# Practical Problem 04

Practical Problems | Q 4 | Page 204

 Virendra, Devendra AND Narendra Were partners Sharing Profit and Losses in the RATIO of 3:2:1. Their BALANCE Sheet AS on 31st March 2019 WAS AS follows. BALANCE Sheet AS on 31st March  2019 Liabilities Amount Assets Amount Bank Loan 25,000 Furniture 50,000 Creditors 20,000 Land & Building 50,000 Bills Payable 5,000 Motor Car 20,000 Reserve Fund 30,000 Sundry Debtors 50,000 Capital Account : Bills Receivable 20,000 Virendra 90,000 Investments 50,000 Devendra 60,000 Cash at Bank 20,000 Narendra 30,000 2,60,000 2,60,000 Mr. Virendra died on 31st August 2019 AND the partnership deed provided that the event of the DEATH of  Mr. Virendra  his executors be entitled to be PAID out. 1. The CAPITAL to his credit AT the DATE of DEATH. 2. His proportion of Reserve AT the DATE of LAST BALANCE sheet. 3. His proportion of Profits to DATE of DEATH BASED on the AVERAGE profits of the LAST four YEARS. 4. His SHARE of Goodwill should be CALCULATED AT two YEARS PURCHASE of the profits of the LAST four YEARS for the YEAR ended 31st MARCH were AS follows – 2016       Rs 40,000          2017     Rs 60,000            2018     Rs 70,000             2019       Rs 30,000 5.  Mr. VIRENDRA HAS DRAWN ` 3000 p.m. to DATE of DEATH, There is no Increase and Decrease the Value of Assets and Liabilities. Prepare Mr. Virendra  Executors A/c

Working:

 1) Calculation of Share of Goodwill Goodwill = Average Profit x No of year of Purchase = (40,000 + 60,000 + 70,000 + 30,000)/4  x 2 = 2,00,000/4   x  2 = 50,000  x  2 = 1,00,000 2) Ramesh Share of Goodwill = Firm Goodwill  x Ramesh Share = 3,60,000  x  3/6 = Rs 50,000 Calculation of Share of Profit Due to Ramesh 3) Share of Profit Due to Ramesh = Last Year Profit  x Share of Profit  x Period = 50,000  x 3/6  x 5/12 = 10,417 (Profit & Loss Suspense A/c)

Solution:

 In the books of the partnership Firm Dr                                                                                                                                Virendar’s Capital A/c                                                                                                    Cr Particulars Amount Particulars Amount To Drawings A/c (3,000 x 5 Months) 15,000 By Balance b/d 90,000 By Goodwill A/c 50,000 By Profit & Loss Suspense A/c 10,417 By Reserve Fund A/c 15,000 1,65,417 1,65,417