Question

Anil, Bhanu, and Chandu were partners in a firm sharing profits in the ratio of 5:3:2. On March 31^st, 2007, their Balance Sheet was as under: 

Books of Anil, Bhanu, and Chandu Balance Sheet as on March 31^st, 2007

Anil died on October 1, 2007. It was agreed between his executors and the remaining partners that:

1. Goodwill to be valued at 21/2 year’s purchase of the average profits of the previous four years which were: Year2003-04-Rs. 13,000, Year 2004-05- Rs. 12,000 Year 2005-06-RS.20,000, Year 2006-07 – Rs. 15,000 

2. Patents be valued at Rs. 8,000. Machinery at Rs. 28,000 and Building at Rs. 25,000 

3. Profit for the year 2007-08 be taken as having accrued at the same rate as that of the previous year. 

4. Interest on capital be provided at 10% p.a. 

5. Half of the amount due to Anil be paid immediately. 

Prepare Revaluation Account, Anil’s Capital Account and Anil’s Executor’s Account as on October 1, 2007.

Answer 1

Revaluation Account

Anil’s Capital Account

Anil’s Executor’s Account

Working Note: 

1. Goodwill = 21/2 years purchase × Average Profit

Average profit = \(\cfrac{\text{RS. 13000+Rs. 12000+Rs.20000+Rs.15000}}{4}\)

= \(\cfrac{\text{RS.60000}}{4}= Rs 15,000\)

Goodwill = \(\frac{5}{2} \times \text{Rs. 15,000}\)

Anil’s share of Goodwill = \(\frac{5}{10}\) × Rs.37,500 = 18750 

2. Profit from the date of last balance sheet to date of death (April 1,2007 to October 1,2007) = 6 months 

Profit for 6 months = Rs.15,000 × \(\frac{6}{12}\) = Rs.7,500 

Anil’s share of profit = Rs.7,500 × \(\frac{5}{10}\) = Rs.3,750.

3. Interest on Capital 

(April 1, 2007 to October 1, 2007) 

= Rs. 30000 ×\(\frac{10}{100}\) × \(\frac{6}{12}\) = Rs. 1,500.