Question

P, Q and R were partners in a firm sharing profits in the ratio 3:2:1. Their balance sheet on 31-12-2016 was as follows :

R died on 14-03-2017. The partnership deed provided for the following on the death of a partner.
(i) Goodwill of the firm was to valued at 3 years’ purchase at the average profit of last 5 years.

Year	2015	2014	2013	2012
Profit(Rs)	70,000	80,000	1,10,000	2,20,000

(ii) R’s share of profit or loss till the date of his death was to be calculated on the basis of the profits or loss for the year ending on 31-12-2016. You are required to calculate the followings :
(a) Goodwill of the firm and R’s share of goodwill at the time of his death.
(b) R’s share in the profit or loss of the firm till the date of his death.
Prepare R’s Capital account at the time of his death to be presented to his executors.

Answer 1

Working Note:

(1) Valuation of Goodwill:
Goodwill of firm = On the basis of 5 years average profit 3 year purchase

R’s share in goodwill =1,98,000 x \(\frac{1}{6}\)= Rs 33,000
(2) Because partner is dead last year, and gain loss on this year. On the basis of loss calculation in current year also show loss. 

So, there is no share of dead partner.