Question

Simar, Tanvi and Umara were partners in a firm sharing profits and losses in the ratio of 5 : 6 : 9. On 31st March, 2024 their Balance Sheet was as follows:
Balance sheet of Simar, Tanvi and Umara as at 31st March, 2024
% [Balance Sheet Table - Simplified representation below] % Liabilities: Capitals (S:13L, T:12L, U:14L) = 39L; General Reserve = 7L; Trade Payables = 6L; Total = 52L % Assets: Fixed Assets = 25L; Stock = 10L; Debtors = 8L; Cash = 7L; P A/c (2023-24) = 2L; Total = 52L Liabilities: Capitals (S:13L, T:12L, U:14L) 39L, General Reserve 7L, Trade Payables 6L. Total 52L.
Assets: Fixed Assets 25L, Stock 10L, Debtors 8L, Cash 7L, Profit and Loss Account (2023-24) 2L. Total 52L.
\textbf{Umara died on 30th June, 2024. The partnership deed provided for the following on the death of a partner:

Hint:

On death of a partner: 1. Calculate Goodwill based on the agreed method (e.g., average profits).
2. Adjust deceased partner's share of goodwill: Dr. Gaining Partners' Capital A/cs (in gaining ratio), Cr. Deceased Partner's Capital A/c.
3. Calculate deceased partner's share of profit/loss till death based on time or turnover, using the specified profit basis.
4. Record the share of profit/loss: Dr./Cr. P\ Suspense A/c, Cr./Dr. Deceased Partner's Capital A/c.

Answer 1

Section (a): Goodwill Calculation
The profit for the year ending March 31, 2024, is taken as the accumulated loss of Rs 2,00,000 reflected in the Balance Sheet.
Profits/(Loss) for the preceding five years are as follows:
2019-20: Rs 2,50,000 (Profit)
2020-21: Rs 4,00,000 (Profit)
2021-22: Rs 3,00,000 (Profit)
2022-23: Rs (3,10,000) (Loss)
2023-24: Rs (2,00,000) (Loss - based on Balance Sheet)
The total profit over the five-year period amounts to Rs 4,40,000 (calculated as 2,50,000 + 4,00,000 + 3,00,000 - 3,10,000 - 2,00,000).
The average profit is calculated by dividing the total profit by 5, resulting in Rs 88,000 (Rs 4,40,000 / 5).
Goodwill is determined by multiplying the average profit by the number of years' purchase: Goodwill = Rs 88,000 \( \times \) 3 = Rs 2,64,000.
The calculated goodwill for the firm is Rs 2,64,000.
Section (b): Journal Entry for Goodwill Adjustment
The old profit-sharing ratio for S:T:U is 5:6:9, totaling 20 parts.
Umara's share of goodwill is calculated as: Total Goodwill \( \times \) Umara's Share = Rs 2,64,000 \( \times \) \( \frac{9}{20} \) = Rs 1,18,800.
The gaining ratio for Simar and Tanvi, assuming their mutual ratio remains unchanged, is 5:6.
Simar's debit amount = Umara's Share \( \times \) \( \frac{5}{11} \) = Rs 1,18,800 \( \times \) \( \frac{5}{11} \) = Rs 54,000.
Tanvi's debit amount = Umara's Share \( \times \) \( \frac{6}{11} \) = Rs 1,18,800 \( \times \) \( \frac{6}{11} \) = Rs 64,800.
Journal Entry:
\begin{tabular}{|p{8cm}|r|r|} \hline Particulars & Dr. (Rs) & Cr. (Rs)
\hline Simar's Capital A/c \hspace{3.6cm} Dr. & 54,000 &
Tanvi's Capital A/c \hspace{3.6cm} Dr. & 64,800 &
\indent To Umara's Capital A/c & & 1,18,800
\textit{(Being Umara's share of goodwill adjusted through gaining partners' capital accounts in their gaining ratio 5:6)} & &
\hline\end{tabular}
Section (c): Calculation of Umara's Share of Profit up to Date of Death
The basis for calculation is the loss for the year ending March 31, 2024, which is Rs 2,00,000.
The period considered is from April 1, 2024, to June 30, 2024, which is 3 months.
Umara's share of the loss is calculated as: Total Loss \( \times \) Umara's Ratio \( \times \) Period = Rs 2,00,000 \( \times \) \( \frac{9}{20} \) \( \times \) \( \frac{3}{12} \).
Umara's share = Rs 90,000 \( \times \) \( \frac{1}{4} \) = Rs 22,500 (Loss).
Umara's share of loss until the date of death is Rs 22,500.
Section (d): Journal Entry for Umara's Share of Profit/Loss
As the calculated amount is a loss, Umara's Capital Account will be debited.
Journal Entry:
\begin{tabular}{|p{8cm}|r|r|} \hline Particulars & Dr. (Rs) & Cr. (Rs)
\hline Umara's Capital A/c \hspace{3.4cm} Dr. & 22,500 &
\indent To Profit and Loss Suspense A/c & & 22,500
\textit{(Being Umara's share of estimated loss till the date of death recorded)} & &
\hline\end{tabular}