It was provided under the Partnership Agreement between Ram, Laxman and Bharat that in the event of death of a partner, the survivors would have to…
CA Foundation · Accounting · MTP · April 2025
It was provided under the Partnership Agreement between Ram, Laxman and Bharat that in the event of death of a partner, the survivors would have to purchase his share in the firm on the following terms: (i) Goodwill is to be valued at 3 year's purchase of simple average profits of last4completed years. (ii) Outstanding amount due to the representative of a deceased partner shall be paid in4equal half yearly instalments commencing6 months after the death plus interest @5% p.a. on the outstanding dues. They shared profit and loss in the ratio 9:4:3. Ram died on 30th September, 2024 and Partner's Capital account balances on that date were: Ram -43,200, Laxman -25,600 and Bharat -14,400. Ram's current account on 30th September, 2024 after crediting his share of profit to that date, however showed a debit balance of 3,840. Firm profits were for the year ended -31st March, 20211,40,800 -31st March, 20221,12,640 -31st March, 202396,320 -31st March, 202434,816 Show Ram’s Capital Account and Executor's Account (of Ram) till full payment is made to Ram's Executor.
Suggested Answer and Working Notes:
Ram’s Capital Account Date Particulars ₹ Date Particulars ₹ 2024 Sep.30 To Ram’s current Account 3,840 2024 Sep.30 By bal b/d 43,200 Sep.30 To Ram’s Executor A/c 2,01,604 Sep.30 By Bharat Capital A/c and Laxman Capital A/c (Share of goodwill) 1,62,244 2,05,444 2,05,444 Ram’s executor Account Date Particulars ₹ Date Particulars ₹ 31.3.2025 To Bank A/c (₹ 50,401+5,040) 55,441 1.10.2024 By Capital A/c 2,01,604 31.3.2025 To Balance c/d 1,51,203 31.3.2025 By Interest (₹ 2,01,604 x 2.5%) 5,040 2,06,644 2,06,644 30.9.2025 To bank A/c (₹ 50,401+3,780) 54,181 1.4.2025 By Balance b/d 1,51,203 31.3.2026 To bank A/c (₹ 50,401+2,520) 52,921 30.9.2025 By Interest (₹ 1,51,203 x 2.5%) 3,780 31.3.2026 To balance c/d 50,401 30.3.2026 By Interest ((₹ 50,401 x 2) x 2.5%) 2,520 1,57,503 1,57,503 30.9.2026 To bank A/c (₹ 50,401+1,260) 51,661 1.4.2026 By balance b/d 50,401 30.9.26 By Interest (₹ 50,401 x 2.5%) 1,260 51,661 51,661 Working notes 1. Ascertainment of Value of Goodwill 2021 1,40,800 2022 1,12,640 2023 96,320 2024 34,816 Total Profit for4 years 3,84,576 Average Profit 96,144 Goodwill Purchase of Average Profit (3 years) 2,88,432 Ram’s Share of goodwill (₹ 9/16 of 2,88,432) 1,62,244 *Profit sharing ratio between Ram, Laxman and Bharat = 9:4:3, Therefore Ram’s share of Profit = 9/16 2. Calculation of amount of each instalment (without interest) = 2,01,604 /4 = 50,401
Topics: Death of a Partner
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