Question

Balance Sheet of Madhav, Raghav, and Purav as at 31^st March, 2023: \[ \begin{array}{|l|c|} \hline \textbf{Liabilities} & \textbf{Amount (Rs.)} \\ \hline \text{Creditors} & 1,00,000 \\ \text{General Reserve} & 50,000 \\ \text{Capitals:} & \\ \text{Madhav} & 60,000 \\ \text{Raghav} & 1,00,000 \\ \text{Purav} & 40,000 \\ \hline \textbf{Total Liabilities} & \textbf{3,50,000} \\ \hline \textbf{Assets} & \textbf{Amount (Rs.)} \\ \hline \text{Bank} & 20,000 \\ \text{Stock} & 1,10,000 \\ \text{Investment} & 70,000 \\ \text{Furniture} & 35,000 \\ \text{Building} & 1,15,000 \\ \hline \textbf{Total Assets} & \textbf{3,50,000} \\ \hline \end{array} \]

Purav’s Capital Account: \[ \begin{array}{|l|c|c|} \hline \textbf{Particulars} & \textbf{Dr. Amount (Rs.)} & \textbf{Cr. Amount (Rs.)} \\ \hline \text{To Drawings A/c} & 10,000 & \\ \text{To Purav’s Legal Representative A/c} & 75,400 & \\ \hline \text{By Balance b/d} & & 40,000 \\ \text{By Profit Share} & & 3,000 \\ \text{By Goodwill (50,000 × 3 × \frac{1}{5})} & & 30,000 \\ \text{By Interest on Capital (40,000 × 12% × 6/12)} & & 2,400 \\ \hline \textbf{Total} & \textbf{85,400} & \textbf{85,400} \\ \hline \end{array} \]

Hint:

When preparing a deceased partner’s capital account, ensure all entitlements such as profit, goodwill, and interest on capital are credited, and deductions like drawings are debited.

Answer 1

Step 1: Goodwill Calculation Goodwill = Average Profits × 3 years purchase \[ Rs.50,000 \times 3 = Rs.1,50,000 \] Purav’s share of goodwill (1/5 of total goodwill): \[ Rs.1,50,000 \times \frac{1}{5} = Rs.30,000 \] Step 2: Interest on Capital Interest on capital for 6 months: \[ Rs.40,000 \times 12\% \times \frac{6}{12} = Rs.2,400 \] Step 3: Purav’s Share of Profit As per the last year’s profit: \[ \text{Purav’s Share} = Rs.3,000 \] Journal Entries: \[ \begin{array}{|l|c|c|} \hline \textbf{Particulars} & \textbf{Dr. Amount (Rs.)} & \textbf{Cr. Amount (Rs.)} \\ \hline \text{General Reserve A/c Dr.} & 10,000 & \\ \text{To Purav’s Capital A/c} & & 10,000 \\ \hline \text{Profit and Loss Suspense A/c Dr.} & 3,000 & \\ \text{To Purav’s Capital A/c} & & 3,000 \\ \hline \text{Madhav’s Capital A/c Dr.} & 18,000 & \\ \text{Raghav’s Capital A/c Dr.} & 6,000 & \\ \text{To Purav’s Capital A/c} & & 30,000 \\ \hline \text{Interest on Capital A/c Dr.} & 2,400 & \\ \text{To Purav’s Capital A/c} & & 2,400 \\ \hline \text{Purav’s Drawings A/c Dr.} & 10,000 & \\ \text{To Purav’s Capital A/c} & & 10,000 \\ \hline \end{array} \] Purav’s Capital Account: \[ \begin{array}{|l|c|c|} \hline \textbf{Particulars} & \textbf{Dr. Amount (Rs.)} & \textbf{Cr. Amount (Rs.)} \\ \hline \text{To Drawings} & 10,000 & \text{By Balance b/d} & 40,000 \\ \text{To Legal Representatives A/c.} & 75,400 & \text{By General Reserve} & 10,000 \\ & & \text{By Profit (up to death)} & 3,000 \\ & & \text{By Goodwill} & 30,000 \\ & & \text{By Interest on Capital} & 2,400 \\ \hline \end{array} \]