Supriya, Surakha and Sujata were partners sharing profits and Losses in the ration of 2:2:1 respectively. Their Balance Sheet as on 31st March, 2012 was as follows:

Balance Sheet as on 31st march, 2012
Liabilities
Amount
Assets
Amount
Capital A/c

Land and Building
50000
Supriya
40000
Stock
30000
Surekha
40000
Debtors     37500

Sujata
20000
(-) R.D.D. -2500
35000
Reserve Fund
10000
Furniture
10000
Creditors
16000
Cash at Bank
5000
Outstanding Expenses
4000



130000

130000
Sujata died on 1st July, 2012 and the adjustments were agreed to as per the deed as follows:
(1) Land and Building to be valued at Rs. 60,000 and all debtors were good.
(2) Stock be depreciated by 10%.
(3) The drawing of Sujata up to the date of her death amounted to Rs. 2,000.
(4) Interest on capital was to be allowed at 10% p.a.
(5) The deceased partner’s share of goodwill is to be valued at 2years’ purchase of average profit of last 3 years.
The profits were:
2009 – 10 = Rs. 15000
2010 – 11 = Rs. 17000
2011 – 12 = Rs. 13000
(6) The deceased partner’s share of profit up to the date of her death should be based on average profit of the last two years.
You are required to prepare:
(a) Profit and Loss Adjustment Account.
(b) Sujata’s Capital Account showing the balance payable to her Executor’s Loan Account.
(c) Working notes for calculation of (a) Goodwill and (b) Profit till the date of Sujata’s death.
Solution:
In the books of Partnership Firm
Profit and Loss Adjustment Account
Particulars
Amount
Amount
Particulars
Amount
Amount
To Stock A/c
(Depreciation)

3000
By Land & Building A/c
(Increase in value)

10000
To Partners’ Capital A/c


By Debtors A/c
[RDD Cancelled]

2500
Supriya
3800




Surekha
3800




Sujata
1900
9500





12500


12500

Sujata’s Capital A/c
Particulars

Amount
Particulars
Amount
To Drawings A/c
2000
By Balance b/d
20000


By Reserve Fund A/c
2000


By Profit & Loss Adjustment A/c
1900


By Interest on Capital A/c
500


By Goodwill A/c
(Share in firm’s goodwill)
6000


By Profit & Loss Suspense A/c
750

31150

31150

Working Notes:
(i) Valuation of Goodwill:
Average Profit = (13000+17000+15000) ÷ 3 = 45000 ÷ 3 = Rs. 15000
Goodwill = Average Profit × No. of years’ purchase
Goodwill = 15000 × 2 = Rs. 30,000
Sujata’s Share in Goodwill  = Value of firm’s Goodwill × Sujata’s share in profit
Sujata’s Share in Goodwill = 30000 × (1/5) = Rs. 6000.

Working Profit:
Profit till the date of death of Sujata =  Average Profit of 2 years × Period
Profit till the date of death of Sujata = [(13000 + 17000) ÷ 2 ] [3months ÷ 12 months] = Rs. 3750/-

Sujata’s share in profit = (Firm’s Profit) × Sujata’s Share in profit = 3750 × (1/5) = Rs. 750