Rohit, Sachin and Virat were sharing profits and losses in the ratio of 7 : 5 : 4 respectively. Their Balance sheet as on 31st March 2017 was as follows. Balance Sheet as on 31st March 2017 Liabilities Amt ` Assets Amt ` Capital Accounts : Stock 17,000 Rohit 23,000 Furniture 18,000 Sachin 15,000 Land & Building 16,000 Virat 12,000 Bank 37,000 Bills Payable 2,000 Creditors 8,000 Bank Loan 12,000 General Reserve 16,000 88,000 88,000 Mr. Virat died on 30th June 2017 and the following adjustments were agreed as per deed.1. Stock, Furniture and Land and Building are to be revalued at ` 16,700, `
16,200, ` 30,100 respectively.
2. Virat’s share in goodwill is to be valued from firm’s goodwill which was
valued at three times of the average profit of last four years. Profit of last
four years: I`30,000, II`25,000, III`25,000, IV`40,000
3. His Profit up to the death is to be calculated on the basis of profit of last
year.
4. Virat was entitled to get a Salary of `1200 per month.
5. Interest on capital at 10% paid to be allowed
6. Virat’s drawing up to the date of death was ` 900 per month. Prepare : Virat’s Capital Account showing amount payable to his
executor.
Give working notes for share of Goodwill and Profit.
Answers
Answer:
refer attachment
Virat’s Capital Account as on 30th June 2017
Particulars Amount Particulars Amount
To Drawing A/c 2,700 By Balance b/d 12,000
To Executors Loan A/c 45,200 By General Reserve 4,000
By Profit & Loss Adjustment A/c 3,000
By Goodwill A/c 22,500
By Profit & Loss Suspense A/c 2,500
By Salary A/c 3,600
By Interest on Capital A/c 300
Total 47,900 Total 47,900
Note:
Goodwill Share
Total Business Profit = 1,20,000
No. of Years 4
Average Profit = 1,20,000 ÷ 4 = 30,000
Goodwill = Average Profit × 3 years (as per simple average method)
= 30,000 × 3 times
= 90,000
Virat’s Goodwill = Goodwill of the firm × Virat’s share
= 90,000 x 4/16 = ` 22,500
Virat’s profit due
= Last year’s profit × profit share × period
= 40,000 × 4/16 × 3/12 = ` 2,500
