Question

Asha, Ashish and Naman were partners in a firm sharing profits and losses in the ratio of 2 : 5 : 3. The firm closes its books on 31^st March every year. On 31^st December, 2024 Ashish died. On the date of his death, there was a balance of ₹3,00,000 in his capital account and ₹2,00,000 in General Reserve.
The partnership deed provided that on the death of a partner, his representatives will be entitled to the following: 
(i) Balance in the capital account and interest on the same @ 10% p.a.
(ii) His share in the goodwill of the firm. The goodwill of the firm on Ashish’s death was valued at ₹6,00,000.
(iii) His share in the profits of the firm to be calculated on the basis of previous year’s profit. The profit of the firm for the year ended 31^st March, 2024 was ₹3,60,000.
Prepare Ashish’s Capital Account to be presented to his executors. 

Hint:

In case of death of a partner, calculate interest on capital only up to the date of death. Also, distribute goodwill and current year’s profit proportionately.

Answer 1

Step 1: Interest on Capital (till date of death)
Capital = ₹3,00,000    Duration = 9 months (1st April to 31st Dec)
Interest = ₹3,00,000 × 10% × \( \frac{9}{12} \) = ₹22,500

Step 2: Share of Goodwill 
Total Goodwill of firm = ₹6,00,000
Ashish’s Share = \( \frac{5}{10} \times 6,00,000 = ₹3,00,000 \)

Step 3: Share of General Reserve
General Reserve = ₹2,00,000
Ashish’s Share = \( \frac{5}{10} \times 2,00,000 = ₹1,00,000 \)

Step 4: Share of Profit till Death (based on previous year)
Last year's profit = ₹3,60,000
Ashish’s assumed share for 9 months = \( 3,60,000 \times \frac{9}{12} \times \frac{5}{10} = ₹1,35,000 \)

Step 5: Ashish's Capital Account

 

Dr.		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
		By Balance b/d	3,00,000
		By Interest on Capital	22,500
		By General Reserve	1,00,000
		By Goodwill	3,00,000
		By Share of Profit	1,35,000
To Ashish’s Executor’s A/c	8,57,500	Total	8,57,500

Narration: Ashish’s capital account was settled by crediting all his dues and transferring the balance to his executor’s account.