Arti, Bharti and Seema are partners sharing profits in the proportion of 3:2:1 and their Balance Sheet as on March 31, 2020 stood as follows | Liabilities | Amount (₹) | Assets | Amount (₹) | |---|---:|---|---:| | Bills Payable | 12,000 | Buildings | 21,000 | | Creditors | 14,000 | Cash in Hand | 12,000 | | General Reserve | 12,000 | Bank | 13,700 | | Capitals: | | Debtors | 12,000 | | Arti | 20,000 | Bills Receivable | 4,300 | | Bharti | 12,000 | Stock | 1,750 | | Seema | 8,000 | Investment | 13,250 | | **Total** | **78,000** | **Total** | **78,000** | Bharti died on June 12, 2020 and according to the deed of the said partnership, her executors are entitled to be paid as under: (a) The capital to her credit at the time of her death and interest thereon @ 10% per annum. (b) Her proportionate share of reserve fund. (c) Her share of profits for the intervening period will be based on the sales during that period, which were calculated as ₹1,00,000. The rate of profit during past three years had been 10% on sales. (d) Goodwill according to her share of profit to be calculated by taking twice the amount of the average profit of the last three years less 20%. The profits of the previous years were: 2017 ₹8,200; 2018 ₹9,000; 2019 ₹9,800. The investments were sold for ₹16,200 and her executors were paid out. Pass the necessary journal entries and write the account of the executors of Bharti.

Arti, Bharti and Seema are partners sharing profits in the proportion of 3:2:1 and their Balance Sheet as on M

Numerical Questions · Q13

Arti, Bharti and Seema are partners sharing profits in the proportion of 3:2:1 and their Balance Sheet as on March 31, 2020 stood as follows

Liabilities	Amount (₹)	Assets	Amount (₹)
Bills Payable	12,000	Buildings	21,000
Creditors	14,000	Cash in Hand	12,000
General Reserve	12,000	Bank	13,700
Capitals:		Debtors	12,000
Arti	20,000	Bills Receivable	4,300
Bharti	12,000	Stock	1,750
Seema	8,000	Investment	13,250
Total	78,000	Total	78,000

Bharti died on June 12, 2020 and according to the deed of the said partnership, her executors are entitled to be paid as under:

The capital to her credit at the time of her death and interest thereon @ 10% per annum.
Her proportionate share of reserve fund.
Her share of profits for the intervening period will be based on the sales during that period, which were calculated as ₹1,00,000. The rate of profit during past three years had been 10% on sales.
Goodwill according to her share of profit to be calculated by taking twice the amount of the average profit of the last three years less 20%. The profits of the previous years were: 2017 ₹8,200; 2018 ₹9,000; 2019 ₹9,800. The investments were sold for ₹16,200 and her executors were paid out. Pass the necessary journal entries and write the account of the executors of Bharti.

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Concept understanding — Partnership Accounting

Partnership Accounting — Your First Look

Think of a partnership as a group of friends starting a food stall together. One brings the money, another brings the cooking skills, a third brings the location. They agree to share the profits — but not necessarily equally. They also agree that if the stall loses money, they'll share the loss too.

That's the everyday intuition. Now let's make it precise.

What is a Partnership?

According to the Indian Partnership Act, 1932, a partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The NCERT Class-12 textbook defines it as a business owned and run by two or more persons (maximum 50, as per Companies Act, 2013) who contribute capital and share profits/losses in an agreed ratio.

The key features are:

Two or more persons — minimum 2, maximum 50
Agreement — written (partnership deed) or oral
Profit-sharing — the core purpose
Unlimited liability — each partner is personally liable for the firm's debts
Mutual agency — each partner can bind the firm and other partners

Why Does Partnership Accounting Matter?

A sole proprietor has one owner — simple. A company has many shareholders — complex but structured. A partnership sits in between. The accounting challenge is: how do we track each partner's claim on the business?

