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Death of a Partner 5.11
Y died on 30th June, 2018. Partnership Deed provided for the following on death of a partner:
(i) Goodwill of the firm was to be valued at 2 years’ purchase of the average profit of
last 5 years. The profits for the past four years were ` 50,000; ` 80,000; ` 1,10,000
and ` 2,20,000 respectively.
(ii) Share of profit or loss till the date of his death was to be calculated on the basis of
the profit or loss for the year ended 31st March, 2018.
(iii) X and Z decide to record the effect of Workmen Compensation Reserve and General
Reserve without affecting their book figures.
Prepare Y’s Capital Account at the time of his death to be presented to his executors.
Solution:
Dr. Y’S CAPITAL ACCOUNT Cr.
Particulars ` Particulars `
To Profit and Loss A/c (` 1,60,000 × 2/5) 64,000 By Balance b/d 3,00,000
To Profit and Loss Suspense A/c (WN 2) 16,000 By X’s Capital A/c (Goodwill) 32,000
To Y’s Executors’ A/c 2,95,000 By Z’s Capital A/c (Goodwill) 16,000
(Balancing Figure) By X’s Capital A/c (WN 3) 18,000
By Z’s Capital A/c (WN 3) 9,000
3,75,000 3,75,000

Working Notes:
1. Calculation of Y’s Share of Goodwill:
( 50,000 + 80,000 + 1,10,000 + 2,20,000 1,60,00` ` ` ` - ` 0 0)
Firm’s Goodwill = × 2 = ` 1,20,000
5
Y’s Share of Goodwill = 1,20,000 × 2/5 = ` 48,000, which is contributed by X and Z in their gaining ratio
of 2 : 1.
Thus, X’s contribution = ` 48,000 × 2/3 = ` 32,000, and Z’s contribution = ` 4,80,000 × 1/3 = ` 16,000.
2. Y’s share in loss from the date of last Balance Sheet up to date of death = ` 1,60,000 × 2/5 × 3/12 = ` 16,000.
3. Y’s share in Workmen Compensation Reserve and General Reserve = 2/5 (` 40,000 + ` 27,500) = ` 27,000,
which is contributed by X and Z in their gaining ratio of 2 : 1.
X’s contribution = ` 27,000 × 2/3 = ` 18,000; Z’s contribution = ` 27,000 × 1/3 = ` 9,000.
Illustration 8.
A, B and C are partners in a firm. Their Balance Sheet as at 31st March, 2017 is given below:
Liabilities ` Assets `

Creditors 10,000 Plant and Machinery 20,000
General Reserve 10,000 Furniture and Fixtures 2,500
A’s Capital 20,000 Stock 10,500
B’s Capital 15,000 Debtors 15,000
C’s Capital 5,000 Investments 12,000
60,000 60,000

B died on 30th September, 2017. The Partnership Deed provides that the representatives
of the deceased partner shall be entitled to:
(i) Deceased Partner’s Capital as appearing in last Balance Sheet.
(ii) Interest on Capital @ 6% p.a. up to the date of death.