Ramesh, Prakash and Suresh were partners in a firm sharing profits & losses in the ratio of 5:3:2.
On 31" March 2020, their balance sheet was as under
Balance Sheet as on 31.3.2020
Liabilities
Assets
२
Creditors,
14.000
8,000
Reserve Fund
6,000 Cash
11.000
Capitals:
70,000 Debtors
11.000
Ramesh 30,000
Patents
10,000
Prukash 25.000
Stock
50,000
Suresh 15.000
Machinery
90,000
90.000
Ramesh died on 30% Sept 2019. It was agreed between his cxccutars and
the surviving partners that:
a) Good will to be valued a two and hali yeurs purchase of die average profits of the previous four
years, which were:
2016-17 12.000,2017-18 20.000, 2018-19 13.000, 2019-202 15, 000 (as per AS26)
b) Shure in the profit from the date of last balance sheet till to the date of death to be calculated on
the basis of last year's profit.
c) Interest on capital to be allowed il 12% pa
Answers
Explanation:
The answer to this question is shown above and in short the answer on Executors account is rs.57,300
Given: Ramesh, Prakash and Suresh were partners in a firm sharing profits & losses in the ratio of 5:3:2. Creditors,
14.000
8,000
Reserve Fund
6,000 Cash
11.000
Capitals:
70,000 Debtors
11.000
Ramesh 30,000
Patents
10,000
Prukash 25.000
Stock
50,000
Suresh 15.000
Machinery
90,000
90.000
Solution:
Total Capital = 70,000
Average Profits = 15,000
a) To Find: Good will to be valued a two and hali yeurs purchase of die average profits of the previous four
years, which were:
2016-17 12.000,2017-18 20.000, 2018-19 13.000, 2019-202 15, 000
Solution:
Goodwill Calculation:
Goodwill = 2.5 x Average Profits
Goodwill = 2.5 x 15,000
Goodwill = 37,500
b) To Find: Shure in the profit from the date of last balance sheet till to the date of death to be calculated on the basis of last year's profit.
Solution:
Share in profit from the date of the last balance sheet till the date of death:
As per the agreement, this will be calculated based on last year's profit, which is not given in the balance sheet. Therefore, we cannot calculate this.
c) To Find: Interest on capital to be allowed il 12% pa
Solution: Interest in capital:
Ramesh's capital will be calculated from the date of the last balance sheet till the date of his death, which is 6 months (from 31 March 2019 to 30 Sept 2019).
Interest on Ramesh's capital = Ramesh's capital x rate of interest x period
Interest on Ramesh's capital = 30,000 x 0.12 x (6/12)
Interest on Ramesh's capital = 1,800
Now, let's calculate the new balance sheet after taking into account the above agreements:
Balance Sheet as on 30.9.2019
Liabilities
Assets
Creditors
14,000
Cash
11,000
Reserve Fund
6,000
Debtors
11,000
Capitals:
Goodwill (Ramesh's share)
37,500
Ramesh's Capital
30,000
Prakash's Capital
25,000
Suresh's Capital
15,000
Stock
50,000
Machinery
90,000
Interest in Ramesh's Capital
1,800
Total
133,500
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