### 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
 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