Question

Kavita, Leena and Monica are partners in firm sharing profits in the ratio of 1 : 1 : 3 respectively. Their Capital Accounts showed the following balanceson 31st March, 2012: Kavita ₹ 70,000; Leena ₹ 65,000 and Monica ₹ 2,10,000. Firm closes its accounts every year on 31st March. Kavita died on 30th September, 2012. In the event of death of any partner, the Partnership Deed provides for the following:
(a) Interest on capital will be calculated at the rate of 6% p.a.
(b) The deceased partner’s share in the goodwill of the firm will be calculated on the basis of 2 years purchase of the average profit of last three years. The profits of the firms for the last three years were ₹ 90,000; ₹ 1,00,000 and ₹ 1,10,000 respectively.
(c) Her share in the Reserve Fund of the firm will be paid. The Reserve Fund of the firm was ₹ 60,000 at the time of Kavita’s death.
(d) Her share of profit till the date of death will be calculated on the basis of sales. It is also specified that the sales during the year 2011-12 were ₹ 20,00,000. The sales from 1st April, 2012 to 30th September, 2012 were ₹ 4,00,000. The profit of the firm for the year ending 31st March, 2012 was ₹ 2,00,000.
Prepare Kavita’s Capital Account to be presented to his legal representative.

Answer 1

Explanation:

Working Notes:

1. Calculation of Goodwill

On the basis of 2 yrs purchase of average 3 years profit

Average Profit = $\frac{\text { Sum of Profits }}{\text { Numbers of years }}$ = $\frac{90,000+1,00,000+1,10,000}{3}= 1,00,000$

$\text { Goodwill }=\text { Average Profit } \times 2=\mathrm{Rs} .1,00,000 \times 2=\mathrm{Rs} .2,00,000$

Kavita's Share of Goodwill = $= 2,00,000 \times \frac{1}{5} = 40,000$

Kavita's share of goodwill is to be distributed between Leena and Monica in their 1 : 3 (Gaining Ratio)

Leena's Share = $40,000 \times \frac{1}{4}= 10,000$

Monica's Share =  $40,000 \times \frac{3}{4}=30,000$

2. Calculation of Profit and Loss Suspense

Profit for year 2011-12 = 2,00,000 = 10% of sales.

Thus, Profit for the Period 1st April to 30th September = 10% of sale.

Share of profit for to be divided $=4,00,000 \times 10 \%=\mathrm{Rs} .40,000$

Kavitha's profit = $40,000 \times \frac{1}{5}=8,000$.