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Ajay, Sanjay and Vijay were partners sharing profits and losses in the proportion to their capital. Their Balance Sheet as on 31st March 2019 was as follows.

Vijay died on 1st August 2019 and the following adjustments were made.

1. Assets to be revalued as under Land & Building ₹88,000, Motor Lorry ₹36,000 and Furniture ` 34,000

2. All Debtors were good.

3. Goodwill of the firm valued at two times the average profit of the last 4 years profit.

4. Vijay’s share of profit to be calculated on the basis of average profit of last three years.

5. Profit for 4 years were 1st year ₹12,000, 2nd year ₹24,000, 3rd year ₹14,000, 4th year ₹22,000

Prepare:

1. Vijay’s Capital Account, showing amount payable to his executor.

2. Give working of Vijay’s share of Goodwill and profit upto the date of his death.

1 Answer

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Working Note:-

1. Calculation of Vijay’s share of Goodwill

a. Average Profit = Total Profit / No. of Years

\(\frac{72,000}4\)

= ₹18,000

b. Goodwill of the Firm = Average Profit × No. of Year Purchases

= 18,000 × 2

= ₹36,000

c. Vijay’s Share of Goodwill = Goodwill of the firm × Vijay’s share

= 36,000 × \(\frac 16\)

= ₹6,000

2. Calculation of share of profit due to Vijay

a. Average Profit = Total Profit / No. of Years

\(\frac{60,000}3\)

= ₹20,000

b. Vijay’s share of profit = Average Profit × Period × Vijay’s share of Profit.

= 20,000 × \(\frac 4{12} \times \frac 16\)

= ₹1111

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