate share of General Reserve.
(c) His share of profits from the intervening period will be based on the sales during that period. Sales from 1st April, 2018 to 30th June, 2018 were as ₹ 12,00,000. The rate of profit during past three years had been 10% on sales.
(d) Goodwill according to his share of profit to be calculated by taking twice the amount of profits of the last three years less 20%. The profit of the previous three years were: 1st Year: ₹ 82,000; 2nd year: ₹ 90,000; 3rd year: ₹ 98,000.
(e) The investments were sold at par and his executors were paid out in full.
Prepare B’s Capital Account and his Executors Account.

Answer 1

Explanation:

Working Notes:

1. Calculation of Interest on Capital

Opening Capital = $\mathrm{Rs} .1,20,000$

Interest on Capital = $=1,20,000 \times \frac{3}{12} \times \frac{10}{100}=3,000$

2. Calculation of Profit Share up-to-death

B's Profit = $\frac {Past Years Profit} {past year sales} \times Sales till death \times B's profit share$

Previous year profit = 98, 000.

Rate of profit sale = $\frac{\text { Past Profit }}{\text { past Years Sales }} \times 100$

100 = $\frac{98,000}{\text { Previous Year's Sales }} \times 100$

Previous Year's Sale = $\frac{98,00,000}{10}$

Previous Year's Sale = 98, 000

B's Profit (up - to-death) = $\frac{ Past Years Profit}{Past year sale} \times Sales till death \times B's Profit Share$

$=\frac{98,000}{9,80,000} \times 12,00,000 \times \frac{2}{6}$

B's Profit = 40, 000

3. Calculation of goodwill

$\text { Average Profits }=\frac{82,000+90,000+98,000}{3}=90,000$

Average Profits (less than 20%) = 72,000

$Goodwill =72,000 \times 2=1,44,000$

$\mathrm{B's} Goodwill =1,44,000$.