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 31^st 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 1^st 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