The Balance Sheet of Sudha, Rahim and Kartik who were sharing profit in the ratio of 3:3 4 as on 31st March, 2012 was as follows:
Sudha died on June 30th 2012. The partnership deed provided for the following on the death of a partner:
(a) Goodwill of the firm be valued at two years purchase of average profits for the last three years.
(b) Sudha’s share of profit or loss till the date of her death was to be calculated on the basis of sales. Sales for the year ended 31st March, 2012 amounted to Rs 4,00,000 and that from 1stApril to 30th June 2012 to Rs 1,50,000. The profit for the year ended 31st March, 2012 was Rs 1,00,000.
(c) Interest on capital was to be provided @ 6% p.a.
(d) The average profits of the last three years were Rs 42,000.
(e) According to Sudha’s will, the executors should donate her share to Matri Chhaya an orphanage for girls.
Prepare Sudha’s Capital Account to be rendered to her executor. Also identify the value being highlighted in the question.
1) Calculation of Sudha’s Share of Goodwill
Goodwill of Firm = Average profits x 2 years purchase of average profit
= 42,000 x 2 = 84,000
Sudha’s share of goodwill = 84000 * 3/10 =25,200
2) Interest on sudha’s capital = 60000 * 6 /100 * 3/12 = 900
3) Calculation of Sudha’s Share of profits
If sales = 4,00,000
Profit = 1,00,000
If sales is 1, profit = 1,00,000 / 4,00,000
Profit = (1,00,000/4,00,000) * 1,50,000 = 37,500
Sudha’s Share = 37500 x 3/10 = 11,250
Values Involved in the given scenario:
(1) Sympathy, empathy and helping orphans.
(2) Fulfilment of social responsibility