Question:
Simar, Tanvi, and Umara were partners in a firm sharing profits and losses in the ratio of 5 : 6 : 9. On 31st March, 2024, their Balance Sheet was as follows:
Balance Sheet of Simar, Tanvi, and Umara as at 31st March, 2024
Liabilities Amount (₹) Assets Amount (₹) Capitals: Fixed Assets 25,00,000 Simar 13,00,000 Stock 10,00,000 Tanvi 12,00,000 Debtors 8,00,000 Umara 14,00,000 Cash 7,00,000 General Reserve 7,00,000 Profit and Loss A/c 2,00,000 Trade Payables 6,00,000 Total 52,00,000 Total 52,00,000
Umara died on 30th June, 2024. The partnership deed provided for the following on the death of a partner:
- Goodwill of the firm be valued at 3 years purchase of average profits for the last 5 years. The profits/losses for the previous four years were:
- 2022-23: ₹ 3,10,000 (loss)
- 2021-22: ₹ 3,00,000 (profit)
- 2020-21: ₹ 4,00,000 (profit)
- 2019-20: ₹ 2,50,000 (profit)
- Umara’s share of profit or loss till the date of her death was to be calculated on the basis of profit or loss for the year ended 31st March 2024.
- Calculate Goodwill of the firm.
- Pass the necessary journal entry for the treatment of goodwill on Umara’s death.
- Calculate Umara’s share in the profit or loss of the firm till the date of her death.
- Pass the necessary journal entry to record Umara’s share of profit or loss till the date of her death.
Simar, Tanvi, and Umara were partners in a firm sharing profits and losses in the ratio of 5 : 6 : 9. On 31st March, 2024, their Balance Sheet was as follows:
Balance Sheet of Simar, Tanvi, and Umara as at 31st March, 2024
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Capitals: | Fixed Assets | 25,00,000 | |
| Simar | 13,00,000 | Stock | 10,00,000 |
| Tanvi | 12,00,000 | Debtors | 8,00,000 |
| Umara | 14,00,000 | Cash | 7,00,000 |
| General Reserve | 7,00,000 | Profit and Loss A/c | 2,00,000 |
| Trade Payables | 6,00,000 | ||
| Total | 52,00,000 | Total | 52,00,000 |
Umara died on 30th June, 2024. The partnership deed provided for the following on the death of a partner:
- Goodwill of the firm be valued at 3 years purchase of average profits for the last 5 years. The profits/losses for the previous four years were:
- 2022-23: ₹ 3,10,000 (loss)
- 2021-22: ₹ 3,00,000 (profit)
- 2020-21: ₹ 4,00,000 (profit)
- 2019-20: ₹ 2,50,000 (profit)
- Umara’s share of profit or loss till the date of her death was to be calculated on the basis of profit or loss for the year ended 31st March 2024.
- Calculate Goodwill of the firm.
- Pass the necessary journal entry for the treatment of goodwill on Umara’s death.
- Calculate Umara’s share in the profit or loss of the firm till the date of her death.
- Pass the necessary journal entry to record Umara’s share of profit or loss till the date of her death.
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Always compute goodwill on average profits and adjust partners’ capital accordingly.
Updated On: Jan 8, 2026
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Solution and Explanation
(a) Goodwill Calculation: Total profits for 5 years = ₹ [ -3,10,000 + 3,00,000 + 4,00,000 + 2,50,000 + 2,00,000 ] = ₹ 8,40,000 Average Profit = ₹ 8,40,000 / 5 = ₹ 1,68,000 Goodwill = 1,68,000 × 3 = ₹ 5,04,000 Umara’s share of goodwill = ₹ 5,04,000 × 9/20 = ₹ 2,26,800 (b) Journal Entry for Goodwill: Simar’s Capital A/c Dr. ₹ 1,26,000 Tanvi’s Capital A/c Dr. ₹ 1,00,800 To Umara’s Capital A/c ₹ 2,26,800 (Being Umara’s share of goodwill adjusted) (c) Umara’s Share of Profit till 30th June 2024: Profit for 2023-24 = ₹ 2,00,000 (loss) Assuming even accrual: Loss till June = ₹ 2,00,000 × 3/12 = ₹ 50,000 Umara’s share = ₹ 50,000 × 9/20 = ₹ 22,500 (d) Journal Entry: Profit and Loss Suspense A/c Dr. ₹ 22,500 To Umara’s Capital A/c ₹ 22,500 (Being Umara’s share of loss till date of death provided) Final Answer: Goodwill = ₹ 5,04,000; Umara’s share ₹ 2,26,800. Loss till death ₹ 22,500.
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