A and B entered into partnership on 1.1.2015, the former introducing a capital of 90,000 and the

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A and B entered into partnership on 1.1.2015, the former introducing a capital of ₹90,000 and the latter ₹30,000. They effect a policy of insurance for ₹45,000 upon their joint lives in order to enable the survivor, in case of death of one, to pay out in cash part of the other’s interest. The net profits before charging interest on capital as at the beginning of each year at 6% p.a. and on drawings (averaged at 4% p.a.) were as follows:

Profits and losses were divided between A and B in the ratio of 2:1 respectively. The annual insurance premium which is ₹3,600 is charged to profit and loss account as a business expense. On 31.3.2018, A died. According to the terms of the partnership deed, the deceased partner’s executors are entitled to receive his share of the capital as it stood on 31.12.2017 plus the three months share of the profit, calculated upon the previous year’s rate of profit and share of goodwill which is reckoned at two-thirds of the previous three years’ profits after adjusting for interest on capital and drawings but without deducting the premiums paid on the joint life insurance policy.

Make up A’s Account showing the amount for which B shall be liable to account to his executors. Workings of adjusted net profits and computation of A’s share of goodwill will be considered as a part of the answer. Calculations are to be made to the nearest rupee ignoring fractions, wherever arising.

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Related Book For  answer-question

Financial Accounting Volume II

ISBN: 9789387886230

4th Edition

Authors: Mohamed Hanif, Amitabha Mukherjee

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