Question

A, B and C were Partner’s sharing Prots and losses in the ratio of 3:2:1. Their capitals were as under as per the balance sheet as on 31- Dec-2010. 

A-Rs. 30,000; B-Rs. 20,000; C-Rs. 15,000. On 31^st March 2011, C died, and you are asked to prepare deceased partners Capital account after considering the following facts. 

1. Capital carried interest at 12% p.a. 

2. C’ drawings from 1^st Jan 2011 to the date of his death amounted to Rs. 4,500. 

3. C’s share of Prots for the portion of current financial year for which he lived was to betaken at the sum calculated on the average Profit of the last three completed years and good will was to be raised on the basis of two years Purchase of the average Profit of those three years.

The annual Profits were Rs. 19,000, Rs. 16,000 and Rs. 19,000 respectively. Show C’s Capital account

Answer 1

C’s Capital A/c

Working Note: 

1. Share of profit to the date of death. 

Average profit for past 3 years

\(\cfrac{19000+16000+19000}{3} = \cfrac{54000}{3} = 18,000\)

Therefore, C’s share (1/6) for 3 months = 18.000 × 1/6 × 3/12 = 750.

2. Goodwill calculation Average Profit = 18,000 Goodwill = Average profit × 2’years purchase

= 18,000 × 2 = 36,000 

C’s share of goodwill = 36,000 × 1/6 = 6,000 

C’s share of goodwill adjusted through the capital account of remaining partners in the gaining ratio of 3:2.