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Vilas, Mangal, Guru were partners in a business sharing profits and losses in the ratio of 2: 1: 1 respectively. Their Balance sheet as on 31st March, 2012 was as follows:

Balance Sheet as on 31st March 2012

Liabilities Amt. (Rs.) Assets Amt. (Rs)
Capital Land and Building 6,000
Vilas 6,000 Debtors 5,000
Mangal 7,000 Stock 3,000
Guru 3,400 Cash 6,000
Creditors 2,000
General Reserve 1,600
20,000 20,000

Guru died on 1st July, 2012

1) Land and Building was to be revalued to Rs. 7,000 and RDD was to be created of Rs. 200.

2) The drawing of Guru upto the date of his death amounted to Rs. 1,000/-.

3) Charge interest on drawing Rs. 100/-

4) His share of goodwill should be calculated at ‘Three’ years purchase of the profits for the last four years which were Rs. 15,000, Rs. 13,000, Rs. 7,000, Rs. 5,000

5) The deceased partners share of profit upto the date of his death to be calculated on the basis of average profit of last two years.

Prepare:

1) Profit and Loss Adjustment A/c

2) Partners Capital A/c’s

3) Balance Sheet of the continuing firm.

4) Give working of share of profit and goodwill.

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Working Notes :-

1) Cash/Bank A/c

Dr. Cr.
Particulars Amt. (Rs.) Particulars Amt. (Rs.)
To Balance b/d 6,000 By Guru’s Drawings A/c 1,000
By Balance c/d 5,000
6,000 6,000

2) Share in Goodwill

Average Profit = (15000 + 13000 + 7000 + 5000) / 4

= Rs. 10,000

Goodwill = 3 years’ purchase of average profits = 3 x Rs. 10000

= Rs. 30,000

Guru’s Share in Goodwill = 1/4 x Rs. 30000

= Rs. 7,500

3) Share in Profits Average profits of 2 years = (7000 + 5000 ) / 2

= Rs. 6,000

Estimated Profit till date of death = 3/12 x Rs. 6000

= Rs. 1,500

Share of Guru = 1/4 x Rs. 1500

= Rs. 375

4) It is assumed that remaining General Reserve is continued in the business by remaining partners.

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