Question

Madhav, Raghav and Purav were partners in a firm sharing profits and losses in the ratio of 3 : 1 : 1. Their Balance Sheet as at 31st March, 2023 was as follows:

Purav died on 30th September, 2023. According to Partnership deed, his legal representatives are entitled to the following:
(i) Balance in his Capital Account.
(ii) Share of profit up to the date of death to be calculated on the basis of last year’s profit.
(iii) Share of goodwill calculated on the basis of three years purchase of average profits of last four years.
(iv) Interest on capital @12% p.a.
Purav’s share of profit was |3,000, and the average profit of the last four years was |50,000. Purav’s drawings up to the date of death were |10,000. Prepare Purav’s Capital Account to be rendered to his legal representatives.

Hint:

When preparing a deceased partner’s capital account, ensure all entitlements such as profit, goodwill, and interest on capital are credited, and deductions like drawings are debited.

Answer 1

Step 1: Goodwill Calculation Goodwill = Average Profits × 3 years purchase \[ rupee50,000 \times 3 = rupee1,50,000 \] Purav’s share of goodwill (1/5 of total goodwill): \[ rupee1,50,000 \times \frac{1}{5} = rupee30,000 \] 

Step 2: Interest on Capital Interest on capital for 6 months: \[ rupee40,000 \times 12\% \times \frac{6}{12} = rupee2,400 \] 

Step 3: Purav’s Share of Profit As per the last year’s profit: \[ Purav’s Share = rupee3,000 \]