To determine the amount due to the executors of White, we need to follow a three-step process based on the provided terms:
1. The amount standing to the credit of White's capital account.
2. Share of goodwill on the basis of twice the average of the past three years' profits.
3. Share of profit from the start of the current financial year to the date of death, based on the last year's profits.
### Step 1: Amount Standing to the Credit of White's Capital Account
From the balance sheet provided:
- White's capital account = ₹ 5,000
### Step 2: Share of Goodwill
Goodwill is calculated based on twice the average profits of the past three years. Given:
- Profits for 2016 = ₹ 6,000
- Profits for 2017 = ₹ 8,000
- Profits for 2018 = ₹ 7,000
First, calculate the average profit for the past three years:
[tex]\[ \text{Average Profit} = \frac{6000 + 8000 + 7000}{3} = \frac{21000}{3} = ₹ 7,000 \][/tex]
Next, calculate the total capital:
- Black's Capital = ₹ 10,000
- Brown's Capital = ₹ 5,000
- White's Capital = ₹ 5,000
Total capital = ₹ 10,000 + ₹ 5,000 + ₹ 5,000 = ₹ 20,000
White's share of the total capital:
[tex]\[ \text{White's Share Ratio} = \frac{5000}{20000} = \frac{1}{4} \][/tex]
Finally, calculate the goodwill:
[tex]\[ \text{Goodwill} = 2 \times \text{Average Profit} \times \text{White's Share Ratio} = 2 \times 7000 \times \frac{1}{4} = ₹ 3,500 \][/tex]
### Step 3: Share of Profit from the Start of the Current Financial Year to the Date of Death
White died on March 31, 2019. The period from January 1, 2019, to March 31, 2019, is 90 days. The profit from the previous year (2018) is:
- Last year's profit (2018) = ₹ 7,000
Calculate White's share of this profit for the 90 days:
[tex]\[ \text{Share of Profit} = \left( \frac{7000 \times \frac{1}{4} \times 90}{365} \right) = \left( \frac{7000 \times 0.25 \times 90}{365} \right) = \left( \frac{157500}{365} \right) = ₹ 431.51 \][/tex]
### Total Amount Payable to White's Executors
Summing up all the amounts calculated:
1. Credit standing in the capital account = ₹ 5,000
2. Goodwill = ₹ 3,500
3. Share of profit from current year = ₹ 431.51
[tex]\[ \text{Total Amount Payable} = ₹ 5,000 + ₹ 3,500 + ₹ 431.51 = ₹ 8,931.51 \][/tex]
### Necessary Journal Entries
1. Credit standing in Capital Account:
```
White's Capital A/c Dr. ₹ 5,000
To White's Executor's A/c ₹ 5,000
```
2. Goodwill:
```
Goodwill A/c Dr. ₹ 3,500
To White's Executor's A/c ₹ 3,500
```
3. Share of Profit:
```
Profit and Loss Suspense A/c Dr. ₹ 431.51
To White's Executor's A/c ₹ 431.51
```
4. Total Amount Transferred to Executor’s Account:
```
White's Executor's A/c Dr. ₹ 8,931.51
To Bank A/c ₹ 8,931.51
```
This completes the accounting treatment for the amount payable to the executors of White based on the stipulated conditions.
