Page 98 - MA12

M.4 Management Accounting (Section B)—ISC XII

(b) A partnership firm earned net profits during the last three years as follows:

Year ended 31st March, 2018 2019 2020
Profits (`) 1,90,000 2,20,000 2,50,000
Capital employed in the firm throughout the above period was ` 4,00,000.
Having regard to the risk involved, 15% is considered to be a fair return on
the capital. Management cost, during this period estimated to be ` 1,00,000 per
annum, to be considered to calculate goodwill.
Calculate the value of goodwill on the basis of
(i) three years’ purchase of Average Profit;
(ii) two years’ purchase of Super Profits earned on average basis during the above
mentioned three years; and
(iii) Capitalisation of Super Profit. [6 + 6 = 12]

6. Ram and Rahim were partners in a firm sharing profits in the ratio of 4 : 1. On
31st March, 2020 their Balance Sheet was as follows:

BALANCE SHEET as at 31st March, 2020

Liabilities ` Assets `
Sundry Creditors 80,000 Bank 2,00,000
Bank Overdraft 60,000 Debtors 1,70,000
Ram’s Brother’s Loan 80,000 Less: Provision for Doubtful Debts 20,000 1,50,000
Rahim’s Loan 30,000 Stock 1,50,000
Investment Fluctuation Fund 50,000 Investments 2,50,000
Capital A/cs: Building 2,50,000
Ram 5,00,000 Goodwill 1,00,000
Rahim 4,00,000 9,00,000 Profit and Loss A/c 1,00,000
12,00,000 12,00,000

The firm was dissolved on 1st April, 2020 and following was agreed:
(i) Ram agreed to pay his brother’s Loan.
(ii) Debtors of ` 20,000 proved bad. The remaining debtors were sold to a debt collecting
agency at 80% of the Book Value.
(iii) Other assets realised: Investments 20% less; and goodwill at 60%.
(iv) One of the creditors for ` 50,000 was paid ` 30,000.
(v) Building was auctioned for ` 3,00,000 and the auctioneer’s commission paid
was ` 10,000.
(vi) Rahim took a part of stock at ` 40,000 (being 20% less than the book value). Balance
stock realised 50%.
(vii) Realisation expenses were ` 20,000.
Prepare: (a) Realisation Account, (b) Partners’ Capital Accounts, (c) Bank Account. [12]