Question

Ram, Madhav, and Keshav are partners sharing profit and losses in the ratio 5 : 3 : 2 respectively. Their Balance Sheet as of 31st

March, 2018 was as follows:

Balance Sheet as of 31st March 2018

Keshav died on 31st July 2018 and the following adjustments were agreed by as per the partnership deed.

1. Creditors have increased by ₹ 10,000.

2. Goodwill is to be calculated at 2 years purchase of average profits of 5 years.

3. The profits of the preceding 5 years was 

2013-14 – ₹ 90,000 

2014-15 – ₹ 1,00,000 

2015-16 – ₹ 60,000 

2016-17 – ₹ 50,000 

2017-18 – ₹ 50,000 (Loss)

Keshav’s share in it was to be given to him.

4. Loose Tools and livestock were valued at ₹ 80,000 and ₹ 1,20,000 respectively. 

5. R.D.D. was maintained at ₹ 10,000. 

6. Commission ₹ 2,000 p.m. was payable to Keshav. Profit for 2018-19 was estimated at ₹ 45,000 and Keshav’s share in it up to the date of his death was given to him. 

Prepare Revaluation A/c, Keshav’s Capital A/c showing the amount payable to his executors.

Answer 1

In the books of the Partnership Firm

Revaluation Account

Keshav's Capital Account

Working Notes:

1. Calculation of share of Goodwill:

(a) Average profit = \(\frac{Total\,Profit}{No.\,of\,years}\)

= \(\frac{90,000+1,00,000+60,000+50,000-50,000}{5}\)

= \(\frac{2,50,000}{5}\)

= ₹ 50,000

(b) Goodwill = Average profit × No. of years

= 50,000 × 2

= ₹ 1,00,000

(c) Share of Goodwill to Keshav = Goodwill of the firm × Keshav’s share

= 1,00,000 × \(\frac{2}{10}\)

= ₹ 20,000

2. Calculation of share of profit due to Keshav Share of profit = Last year profit × Share of Keshav × Period

= 45,000 × \(\frac{2}{10}\times\frac{4}{12}\)

= ₹ 3,000 (Profit and Loss Suspense Account)