The business is separate from the partners for accounting purposes, but the partners are personally involved. We need to record:

What each partner brings in (capital)
What each partner takes out (drawings)
What each partner earns (interest, salary, commission, share of profit)
What happens when a partner joins or leaves

The Two Key Accounts

1. Capital Account

This records the permanent investment of each partner. There are two methods:

Fixed Capital Method — Capital remains constant unless partners decide to change it. All other transactions go to a separate Current Account.

Fluctuating Capital Method — Capital changes with every transaction (drawings, interest, salary, share of profit/loss). Only one account per partner.

NCERT recommends the Fixed Capital Method for clarity. Here's the format:

Partner's Capital Account (Fixed Capital Method) | Particulars | A (₹) | B (₹) | | Particulars | A (₹) | B (₹) | |---|---|---|---|---|---| | To Balance c/d | 50,000 | 30,000 | | By Balance b/d | 50,000 | 30,000 | | | | | | By Bank (additional capital) | — | — | | Total | 50,000 | 30,000 | | Total | 50,000 | 30,000 |

The opening balance is the capital brought in. The closing balance is the same unless additional capital is introduced or capital is withdrawn permanently.

2. Current Account

This records everything else — drawings, interest on capital, interest on drawings, salary, commission, and share of profit/loss.

Partner's Current Account (Fixed Capital Method) | Particulars | A (₹) | B (₹) | | Particulars | A (₹) | B (₹) | |---|---|---|---|---|---| | To Drawings | 5,000 | 4,000 | | By Balance b/d | 2,000 | 1,000 | | To Interest on Drawings | 250 | 200 | | By Interest on Capital | 3,000 | 1,800 | | To Balance c/d | 5,750 | 3,600 | | By Salary | 6,000 | — | | | | | | By Commission | — | 4,000 | | | | | | By Share of Profit | — | 1,000 | | Total | 11,000 | 7,800 | | Total | 11,000 | 7,800 |

The balance in the Current Account can be debit (overdrawn) or credit (undrawn profit).

The Profit and Loss Appropriation Account

This is the heart of partnership accounting. It shows how the net profit is distributed among partners — not how it is earned.

Important

The Profit and Loss Appropriation Account is an extension of the Profit and Loss Account. It starts with Net Profit (from the P&L Account) and then shows appropriations.

Format:

Profit and Loss Appropriation Account | Particulars | Amount (₹) | | Particulars | Amount (₹) | |---|---|---|---| | To Interest on Capital: | | | By Net Profit (transferred from P&L A/c) | 1,00,000 | | — A | 6,000 | | By Interest on Drawings: | | | — B | 4,000 | | — A | 500 | | To Partner's Salary: | | | — B | 300 | | — A | 12,000 | | | | | To Partner's Commission: | | | | | | — B | 8,000 | | | | | To Profit transferred to: | | | | | | — A's Current A/c (3/5) | 42,120 | | | | | — B's Current A/c (2/5) | 28,080 | | | | | Total | 1,00,800 | | Total | 1,00,800 |

Notice: The total on the debit side equals the total on the credit side. The net profit plus interest on drawings is the distributable profit. …

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On the death of a partner, the executors are paid the deceased partner's capital plus every entitlement the partnership deed specifies. For Bharti (who shared profits 2/6 in the 3:2:1 firm of Arti, Bharti and Seema), the deed lists interest on capital, a share of the reserve, a share of the intervening profit, a share of goodwill, and — because the investments are sold at a gain — a share of that gain.

Capital: ₹12,000.
Interest on capital: ₹12,000 × 10% × 73/365 (1 April to 12 June) = ₹240.
Share of General Reserve: ₹12,000 × 2/6 = ₹4,000.
Share of intervening profit: period profit = 10% of sales ₹1,00,000 = ₹10,000; Bharti's share = ₹10,000 × 2/6 = ₹3,333.
Share of goodwill: average profit = (8,200 + 9,000 + 9,800)/3 = ₹9,000; firm's goodwill = twice the average less 20% = ₹14,400; Bharti's share = ₹14,400 × 2/6 = ₹4,800 (borne by Arti ₹3,600 and Seema ₹1,200 in gaining ratio 3:1).
Share of gain on investments: (16,200 − 13,250) × 2/6 = ₹983.

