Ownclasses

Virad, Vishad and Roma were partners in a firm sharing profits in the ratio of 5:3:2 respectively. On March 31, 2013, their Balance Sheet was as under:

Virad died on October 1, 2013. It was agreed between his executors and the remaining partner's that:

(a) Goodwill of the firm be valued at 2 1/2 years purchase of average profits for the last three years. The average profits were Rs 1,50,000.
(b) Interest on capital be provided at 10% p.a.
(c) Profit for the year 2013-14 be taken as having accrued at the same rate as that of the previous year which was Rs 1,50,000. Prepare Virad's Capital Account to be presented to his Executors as on October 1, 2013.

Answer

Calculation of Gaining Ratio of Vishad and Roma:
Old Ratio = 5: 3: 2
New ratio = 3:2
Calculation of gain ratio:
Vishad: 3/5- 3/10 = 3/10
Roma: 2/5 – 2/10 = 2/10
Gaining ratio = 3:2

Calculation of Virat’s share of goodwill:
Average Profit =  Rs 1,50,000
Goodwill at 2 ½ years purchase  = 1,50,000 x 2 ½ = Rs 3,75,000
Virad’s share of goodwill = 3,75,000 x 5/10 = R 1,87,500
Good will to be transferred to Vishad’s capital a/c = 1,87,500 * 3/5 = Rs 1,12,500
Good will to be transferred to Roma’s capital a/c = 1,87,500 * 2/5 = 75,000

Share of Profit payable to Virad up to the 1/10/2013:
= 1,50,000 x 5/10 x 6/12 = Rs 37,500

Interest on Virad’s Capital:
= 3,00,000 * 10% * 6/12

Virad’s share of Reserve fund:
= 60,000 * 5/10 = 30,000