It was provided under the Partnership Agreement between Amar, Akbar and Anthony that in the event of death of a partner, the survivors would have to…
CA Foundation · Accounting · MTP · September 2026
It was provided under the Partnership Agreement between Amar, Akbar and Anthony 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 last 4 completed yea (ii) Outstanding amount due to the representative of a deceased partner shall be paid in 4 equal half yearly instalments commencing 6 months after the death plus interest @ 5% p.a. on the outstanding dues. They shared profit and loss in the ratio 9:4:3. Amar died on 30th September, 2025 and Partner's Capital account balances on that date were: Amar - ₹ 43,200, Akbar - ₹ 25,600 and Anthony - ₹ 14,400. Amar's current account on 30th September, 2025 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, 2022 ₹ 1,40,800 31st March, 2023 ₹ 1,12,640 31st March, 2024 ₹ 96,320 31st March, 2025 ₹ 34,816 Show Amar's Capital Account and Executor's Account (of Amar) till full payment is made to Amar's Executor.
Suggested Answer and Working Notes:
Amar's Capital Account Date Particulars ₹ Date Particulars ₹ 2025 Sep. 30 To Amar's current Account 3,840 2025 Sep. 30 By bal. b/d 43,200 Sep. 30 To Amar's Executor A/c 2,01,604 Sep. 30 By Akbar Capital A/c and Anthony Capital A/c (Share of goodwill) 1,62,244 2,05,444 2,05,444 Amar's executor Account Date Particulars ₹ Date Particulars ₹ 31.3.2026 To Bank A/c 55,441 1.10.2025 By Capital A/c 2,01,604 (50,401+5,040) 31.3.2026 By Interest 5,040 31.3.2026 To Balance c/d 1,51,203 (2,01,604 x 2.5%) 2,06,644 2,06,644 30.9.2026 To bank A/c 54,181 1.4.2026 By Balance b/d 1,51,203 (50,401+3,780) 30.9.2026 By Interest 3,780 31.3.2027 To bank A/c 52,921 (1,51,203 x 2.5%) (50,401+2,520) 30.3.2027 By Interest 2,520 31.3.2027 To balance c/d 50,401 (50,401 x 2) x 2.5% 1,57,503 1,57,503 30.9.2027 To bank A/c 51,661 1.4.2027 By balance b/d 50,401 (50,401+1,260) 30.9.27 By Interest 1,260 (50,401 x 2.5%) 51,661 51,661 Working notes 1. Ascertainment of Value of Goodwill Profits for the year 2021-2022 1,40,800 2022-2023 1,12,640 2023-2024 96,320 2024-2025 34,816 Total Profit for 4 years 3,84,576 Average Profit 96,144 Goodwill Purchase of Average Profit (3 years) 2,88,432 Amar's Share of goodwill (9/16 of 2,88,432) 1,62,244 * Profit sharing ratio between Amar, Akbar, Anthony = 9:4:3, Therefore Amar's share of Profit = 9/16 2. Calculation of amount of each instalment (without interest) = ₹ 2,01,604 / 4 = 50,401
Topics: Treatment of Goodwill in Partnership Accounts
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