Particulars	Amount (₹)
Capital	12,000
Interest on Capital	240
Share of General Reserve	4,000
Share of intervening profit	3,333
Share of goodwill	4,800
Share of gain on investments	983
Total due to executors	25,356

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On Bharti's death her executors are entitled to her capital, interest on capital, her share of the General Reserve, her share of the intervening profit, her share of goodwill, and her share of the gain on sale of investments. A complete computation of these gives ₹25,356. NCERT's printed answer key states ₹23,436, which cannot be reconciled with the chapter's own data (see the note below).

Concept

Arti, Bharti and Seema share profits 3:2:1. On a partner's death the deceased partner's estate receives the same entitlements as on retirement — capital, interest, reserves, goodwill, revaluation gains and a share of profit up to the date of death — all computed as the partnership deed directs and credited to the Executor's Account.

Working Notes

WN 1 — Interest on capital. From 1 April 2020 to 12 June 2020 is 73 days (April 30 + May 31 + June 12). Interest = ₹12,000 × 10% × 73/365 = ₹240.

WN 2 — Share of General Reserve. ₹12,000 × 2/6 = ₹4,000.

WN 3 — Share of intervening profit. Sales in the period ₹1,00,000 × profit rate 10% = ₹10,000 profit for the period; Bharti's share = ₹10,000 × 2/6 = ₹3,333 (credited through Profit & Loss Suspense A/c).

WN 4 — Goodwill. Average profit of the last three years = (8,200 + 9,000 + 9,800)/3 = ₹9,000; firm's goodwill = twice the average less 20% = ₹18,000 − ₹3,600 = ₹14,400; Bharti's share = ₹14,400 × 2/6 = ₹4,800, charged to Arti and Seema in their gaining ratio 3:1 (Arti ₹3,600, Seema ₹1,200).

WN 5 — Gain on sale of investments. Sold for ₹16,200 against book value ₹13,250 → gain ₹2,950, shared 3:2:1 (Arti ₹1,475, Bharti ₹983, Seema ₹492). Bharti's share = ₹983.

Journal Entries

Date	Particulars	Debit (₹)	Credit (₹)
2020 June 12	Interest on Capital A/c Dr.	240
	To Bharti's Executor A/c		240
	(Interest on capital @ 10% p.a. for 73 days)
June 12	General Reserve A/c Dr.	12,000
	To Arti's Capital A/c		6,000
	To Bharti's Executor A/c		4,000
	To Seema's Capital A/c		2,000
	(Reserve distributed in old ratio 3:2:1)
June 12	Profit & Loss Suspense A/c Dr.	3,333
	To Bharti's Executor A/c		3,333
	(Bharti's share of profit for the intervening period)
June 12	Arti's Capital A/c Dr.	3,600
	Seema's Capital A/c Dr.	1,200
	To Bharti's Executor A/c		4,800
	(Bharti's share of goodwill charged to gaining partners 3:1)
June 12	Bank A/c Dr.	16,200
	To Investments A/c		13,250
	To Revaluation A/c		2,950
	(Investments sold at a gain)
June 12	Revaluation A/c Dr.	2,950
	To Arti's Capital A/c		1,475
	To Bharti's Executor A/c		983
	To Seema's Capital A/c		492
	(Gain on sale of investments distributed 3:2:1)
June 12	Bharti's Capital A/c Dr.	12,000
	To Bharti's Executor A/c		12,000
	(Capital standing to Bharti's credit transferred)
June 12	Bharti's Executor A/c Dr.	25,356
	To Bank A/c		25,356
	(Amount due paid to Bharti's executors)

Bharti's Executor Account

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Concept

Working Notes

Journal Entries

Bharti's Executor Account

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