Neel, Rohan and Naman were in partnership sharing profits in the ratio 2:1:1. On 31st March, 2019 their Balance Sheet was as follows:
Liabilities Amount Assets Amount
Creditors 15,000 Cash at bank 17,000
Employee Provident Fund 5,000 Book Debts 24,500
Profit & Loss A/c 15,000 Less: Provision for doubtful debts (1,200) 23,300
Capital Accounts: Stock 14,700
Neel 40,000 Machinery 35,000
Rohan 30,000 Land & Building 40,000
Naman 25,000 95,000
1,30,000 1,30,000
On the above date Rohan retired and the following was agreed:
(i) Goodwill of the firm was valued at 2 years’ purchase of super profits. Average profits amounted to 21,500 and normal rate of return in the industry was 10%.