31 :- Madhav, Raghav and Purav were partners in a firm sharing profits and losses in the ratio of 3:1:1. Their Balance sheet as at 31st March 2023, was as follows:
Purav died on 30th September, 2023. According to partnership deed, his legal representatives are entitled to the following :
(i) Balance in his capital account.
(ii) Share of profit upto the date of death to be calculated on the basis of last year’s profit.
(iii) Share of goodwill calculated on the basis of three years purchase of average profits of last four years.
(iv) Interest on capital @12% p.a.
Purav’s share of profit was Rs 3,000 and the average profit of last four years was Rs 50,000. Purav’s drawings upto the date of death were Rs 10,000.
Prepare Purav’s Capital Account to be rendered to his legal representatives.
Solution :-
Firm’s goodwill = 50,000 x 3 = Rs 1,50,000
Purav’s share in goodwill = Rs 30,000 to be compensated by Madhav and Raghav in 3:1.