P, Q and R are partners sharing profits and losses in the ratio 3:2:1. Their books close every year on 31st March. R dies on 30th September 2024. On that date, the Balance Sheet (as on 31st March 2024, the last balance sheet) showed R's Capital at ₹60,000, and a General Reserve o

Question

P, Q and R are partners sharing profits and losses in the ratio 3:2:1. Their books close every year on 31st March. R dies on 30th September 2024. On that date, the Balance Sheet (as on 31st March 2024, the last balance sheet) showed R's Capital at ₹60,000, and a General Reserve of ₹24,000. The following terms are agreed on R's death: (i) Goodwill of the firm is valued at ₹60,000. (ii) Assets are revalued, resulting in a net profit on revaluation of ₹12,000, to be shared in the old ratio. (iii) The General Reserve is to be distributed among the partners in the old ratio. (iv) R's share of profit up to the date of death, calculated on the time basis using the firm's profit of ₹72,000 for the year ended 31st March 2024, is to be credited to R. (v) Interest on R's capital @6% p.a. is to be allowed up to the date of death. (vi) R had withdrawn ₹4,000 during the current year up to the date of death, to be debited to R's account. (vii) P and Q will continue to share profits in their old mutual ratio of 3:2, so their gaining ratio is also 3:2. (viii) R's executor is to be paid ₹29,800 in cash immediately, and the balance transferred to R's Executor's Loan Account, repayable in 2 equal annual instalments of ₹25,000 each (principal), together with interest @6% p.a. on the outstanding balance (the deed being silent on the rate). Prepare the Revaluation Account, the Partners' Capital Accounts, R's Executor's Loan Account for 2 years, and show the relevant Balance Sheet extract.

Accepted Answer

**Step 1 — R's share of goodwill.** R's old share = 1/6 (ratio 3:2:1). R's share of ₹60,000 goodwill = 1/6 × 60,000 = ₹10,000, charged to P and Q in their gaining ratio 3:2: P = 3/5 × 10,000 = ₹6,000; Q = 2/5 × 10,000 = ₹4,000. Check: 6,000 + 4,000 = 10,000 ✓.

**Step 2 — Revaluation Account (net profit ₹12,000, given), shared in the OLD ratio 3:2:1.**

| Dr. Revaluation Account | Amount (₹) | Cr. | Amount (₹) |
|---|---|---|---|
| To Profit transferred to Capital A/cs (P 6,000; Q 4,000; R 2,000) | 12,000 | By Sundry Assets/Liabilities (net revaluation gain, as adjusted) | 12,000 |
| Total | 12,000 | Total | 12,000 |

P = 3/6 × 12,000 = ₹6,000; Q = 2/6 × 12,000 = ₹4,000; R = 1/6 × 12,000 = ₹2,000. Check: 6,000 + 4,000 + 2,000 = 12,000 ✓.

**Step 3 — General Reserve ₹24,000, shared in the OLD ratio 3:2:1.** P = 3/6 × 24,000 = ₹12,000; Q = 2/6 × 24,000 = ₹8,000; R = 1/6 × 24,000 = ₹4,000. Check: 12,000 + 8,000 + 4,000 = 24,000 ✓.

**Step 4 — R's profit up to date of death (time basis).** R's share = 1/6. Full-year notional share of ₹72,000 = 1/6 × 72,000 = ₹12,000. R was alive for 6 months (1st April to 30th September) of the 12-month year. R's share up to death = 12,000 × 6/12 = ₹6,000. Dual-check (reverse order): firm's estimated 6-month profit = 72,000 × 6/12 = 36,000; R's share = 1/6 × 36,000 = ₹6,000 — matches.

**Step 5 — Interest on R's capital up to date of death.** ₹60,000 × 6% × 6/12 = ₹1,800.

**Step 6 — R's Capital Account.**

| Dr. R's Capital Account | Amount (₹) | Cr. | Amount (₹) |
|---|---|---|---|
| To Drawings A/c | 4,000 | By Balance b/d | 60,000 |
| To R's Executor's A/c (balancing figure, transferred) | 79,800 | By Revaluation A/c (profit) | 2,000 |
| | | By General Reserve A/c | 4,000 |
| | | By P&L Suspense A/c (profit to date of death) | 6,000 |
| | | By Interest on Capital A/c | 1,800 |
| | | By P's Capital A/c (goodwill) | 6,000 |
| | | By Q's Capital A/c (goodwill) | 4,000 |
| Total | 83,800 | Total | 83,800 |

Total credits = 60,000 + 2,00

Dr. Revaluation Account	Amount (₹)	Cr.	Amount (₹)
To Profit transferred to Capital A/cs (P 6,000; Q 4,000; R 2,000)	12,000	By Sundry Assets/Liabilities (net revaluation gain, as adjusted)	12,000
Total	12,000	Total	12,000

Dr. R's Capital Account	Amount (₹)	Cr.	Amount (₹)
To Drawings A/c	4,000	By Balance b/d	60,000
To R's Executor's A/c (balancing figure, transferred)	79,800	By Revaluation A/c (profit)	2,000
		By General Reserve A/c	4,000
		By P&L Suspense A/c (profit to date of death)	6,000
		By Interest on Capital A/c	1,800
		By P's Capital A/c (goodwill)	6,000
		By Q's Capital A/c (goodwill)	4,000
Total	83,800	Total	83,800

🎓Unlock everything free for 14 days

Unlock everything free for 14 days