Page 161 - DEBKVOL-1

Chapter 7 Death of a Partner 7.3
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Illustration 2 (Preparation of Deceased Partner’s Capital Account).
Bhatt and Seth were carrying on a business in partnership sharing profits and losses in the
ratio of 3 : 2. They closed their books of account every year on 31st March. Their Balance Sheet
as at 31st March, 2018 was:

Liabilities ` Assets `
Bhatt’s Capital 90,000 Furniture 20,000
Seth’s Capital 60,000 1,50,000 Stock 1,00,000
Reserve 30,000 Debtors 50,000
Creditors 20,000 Cash 30,000
2,00,000 2,00,000
Seth died on 1st August, 2018. Partnership Deed provided that in the event of death of a
partner, partner’s heirs would be entitled to be paid out:
(i) Capital to his credit till the date of death.
(ii) His share of reserve till the date of the last Balance Sheet.
(iii) His share of profits till the date of his death based on the average profits of the last three
accounting years.
(iv) By way of goodwill, his share of total profits for the preceding three accounting years.
The profits for the three preceding accounting years were:
31st March, 2016 ` 41,800
31st March, 2017 ` 39,200
31st March, 2018 ` 45,000
Prepare Seth’s Capital Account by transferring due amount to Seth’s Legal Heir’s Loan Account.
Clearly show your calculations.
Solution:
Dr. SETH’S CAPITAL ACCOUNT Cr.
Date Particulars ` Date Particulars `
2018 2018
August 1 To Seth’s Legal Heir’s Loan A/c 1,28,000 April 1 By Balance b/d 60,000
—Transfer August 1 By Reserve A/c 12,000
August 1 By Profit and Loss Suspense A/c 5,600
—Profit
August 1 By Bhatt’s Capital A/c (Goodwill) 50,400
1,28,000 1,28,000

Working Notes:
1. Average Profit of the three preceding accounting years:
+ 39,200 `
` 41,800 ` + 45,000 ` 1,26,000
Average Profit = = = ` 42,000.
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2. Seth’s Share of Profit for four months of 2018–19 = ` 42,000 × × = ` 5,600.
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3. Seth’s Share of Goodwill = ` 1,26,000 × = ` 50,400.
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