Page 313 - MA-12

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

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

Year 2016–17 2017–18 2018–19
Profits (`) 1,90,000 2,20,000 2,50,000

Capital employed in the firm throughout the above period has been ` 4,00,000.
Having regard to the risk involved, 15% is considered to be a fair return on
the capital. Remuneration of all the partners during this period is
estimated to be ` 1,00,000 per annum.

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. Following is the Balance Sheet as at 31st March, 2019 of Ram and Rahim, who share
profits and losses in the ratio of 4 : 1:

BALANCE SHEET as at 31st March, 2019
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, 2019 and following was agreed:
(i) Ram agreed to pay his brother’s Loan.

(ii) Debtors of ` 50,000 proved bad.
(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: (i) Realisation Account, (ii) Partners’ Capital Accounts, (iii) Bank Account. [12]