Question

Hans, Sohan and Kishore were partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. The firm closes its books on 31st March every year. On 1^st August, 2024, Kishore died. The partnership deed provided that on the death of a partner, his executors will be entitled for: 
(i) Balance in his capital account less drawings. 
(ii) Interest on capital @ 12% p.a. 
(iii) His share of goodwill. 
(iv) His share in the profits of the firm till the date of his death calculated on the basis of average profit of the previous four years. 
The following information was obtained from the books of the firm on the date of Kishore’s death: 
(a) Capital on 1^st April, 2024 = 4,00,000, Drawings = 90,000 
(b) Goodwill of the firm = 60,000 
(c) Profits for last 4 years: 2,00,000, 2,20,000, 1,20,000, 1,80,000

Hint:

In case of death of a partner, average profits up to the date of death should be calculated proportionately. Interest on capital is calculated on the full capital before drawings.

Answer 1

Step 1: Adjusted Capital Balance
4,00,000 - 90,000 = 3,10,000

Step 2: Interest on Capital (12% for 4 months)
4,00,000 × (12/100) × (4/12) = 16,000

Step 3: Kishore’s Share of Goodwill (1/6)
60,000 × (1/6) = 10,000

Step 4: Kishore’s Share in Profit till Death (1/6 of Average Profit)
Average Profit = (2,00,000 + 2,20,000 + 1,20,000 + 1,80,000) / 4 = 1,80,000
Profit till 4 months = 1,80,000 × (4/12) = 60,000
Kishore’s Share = 60,000 × (1/6) = 10,000

Kishore’s Capital Account

Particulars	Amount	Particulars	Amount
To Drawings A/c	90,000	By Balance b/d	4,00,000
		By Interest on Capital A/c	16,000
		By Goodwill A/c	10,000
		By Profit and Loss Suspense A/c	10,000
To Executor's A/c	3,46,000		4,36,000