T.S. Grewal Class 12 Chapter 6 Q.30 - Death of a Partner

Question 30

Shirish, Harit and Asha were partners in a firm sharing profits in the ratio of 5 : 4 : 1. Shirish died on 30th June, 2018. Their Balance Sheet as at 31st March, 2018 showed Capitals – Shirish ₹1,00,000, Harit ₹2,00,000, Asha ₹3,00,000; Profits for the year 2017-18 (undistributed) ₹80,000, Bills Payable ₹20,000; Plant and Machinery ₹5,60,000, Stock ₹90,000, Debtors ₹10,000, Cash ₹40,000. According to the Partnership Deed, in addition to the deceased partner’s capital, his executor is entitled to: (i) share in profits in the year of death on the basis of the average of the last two years’ profits (profit for 2016-17 was ₹60,000); (ii) goodwill of the firm valued at 2 years’ purchase of the average of the last two years’ profits. Prepare Shirish’s Capital Account to be presented to his executor. (CBSE 2019)

Solution

SHIRISH’S CAPITAL ACCOUNT

Particulars	₹	Particulars	₹
To Shirish’s Executors’ A/c	2,18,750	By Balance b/d	1,00,000
		By Profit & Loss Suspense A/c	8,750
		By Harit’s Capital A/c (Goodwill)	56,000
		By Asha’s Capital A/c (Goodwill)	14,000
		By Profit & Loss Appropriation A/c	40,000
Total	2,18,750	Total	2,18,750

Working Notes: Average profit of last two years (2017-18: 80,000; 2016-17: 60,000) = ₹70,000. Shirish’s share of profit for 3 months (1st April to 30th June, 2018) = 70,000 × 5/10 × 3/12 = ₹8,750. Goodwill = 70,000 × 2 = ₹1,40,000; Shirish’s share = 1,40,000 × 5/10 = ₹70,000, borne by Harit and Asha in gaining ratio 4 : 1 (Harit ₹56,000; Asha ₹14,000). Shirish’s share of the already-earned, undistributed profit for 2017-18 = 80,000 × 5/10 = ₹40,000.