Q. A, B and C are in partnership ​ sharing profit in the proportions of two-thirds, one-sixth and one -sixth respectively.

A died on the 30th June 2011 , three months after the annual accounts had been prepared and in accordance with the partnership agreement, his share of the profit to the date of death was estimated on the basis of the profit for the preceding year. In addition to this the agreement provided for interest on capital at 5%. per annum on the balance  standing to the credit of the capital account at the date of the last Balance Sheet and also for goodwill, which was to be brought into account at 2 year's purchase of the average profit of the last three years.

A's capital on 31st March,2011 stood at rs. 1,20,000, and his drawings from them to the date of death amounted to rs. 9,000.

The net profits of the business for the three preceding years amounted to Rs. 33,500; Rs. 41,500 and Rs. 40,500, respectively.

Dear Student

A's Capital A/c
Date Particulars Amount (in Rs) Date   Particulars Amount (in Rs)
  Drawings 9,000   Bal B/d 120,000
        B's Capital A/c 25,667
        C's Capital A/c 25,666
        Profit and Loss suspense A/c 6,750
  A's Executors A/c 170,583      
        Interest on Capital (120,000 x 5% x 3/12) 1,500
    179,583     179,583

Calculation of Goodwill    
Average Profit of Last 3 Years   38,500
Goodwill as sum of 2 Years profit   77,000
Share of A (77,000 x 4/6) 51,333
Gaining Ratio   1:1
Goodwill Adjustment for B    
B's Capital A/c (51,333 x 1/2) 25,667
C's Capital A/c (51,333 x 1/2) 25,667

Profit till Death    
Profit of Preceeding year   40,500
Profit of 3 months on the basis of above profit (33,500 x 3/12) 10,125
A's Share (8,375 x 4/6) 6,750


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