32 :- X, Y and Z were partners in a firm sharing profits in the ratio of 2:2:1. On 31st March 2025, their balance sheet was as follows :
Y died on 30th June, 2025. Partnership deed provided for the following on the death of a partner
(i) Goodwill of the business was to be calculated on the basis of 2 times the average profit of the past 5 years. Profits for the years ended 31st March, 2025, 31st March, 2024, 31st March, 2023, 31st March, 2022 and 31st March, 2021 were Rs 3,20,000 (loss); Rs 1,00,000; Rs 1,60,000; Rs 2,20,000 and Rs 4,40,000 respectively.
(ii) Y’s share of profit or loss from 1st April, 2025 till his death was to be calculated on the basis of the profit or loss for the year ended 31st March, 2025.
You are required to calculate the following
(a) Goodwill of the firm and Y’s share of goodwill at the time of his death.
(b) Y’s share in the profit or loss of the firm till the date of his death.
(c) Prepare Y’s capital account at the time of his death to be presented to his executors.
Solution :-
WORKING NOTES :
(i) Calculation of share in general reserve
Reserve = 60,000 x 2/5 = Rs 24,000
(ii) Calculation of share of goodwill of the firm
Averageprofit = (32,000) + 1,00,000 + 1,60,000 + 2,20,000 + 4,40,000/5
= Rs 1,20,000
Goodwill = Average profit x No. of years purchased
= 1,20,000 x 2
= Rs 2,40,000
Y’s share in goodwill = 2,40,000 x 2/5 = Rs 96,000 ; should be contributed by X and Z in 2:1
(iii) Calculation of profit and loss suspense
Profit and loss suspense (loss) = 3,20,000 x 2 x 3/5 x 12
= Rs 32,000