dnn

Illustration 49. Khana and Lilavati started practicing as Chartered Accountants since 1965 sharing profits as equal partners. They admitted Gargi in 1970 from which time they have all been equal partners. The accounts were maintained on cash basis without regard to debtors and work-in-progress at the time of Gargi's admission. She paid Khana and Lilabati privately in respect of debtors and work-in-progress. On 31st December, 2013 Khana and Lilavati retired from the partnership and Maitrayee, their paid assistant, became an equal partner with Gargi. Upon the elevation of Maitrayee as partner, Arundhati was engaged on a salary of 24,500 per annum to take over the place, so long held by Maitrayee who was paid 3 15,000,7 17,500 and 20.000 respectively as salary for the last three financial years. It 060 was agreed that Maitrayee would effectively replace Khana and Lilavati. The Profits of the last three years as shown by partnership accounts were *85,000 87.000 and 92,000 respectively. The fees received in each of the past three years have been about #6,00,000 accruing evenly throughout the year.It is agreed that goodwill based on one year's purchase of the average of the past 3 years profits, as adjusted, should be shown in the books in lieu of the present book value of 60,000. On 31st December, 2013, the Capital Accounts of Khana, Lilavati and Gargi stood at 40,000 each without any adjustment suggested above. Maitrayee was to pay adequate cash to make her capital equivalent to that of Gargi and this amount was to be withdrawn equally by Khana and Lilavati, any balance due to them should be transferred to their loan accounts. As the financial adviser to the partnership you are requested to opine on inter-partner payments required regarding debtors and work-in-progress. You come to know that normally a job takes 6 months from start to finish, at the end of which the client concerned is billed and payment is received. Show : 1. The Capital Accounts of Khana, Lilavati, Gargi and Maitrayee showing the Goodwill adjustments; and 2. Prepare a statement showing your recommendations concerning inter-partner payments in respect of debtors and work-in-progress