Arun, Varun and Karun shared profits 2:2:1. On Karun's death: debtors made good (RDD Rs. 400 back), furniture down Rs. 550, investments sold at 10% profit (Rs. 1,500 gain), goodwill raised from the book value Rs. 5,000 to Rs. 7,500 (increase Rs. 2,500 credited in old ratio), and Karun credited with his share of the estimated profit up to death (Rs. 250 via Profit & Loss Suspense A/c). Bank Loan paid and Executor paid by NEFT.

Working Note 1 - Karun's share of profit to date of death

Karun died on 1st July 2019, i.e. 3 months (April, May, June) into 2019-20. Estimated profit Rs. 5,000.

Karun's share = 5,000 x 3/12 x 1/5 = Rs. 250 (debited to Profit & Loss Suspense A/c).

Working Note 2 - Goodwill raised

Book goodwill Rs. 5,000; firm's goodwill valued at Rs. 7,500, so Goodwill A/c is raised by Rs. 2,500 and credited to all partners in old ratio 2:2:1 - Arun Rs. 1,000, Varun Rs. 1,000, Karun Rs. 500. Goodwill appears in the new Balance Sheet at Rs. 7,500.

Profit and Loss Adjustment Account

Partners' Capital Accounts

Working Note 3 - Bank Account