question_answer

Following is the balance sheet of Amit, Rahul and Ankit as at 31st March, 2017. Balance Sheet as at 31st March, 2017

Liabilities		Amt (Rs.)	Assets	Amt (Rs.)
Sundry Creditors		40,000	Plant and Machinery	2,00,000
Reserve Fund		64,000	Stock	80,000
Capital A/cs			Sundry Debtors	1,20,000
Amit	2,00,000		Cash at Bank	1,00,000
Rahul	1,00,000		Cash in Hand	4,000
Ankit	1,00,000	4,00,000
		5,04,000		5,04,000

Ankit died on 30th June, 2017. Under the terms of partnership deed, the executors of the deceased partner were entitled to the following:

(i) Amount standing to the credit of the partner's capital account.

(ii) Interest on capital @ 5% per annum.

(iii) Share of goodwill on the basis of twice the average of the past three years' profits.

(iv) Share of profits from the closing of the last financial year to the date of death on the basis of the last year's profits.

(v) Ankit's share of goodwill will be adjusted to the accounts of Amit and Rahul who will maintain a profit sharing ratio of 2 : 1 in the new firm. They decide not to raise any goodwill account.

Profits for the year ended 31st March, 2015, 2016 and 2017 were Rs. 1,60,000, Rs.1,80,000, Rs. 2,00,000 respectively. Profits were shared in the ratio of capitals. Draw up Ankit's capital account.

Answer:

Dr                                                         Ankit?s Capital Account                                                          Cr

Particulars	Amt (Rs.)	Particulars	Amt (Rs.)
To Ankit?s Executor?s A/c	2,19,750	By Balance b/d	1,00,000
(Balancing Figure)		By Reserve Fund	16,000
		By Interest on Capital A/c	1,250
		By Amit?s Capital A/c (Goodwill)	60,000
		By Rahul?s Capital A/c (Goodwill)	30,000
		By Profit and Loss Suspense A/c	12,500
	2,19,750		2,19,750

Working Notes 1. Calculation of Gaining Ratio Gaining Ratio = New Share-Old Share Amit?s\[\,=\frac{2}{3}-\frac{2}{4}=\frac{8-6}{12}=\frac{2}{12};\]          Rahul?s \[=\frac{1}{3}-\frac{1}{4}=\frac{4-3}{12}=\frac{1}{12};\] Gaining Ratio = 2 : 1 2. Value of Goodwill \[=\,Average\,\Pr ofid\times Number\,of\,Years'Purchase\] Average Profit \[=\frac{1,60,000+1,80,000+2,00,000}{3}=Rs.\,1,80,000;\] Goodwill\[\,=\,1,80,000\times 2\,=\,Rs.\,3,60,000\] 3. Calculation of Ankit?s Share in Goodwill\[(3,60,000\times 1/4)\]= Rs. 90,000 Amit?s Contribution for Ankit?s Goodwill\[=\,90,000\times 2/3\]= Rs. 60,000 Rahul?s Contribution for Ankit?s Goodwill\[=\,90,000\times 1/3\]= Rs. 30,000 4. Calculation of Ankit's Share in Profit \[2,00,000\times \frac{1}{4}\times \frac{3}{12}=Rs.\,12,500\] 5. Calculation of Reserve Fund \[64,000\times \frac{1}{4}=Rs.\,16,000\] 6. Calculation of Interest on Capital \[1,00,000\times \frac{5}{100}\times \frac{3}{12}=\,Rs.\,1,250\]