Question

Simar, Tanvi and Umara were partners in a firm sharing profits and losses in the ratio of 5:6:9. On 31st March, 2024 their Balance Sheet was as follows: \includegraphics[scale=1.0]{1.png} \textbf{Umara died on 30th June, 2024. The partnership deed provided for the following on the death of a partner:

Hint:

On death of a partner: 1. Calculate deceased partner's share of goodwill (based on valuation method in deed) and adjust via Gaining Partners Dr. to Deceased Partner Cr. 2. Calculate deceased partner's share of profit up to date of death (based on time or turnover basis as per deed). Record using P\ Suspense A/c Dr. to Deceased Partner's Capital A/c Cr. 3. Remember to consider the time period for profit calculation and the correct base year profit/loss.

Answer 1

(a) Calculation of Goodwill: (A) Profits for the last 5 years: \begin{itemize} (B) Year ended 31/03/2024: Rs 2,00,000 (Profit, from Balance Sheet) (C) Year ended 31/03/2023: (Rs 3,10,000) (Loss) (D) Year ended 31/03/2022: Rs 3,00,000 (Profit) (E) Year ended 31/03/2021: Rs 4,00,000 (Profit) (F) Year ended 31/03/2020: Rs 2,50,000 (Profit) \end{itemize} (G) Total Profit of last 5 years = 2,00,000 - 3,10,000 + 3,00,000 + 4,00,000 + 2,50,000 = Rs 8,40,000 (H) Average Profit = \(\frac{\text{Total Profit}}{5} = \frac{8,40,000}{5} = Rs 1,68,000\) (I) Goodwill of the firm = Average Profit \( \times \) No. of years' purchase = 1,68,000 \( \times \) 3 = Rs 5,04,000. (b) Journal Entry for Goodwill Treatment: (A) Umara's Share in Goodwill = Firm's Goodwill \( \times \) Umara's Profit Share

Umara's Profit Share = \( \frac{9}{5+6+9} = \frac{9}{20} \)
Umara's Share of Goodwill = 5,04,000 \( \times \frac{9}{20} = Rs 2,26,800 \). (B) Gaining Ratio of remaining partners (Simar and Tanvi): Assuming they continue in their old relative ratio, the gaining ratio is 5:6. (C) Adjustment Entry: Gaining Partners' Capital A/c Dr. To Deceased Partner's Capital A/c Cr. \begin{itemize} (D) Debit Simar's Capital A/c = 2,26,800 \( \times \frac{5}{11} = Rs 1,03,091 \) (Approx.) (E) Debit Tanvi's Capital A/c = 2,26,800 \( \times \frac{6}{11} = Rs 1,23,709 \) (Approx.) (F) Credit Umara's Capital A/c = Rs 2,26,800 \end{itemize} \vspace{0.2cm} \begin{tabularx}{\textwidth}{X r r} \toprule Particulars & Dr. (Rs) & Cr. (Rs)
\midrule Simar's Capital A/c \dotfill & 1,03,091 &
Tanvi's Capital A/c \dotfill & 1,23,709 &
\quad To Umara's Capital A/c \dotfill & & 2,26,800
\textit{(Being Umara's share of goodwill adjusted through gaining partners' capital accounts in gaining ratio 5:6)} & &
\bottomrule \end{tabularx} \vspace{0.2cm} (c) Calculation of Umara's Share of Profit till Death: (A) Period of service in current year = 1st April 2024 to 30th June 2024 = 3 months. (B) Basis of calculation = Profit for the year ended 31st March 2024 = Rs 2,00,000. (C) Estimated Profit for 3 months = \( 2,00,000 \times \frac{3}{12} = Rs 50,000 \). (D) Umara's Share of Estimated Profit = Estimated Profit \( \times \) Umara's Profit Share

= 50,000 \( \times \frac{9}{20} = Rs 22,500 \). (d) Journal Entry for Umara's Share of Profit: \vspace{0.2cm} \begin{tabularx}{\textwidth}{X r r} \toprule Particulars & Dr. (Rs) & Cr. (Rs)
\midrule Profit and Loss Suspense A/c \dotfill & 22,500 &
\quad To Umara's Capital A/c \dotfill & & 22,500
\textit{(Being Umara's share of profit till the date of death credited to her capital account)} & &
\bottomrule \end{tabularx} \vspace{0.2cm}