Mahendra, Surendra and Narendra were partners sharing profits and losses in the ratio of 5 : 3 : 2 respectively. Their Balance Sheet as on 31st March 2019 was as follows:
| Balance Sheet as on 31st March 2019 | | | |
| --- | --- | --- | --- |
| Liabilities | Amount (₹) | Asset

Question

Mahendra, Surendra and Narendra were partners sharing profits and losses in the ratio of 5 : 3 : 2 respectively. Their Balance Sheet as on 31st March 2019 was as follows:
| Balance Sheet as on 31st March 2019 |  |  |  |
| --- | --- | --- | --- |
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Capital Account: |  | Stock | 17,000 |
| Mahendra | 23,000 | Furniture | 18,000 |
| Surendra | 15,000 | Land and Building | 16,000 |
| Narendra | 12,000 | Bank | 37,000 |
| Bills Payable | 2,000 |  |  |
| Creditors | 8,000 |  |  |
| Bank Loan | 12,000 |  |  |
| General Reserve | 16,000 |  |  |
|  | 88,000 |  | 88,000 |
Mr. Narendra died on 30th June 2019 and the following adjustments were agreed as per deed:
Stock, furniture, land and building are to be revalued at ₹ 16,700, ₹ 16,200 and ₹ 30,100 respectively.
Narendra’s share in goodwill is to be valued from firm’s goodwill which was valued at 3 times of the average profit of last four years. Profit of the last four years:
I year
₹ 30,000
II year
₹ 25,000
III year
₹ 25,000
IV year
₹ 40,000
His profit up to the death is to be calculated on the basis of profit of last year.
Narendra was entitled to get a salary of ₹ 1,200 per month.
Interest on capital at 10% p.a. to be allowed.
Narendra’s drawing up to the date of his death was ₹ 900 per month.
Prepare:
Narendra’s Capital Account showing amount payable to his executor.
Give working notes for:
Share of goodwill due to Narendra
Share of profit due to Narendra

Accepted Answer

>

> [!TLDR]
> Firm's goodwill = 3 × average profit = 3 × ₹30,000 = ₹90,000, so Narendra's 2/10 share = ₹18,000. Revaluation gives a net profit of ₹12,000 (his share ₹2,400). Profit up to death (3 months, on last year's ₹40,000) = ₹2,000. Adding reserve, salary and interest and deducting drawings, the balance carried to his Executor's Loan A/c = **₹38,800**.
>
> **Working Note 1 — Share of goodwill:**
>
> | Year | Profit (₹) |
> | --- | --- |
> | I | 30,000 |
> | II | 25,000 |
> | III | 25,000 |
> | IV | 40,000 |
> | **Total** | **1,20,000** |
>
> Average profit = 1,20,000 ÷ 4 = ₹30,000.
> Firm's goodwill = 3 × 30,000 = ₹90,000.
> Narendra's share = 90,000 × 2/10 = **₹18,000**.
>
> **Working Note 2 — Share of profit up to date of death** (based on last year's profit ₹40,000; period 1 April to 30 June 2019 = 3 months):
> = 40,000 × 3/12 × 2/10 = 40,000 × 0.25 × 0.20 = **₹2,000**.
>
> **Working Note 3 — Revaluation of assets:**
>
> | Asset | Old (₹) | New (₹) | Profit / (Loss) (₹) |
> | --- | --- | --- | --- |
> | Stock | 17,000 | 16,700 | (300) |
> | Furniture | 18,000 | 16,200 | (1,800) |
> | Land & Building | 16,000 | 30,100 | 14,100 |
> | **Net revaluation profit** | | | **12,000** |
>
> Narendra's share = 12,000 × 2/10 = **₹2,400**.
>
> **Working Note 4 — Other items:**
> Share of General Reserve = 16,000 × 2/10 = ₹3,200.
> Salary = ₹1,200 × 3 months = ₹3,600.
> Interest on capital = 12,000 × 10% × 3/12 = ₹300.
> Drawings = ₹900 × 3 months = ₹2,700.
>
> **Narendra's Capital Account**
>
> | Dr — Particulars | Amount (₹) | Cr — Particulars | Amount (₹) |
> | --- | --- | --- | --- |
> | To Drawings A/c | 2,700 | By Balance b/d | 12,000 |
> | To Narendra's Executor's Loan A/c (bal.) | 38,800 | By General Reserve A/c | 3,200 |
> | | | By Revaluation A/c (profit) | 2,400 |
> | | | By Goodwill A/c | 18,000 |
> | | | By Partners' Salary A/c | 3,600 | …

Balance Sheet as on 31st March 2019
Liabilities	Amount (₹)	Assets	Amount (₹)
Capital Account:		Stock	17,000
Mahendra	23,000	Furniture	18,000
Surendra	15,000	Land and Building	16,000
Narendra	12,000	Bank	37,000
Bills Payable	2,000
Creditors	8,000
Bank Loan	12,000
General Reserve	16,000
	88,000		88,000
Mr. Narendra died on 30th June 2019 and the following adjustments were agreed as per deed:
Stock, furniture, land and building are to be revalued at ₹ 16,700, ₹ 16,200 and ₹ 30,100 respectively.
Narendra’s share in goodwill is to be valued from firm’s goodwill which was valued at 3 times of the average profit of last four years. Profit of the last four years:
I year
₹ 30,000
II year
₹ 25,000
III year
₹ 25,000
IV year
₹ 40,000
His profit up to the death is to be calculated on the basis of profit of last year.
Narendra was entitled to get a salary of ₹ 1,200 per month.
Interest on capital at 10% p.a. to be allowed.
Narendra’s drawing up to the date of his death was ₹ 900 per month.
Prepare:
Narendra’s Capital Account showing amount payable to his executor.
Give working notes for:
Share of goodwill due to Narendra
Share of profit due to Narendra

Asset	Old (₹)	New (₹)	Profit / (Loss) (₹)
Stock	17,000	16,700	(300)
Furniture	18,000	16,200	(1,800)
Land & Building	16,000	30,100	14,100
Net revaluation profit			12,000

Dr — Particulars	Amount (₹)	Cr — Particulars	Amount (₹)
To Drawings A/c	2,700	By Balance b/d	12,000
To Narendra's Executor's Loan A/c (bal.)	38,800	By General Reserve A/c	3,200
		By Revaluation A/c (profit)	2,400
		By Goodwill A/c	18,000
		By Partners' Salary A/c	3,600

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