Mahendra, Jitendra, and Hitendra are in partnership sharing profits and losses in the ratio of 3 : 2 : 1 respectively. Their Balance Sheet as on 31st March 2022 was as follows:
| Balance Sheet as on 31st March 2022 | | | |
| --- | --- | --- | --- |
| Liabilities | Amount (₹) |

Question

Mahendra, Jitendra, and Hitendra are in partnership sharing profits and losses in the ratio of 3 : 2 : 1 respectively. Their Balance Sheet as on 31st March 2022 was as follows:
| Balance Sheet as on 31st March 2022 |  |  |  |
| --- | --- | --- | --- |
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Capital Accounts: |  | Debtors | 90,000 |
| Mahendra | 2,20,000 | Machinery | 85,000 |
| Jitendra | 2,10,000 | Investment | 3,50,000 |
| Hitendra | 2,40,000 | Motor Lorry | 1,00,000 |
| Creditors | 80,000 | Building | 80,000 |
| Bills Payable | 7,000 | Bank | 1,48,000 |
| General Reserve | 96,000 |  |  |
|  | 8,53,000 |  | 8,53,000 |
On 1st October 2022, Hitendra died, and the partnership deed provided that:
Machinery valued at ₹ 80,000 and creditors valued at ₹ 69,000.
Profit for 2022-23 was estimated at ₹ 1,20,000. Hitendra’s share in it up to the date of his death was given to him.
Goodwill of the firm was valued at two times the average profit of the last 5 years. Firm’s profits of the last 5 years were:
I year - ₹ 1,80,000,
II year - ₹ 1,50,000,
III year - ₹ 2,00,000,
IV year - ₹ 1,20,000
V year - ₹ 2,50,000
Hitendra’s share in it was to be given to him.
Drawings made by Hitendra up to his death are ₹ 30,000.
Interest on drawings of Hitendra is charged at ₹ 2,000.
Prepare:
Hitendra’s Capital Account and show the working of:
Hitendra’s share in goodwill.
Hitendra’s share in profit.

Accepted Answer

>

> [!TLDR]
> Revalue assets/liabilities, split the General Reserve, and credit Hitendra with his 1/6 share of goodwill (₹60,000) and of the year's profit up to 1 Oct 2022 (₹10,000). After deducting drawings (₹30,000) and interest on drawings (₹2,000), the balance of **₹2,95,000** is carried to his Executor's Loan Account.
>
> **Working Note 1 — Profit-sharing ratio and Hitendra's share**
> Mahendra : Jitendra : Hitendra = 3 : 2 : 1, so Hitendra's share = 1/6.
>
> **Working Note 2 — Revaluation of assets and liabilities**
>
> | Revaluation item | Effect | Amount (₹) |
> | --- | --- | --- |
> | Machinery 85,000 → 80,000 | Loss | 5,000 |
> | Creditors 80,000 → 69,000 | Gain (liability falls) | 11,000 |
> | **Net revaluation profit** |  | **6,000** |
>
> Hitendra's share of revaluation profit = 6,000 × 1/6 = **₹1,000**.
>
> **Working Note 3 — Share of General Reserve**
> General Reserve ₹96,000 × 1/6 = **₹16,000**.
>
> **Working Note 4 — Hitendra's share of goodwill**
> Goodwill = 2 × average profit of last 5 years.
> Total of 5 years = 1,80,000 + 1,50,000 + 2,00,000 + 1,20,000 + 2,50,000 = ₹9,00,000.
> Average profit = 9,00,000 / 5 = ₹1,80,000.
> Goodwill of firm = 2 × 1,80,000 = ₹3,60,000.
> Hitendra's share = 3,60,000 × 1/6 = **₹60,000**.
>
> **Working Note 5 — Hitendra's share of profit up to date of death**
> Death on 1 Oct 2022 = 6 months into the year 2022-23.
> Estimated profit for the year = ₹1,20,000; for 6 months = 1,20,000 × 6/12 = ₹60,000.
> Hitendra's share = 60,000 × 1/6 = **₹10,000**.
>
> **Hitendra's Capital Account**
> …

Balance Sheet as on 31st March 2022
Liabilities	Amount (₹)	Assets	Amount (₹)
Capital Accounts:		Debtors	90,000
Mahendra	2,20,000	Machinery	85,000
Jitendra	2,10,000	Investment	3,50,000
Hitendra	2,40,000	Motor Lorry	1,00,000
Creditors	80,000	Building	80,000
Bills Payable	7,000	Bank	1,48,000
General Reserve	96,000
	8,53,000		8,53,000
On 1st October 2022, Hitendra died, and the partnership deed provided that:
Machinery valued at ₹ 80,000 and creditors valued at ₹ 69,000.
Profit for 2022-23 was estimated at ₹ 1,20,000. Hitendra’s share in it up to the date of his death was given to him.
Goodwill of the firm was valued at two times the average profit of the last 5 years. Firm’s profits of the last 5 years were:
I year - ₹ 1,80,000,
II year - ₹ 1,50,000,
III year - ₹ 2,00,000,
IV year - ₹ 1,20,000
V year - ₹ 2,50,000
Hitendra’s share in it was to be given to him.
Drawings made by Hitendra up to his death are ₹ 30,000.
Interest on drawings of Hitendra is charged at ₹ 2,000.
Prepare:
Hitendra’s Capital Account and show the working of:
Hitendra’s share in goodwill.
Hitendra’s share in profit.

Revaluation item	Effect	Amount (₹)
Machinery 85,000 → 80,000	Loss	5,000
Creditors 80,000 → 69,000	Gain (liability falls)	11,000
Net revaluation profit		6,000

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