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CMA Intermediate · Financial Accounting · Death of Partner

A, B and C share profits 5:3:2 with capitals of Rs 5,00,000, Rs 3,00,000 and Rs 2,00,000. C dies on 31 March 2027. Goodwill of the firm is valued at Rs 1,00,000 and is not in the books. A and B will share future profits 3:2, and no goodwill is to remain in the books. What is the net effect on A's capital account for goodwill adjustment?

A's capital account is debited by Rs 10,000. C's goodwill share is Rs 20,000, which is borne by the continuing partners in their gaining ratio of 1:1, since A gains 1/10 and B gains 1/10, so each bears Rs 10,000.

  1. ACredit Rs 20,000
  2. BDebit Rs 10,000 netCorrect
  3. CCredit Rs 10,000
  4. DDebit Rs 20,000

Explanation

C's share of goodwill = 1,00,000 x 2/10 = 20,000, credited to C. Gaining ratio: A old 5/10, new 3/5=6/10, gain 1/10; B old 3/10, new 4/10, gain 1/10. So A and B bear 10,000 each. A is debited Rs 10,000. Rs 20,000 would be the whole of C's share.

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