Question

Virendra, Devendra, and Narendra were partners sharing profit and losses in the ratio of 3 : 2 : 1. Their Balance Sheet as of 31st March 2019 was as follows.

Balance Sheet as of 31st March 2019

Mr. Virendra died on 31st August 2019 and the partnership deed provided that the event of the death of Mr. Virendra his executors be entitled to be paid out.

1. The capital to his credit at the date of death.

2. His proportion of Reserve at the date of last Balance Sheet.

3. His proportion of Profits to date of death is based on the average profits of the last four years.

4. His share of Goodwill should be calculated at two years purchase of the profits of the last four years for the year ended 31st March were as follows:

2016 – ₹ 40,000 

2017 – ₹ 60,000 

2018 – ₹ 70,000 

2019 – ₹ 30,000

5. Mr. Virendra has drawn ₹ 3,000 p.m. to date of death, There is no increase and decrease in the value of assets and liabilities.

Prepare Mr. Virendra Executors A/c.

Answer 1

In the books of the Partnership Firm

Virendra's Capital Account

Working Notes:

1. Calculation of share of profit:

(a) Average Profit = \(\frac{Total\,profit}{No.\,of\,years}\)

= \(\frac{40,000+60,000+70,000+30,000}{4}\)

= \(\frac{2,00,000}{4}\)

= ₹ 50,000

(b) Goodwill = Average profit × No. of years

= 50,000 × 2

= ₹ 1,00,000

(c) Share of Goodwill to Virendra = Goodwill of the firm × Virendra’s share

= 1,00,000 × \(\frac{3}{6}\)

= ₹ 50,000

2. Share of profit due to Virendra Share of profit = Last year profit × Share of Virendra × Period

= 50,000 × \(\frac{3}{6}\times\frac{5}{12}\)

= ₹ 10,417 (Profit and Loss Suspense A/c)