Question

30, Shirish, Harit and Asha were partners in a firm sharing profits in the ratio of 5:4:1. Shirish died on

Answer 1

The preparation of Shirish's Capital Account to be presented to his executor is as follows:

Shirish

Capital Account

Date           Transaction              Debit          Credit

31st March Beginning balance                    100,000

30th June  Share of profits for Shirish         35,000

                  Share of Goodwill                       70,000

30th June  Ending balance     205,000

Data and Calculations:

Profit sharing ratio of  Shirish, Harit and Asha = 5:4:1

i) Profit for the year 2016-17 was 60,000

Profit for 2017-18 = 80,000

Average profit = 70,000 (140,000/2)

Share of profits for Shirish = 35,000 (70,000 x 5/10)

(ii) Goodwill at 2 years' purchase of average of last two years' profits = 140,000 (70,000 x 2)

Share of Goodwill = 70,000 (140,000 x 5/10)

Thus, the capital account shows that the executor of Shirish will be getting 205,000 from the former partnership.

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