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:
Balance sheet of Simar, Tanvi and Umara as at 31st March, 2024
% [Balance Sheet Table - Simplified representation below] % Liabilities: Capitals (S:13L, T:12L, U:14L) = 39L; General Reserve = 7L; Trade Payables = 6L; Total = 52L % Assets: Fixed Assets = 25L; Stock = 10L; Debtors = 8L; Cash = 7L; P A/c (2023-24) = 2L; Total = 52L Liabilities: Capitals (S:13L, T:12L, U:14L) 39L, General Reserve 7L, Trade Payables 6L. Total 52L.
Assets: Fixed Assets 25L, Stock 10L, Debtors 8L, Cash 7L, Profit and Loss Account (2023-24) 2L. Total 52L.
\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 Goodwill based on the agreed method (e.g., average profits).
2. Adjust deceased partner's share of goodwill: Dr. Gaining Partners' Capital A/cs (in gaining ratio), Cr. Deceased Partner's Capital A/c.
3. Calculate deceased partner's share of profit/loss till death based on time or turnover, using the specified profit basis.
4. Record the share of profit/loss: Dr./Cr. P\ Suspense A/c, Cr./Dr. Deceased Partner's Capital A/c.

Answer 1

Part (a): Calculation of Goodwill
Profit for the year ended 31st March 2024 is assumed to be the balance shown in the Assets side of the Balance Sheet, which indicates an accumulated loss of Rs 2,00,000 for 2023-24.
Profits/(Loss) for the last 5 years:
2019-20: Rs 2,50,000 (Profit)
2020-21: Rs 4,00,000 (Profit)
2021-22: Rs 3,00,000 (Profit)
2022-23: Rs (3,10,000) (Loss)
2023-24: Rs (2,00,000) (Loss - assumed from B/S)
Total Profit for 5 years = 2,50,000 + 4,00,000 + 3,00,000 - 3,10,000 - 2,00,000 = Rs 4,40,000
Average Profit = Total Profit / 5 = Rs 4,40,000 / 5 = Rs 88,000
Goodwill = Average Profit \( \times \) No. of years' purchase
Goodwill = Rs 88,000 \( \times \) 3 = Rs 2,64,000
Goodwill of the firm = Rs 2,64,000
Part (b): Journal Entry for Goodwill Treatment
Old Ratio (S:T:U) = 5:6:9 (Total 20 parts)
Umara's Share of Goodwill = Total Goodwill \( \times \) Umara's Share
Umara's Share = Rs 2,64,000 \( \times \) \( \frac{9}{20} \) = Rs 1,18,800
Gaining Ratio of Simar and Tanvi (assuming no change in their mutual ratio) = 5:6.
Amount debited to Simar = Umara's Share \( \times \) \( \frac{5}{5+6} \) = Rs 1,18,800 \( \times \) \( \frac{5}{11} \) = Rs 54,000
Amount debited to Tanvi = Umara's Share \( \times \) \( \frac{6}{11} \) = Rs 1,18,800 \( \times \) \( \frac{6}{11} \) = Rs 64,800
Journal Entry:
\begin{tabular}{|p{8cm}|r|r|} \hline Particulars & Dr. (Rs) & Cr. (Rs)
\hline Simar's Capital A/c \hspace{3.6cm} Dr. & 54,000 &
Tanvi's Capital A/c \hspace{3.6cm} Dr. & 64,800 &
\indent To Umara's Capital A/c & & 1,18,800
\textit{(Being Umara's share of goodwill adjusted through gaining partners' capital accounts in their gaining ratio 5:6)} & &
\hline \end{tabular}
Part (c): Calculation of Umara's Share of Profit till Death
Basis: Profit/Loss for the year ended 31st March 2024 = Rs 2,00,000 (Loss).
Period: 1st April 2024 to 30th June 2024 = 3 months.
Umara's Share of Loss = Total Loss \( \times \) Umara's Ratio \( \times \) Period
Umara's Share = Rs 2,00,000 \( \times \) \( \frac{9}{20} \) \( \times \) \( \frac{3}{12} \)
Umara's Share = Rs 90,000 \( \times \) \( \frac{1}{4} \) = Rs 22,500 (Loss)
Umara's Share of Loss till death = Rs 22,500
Part (d): Journal Entry for Umara's Share of Profit/Loss
Since it's a loss, Umara's Capital Account will be debited.
Journal Entry:
\begin{tabular}{|p{8cm}|r|r|} \hline Particulars & Dr. (Rs) & Cr. (Rs)
\hline Umara's Capital A/c \hspace{3.4cm} Dr. & 22,500 &
\indent To Profit and Loss Suspense A/c & & 22,500
\textit{(Being Umara's share of estimated loss till the date of death recorded)} & &
\hline \end{tabular}