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Rakesh, Mahesh and Mukesh were partners sharing Profits and Losses in the ratio 3:2:1 respectively. Their Balance Sheet as on 31st March 2019 is as under.

Mukesh died on 30th June 2019 and the following adjustment were made 

1. Assets were revalued as : Plant & Machinery ₹44,000, Motor Truck ₹18,000, Investment ₹17,000.

2. All Debtors were good.

3. Goodwill of the firm valued at two times the average profits of the last five years. No Goodwill account to be shown in the books of the firm.

4. Mukesh’s share of profit up to his death to be calculated on the basis of average profits of last two years.

5. Five years Profits were I year ₹6,000, II year ₹11,000, III year ₹7,000, IV year ₹12,000, V year ₹24,000 respectively. 

Prepare: Profit and loss Adjustment Account , Partners Capital Accounts, Balance Sheet on 1st July 2019.

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Working Note:

1. Valuation of Goodwill

Total Profits = 6,000 + 12,000 + 7,000 + 11,000 + 24,000

= 60,000

Average Profit = \(\frac{60000}5\) = 12,000

Goodwill = 12,000 × 2 = 24,000

Mukesh’s Share in Goodwill = 24,000 × \(\frac 16\) = 4,000

Goodwill is divided and debited to Rakesh and Mahesh’s Capital A/c in the ratio of 3:2

Rakesh = 4000 × \(\frac 35\) = 2,400

Mahesh = 4000 × \(\frac 25\) = 1,600

2. Calculation of Mukesh’s share in profit from 1st April 2019 to 1st July 2019

Total Profit of current year = Average profit of last 2 years profit

\(= \frac{12,000 + 24,000}2 \)

\(= \frac{36,000}2\)

\(\)= 18,000

Proportional Profit = 18,000 × \(\frac 3{12}\) = 4,500

Mukesh’s share in profit = 4,500 × \(\frac 16\) = 750

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