28 :- X and Y are partners. The partnership deed provides as follows :
(a) That the accounts be balanced on 31st March every year.
(b) That the profits be divided as : X one – half, Y one – third and carried to a reserve one — sixth.
(c) That in the event of the death of a partner, his executors be entitled to be paid:
(i)The capital to his credit till the date of death.
(ii)His proportion of profits till the date of death based on the average profits of the last three completed years.
(iii)By way of goodwill, his proportion of the total profits for the three preceding years.
Profits for three years ended 31st March were : 2022 – Rs 4,200; 2023 – Rs 3,900; 2024 – Rs 4,500. Y died on 1st August, 2024.
Prepare necessary accounts.
Solution :-
WORKING NOTES :-
(i) Calculation of Y’s share of reserve
Y’s share = 3,000 x 2/5 = Rs 1,200
(ii) Calculation of Y’s share of profit
Average profit = Profit of previous 3 years/3
= 4,200 + 3,900 + 4,500/3
= 12,600/3
= Rs 4,200
Y’s share of profit (1st April 2018 to 1st August 2018)
= 4,200 x 2/5 x 4/12
= Rs 560
(iii) Calculation of Y’s share of goodwill
Y’s share of goodwill = Y’s share of profits in previous 3 years
Profit for previous 3 years = 4,200 + 3,900 + 4,500
= Rs 12,600
Y’s share in goodwill = 12,600 x 2/5 = Rs 5,040