Sandeep, Maheep and Amandeep were partners in a firm sharing profits in the ratio of 2: 2: 1. The firmcloses its books on 31st March every year. On 30th June, 2020Maheepdied. The partnership deedprovided that on the death of a partner his executors will be entitled to the following:a) Balance in his capital account which amounted to ₹1,15,000and interest on capital till date ofdeath which amounted to ₹5,000.b) His share in the profits of the firm till the date of his death amounted to ₹20,000.c) His share in the goodwill of the firm. The goodwill of the firm on Maheep’s death was valued at₹ 1,50,000.d) Loan to Maheep amounted ₹ 20,000.It was agreed that the amount will be paid to his executor in three equal yearly instalments with interest@10% p.a. The first instalment was to be paid on 30.06.2021.Calculate the amount to be transferred to Maheep’s executors Account and prepare theexecutor’s account till it is finally settled
Question
Sandeep, Maheep and Amandeep were partners in a firm sharing profits in the ratio of 2: 2: 1. The firmcloses its books on 31st March every year. On 30th June, 2020Maheepdied. The partnership deedprovided that on the death of a partner his executors will be entitled to the following:a) Balance in his capital account which amounted to ₹1,15,000and interest on capital till date ofdeath which amounted to ₹5,000.b) His share in the profits of the firm till the date of his death amounted to ₹20,000.c) His share in the goodwill of the firm. The goodwill of the firm on Maheep’s death was valued at₹ 1,50,000.d) Loan to Maheep amounted ₹ 20,000.It was agreed that the amount will be paid to his executor in three equal yearly instalments with interest@10% p.a. The first instalment was to be paid on 30.06.2021.Calculate the amount to be transferred to Maheep’s executors Account and prepare theexecutor’s account till it is finally settled
Solution
To calculate the amount to be transferred to Maheep’s executor's account, we need to add up all the amounts that Maheep is entitled to according to the partnership deed.
- Balance in his capital account: ₹1,15,000
- Interest on capital till date of death: ₹5,000
- His share in the profits of the firm till the date of his death: ₹20,000
- His share in the goodwill of the firm: Since the total goodwill of the firm is ₹1,50,000 and Maheep's profit sharing ratio is 2 (out of a total of 5), his share in the goodwill would be (2/5)*1,50,000 = ₹60,000
- Loan to Maheep: ₹20,000
Adding all these amounts, we get the total amount to be transferred to Maheep’s executor's account: ₹1,15,000 + ₹5,000 + ₹20,000 + ₹60,000 + ₹20,000 = ₹2,20,000
This amount will be paid in three equal yearly installments with interest @10% p.a.
The first installment will be ₹2,20,000/3 = ₹73,333.33.
The interest for the first year will be ₹2,20,000*10/100 = ₹22,000.
So, the total amount to be paid in the first year will be ₹73,333.33 + ₹22,000 = ₹95,333.33
For the second year, the principal amount will be ₹2,20,000 - ₹73,333.33 = ₹1,46,666.67. The interest will be ₹1,46,666.67*10/100 = ₹14,666.67. So, the total amount to be paid in the second year will be ₹73,333.33 + ₹14,666.67 = ₹88,000
For the third year, the principal amount will be ₹1,46,666.67 - ₹73,333.33 = ₹73,333.34. The interest will be ₹73,333.34*10/100 = ₹7,333.33. So, the total amount to be paid in the third year will be ₹73,333.34 + ₹7,333.33 = ₹80,666.67
So, the executor's account will look like this:
30.06.2021: ₹95,333.33 30.06.2022: ₹88,000 30.06.2023: ₹80,666.67
The total amount paid over the three years will be ₹95,333.33 + ₹88,000 + ₹80,666.67 = ₹2,64,000. This is the final settlement amount.
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