Ownclasses

Vikas, Vishal and Vaibhav were partners in a firm sharing profits in the ratio of 2:2:1. The firm closes its books 31st March every year. On 31-12-2015 Vaibhav died. On that date his Capital account showed a credit balance of ₹ 3,80,000 and Goodwill of the firm was valued at  ₹ 1,20,000. There was a debit balance of ₹ 50,000 in the profit and loss account. Vaibhav's share of profit in the year of his death was to be calculated on the basis of the average profit of last five years. The average profit of last five years was ₹ 75,000. Pass necessary journal entries in the books of the firm on Vaibhav's death.

Answer

Working Notes:
WN(1): Calculation of Vaibhav’s Share of Goodwill
Vaibhav's Share of Goodwill = Firm's Goodwill His Profit Share
                            equals 1 comma 20 comma 000 cross times 1 fifth equals 24 comma 000

24,000 will be borne by gaining partners in gaining ratio.
Since, nothing is specified; it is assumed that continuing partners gain in their old profit sharing ratio of 2:2
Vika apostrophe straight s space gain space equals space 24 comma 000 cross times 2 over 4 equals 12 comma 000
Vishal apostrophe straight s space gain equals 24 comma 000 space cross times 2 over 4 equals 12 comma 0000

WN2: Calculation of Share of Debit balance in P&L A/c
Vikas apostrophe straight s space Share space equals space 50 comma 000 space cross times 2 over 5 equals 20 comma 000
Vishal apostrophe straight s space Share equals 50 comma 000 cross times 2 over 5 equals 20 comma 000
Vaibhav apostrophe straight s space Share space equals space 50 comma 000 space cross times 1 fifth equals 10 comma 000

WN3: Calculation of Share in Profit (earned during the year)
Vaibhav apostrophe straight s space Share space equals space Average space Profits space cross times space Number space of space Months space Vaibhav space Remained space cross times space His space profit space Share
space equals space 75 comma 000 cross times 9 over 12 cross times 1 fifth equals 11 comma 250

WN 4: Calculation of Amount transferred to Vaibhav's Executor A/c
Amount due to Vaibhav = Capital + Credit Items - Debit Items
                                      =3,80,000 + 24,000 - 10,000 + 11,250=4,05,250