Question

A, B and C were partners in a firm sharing profits in 3 : 2 : 1 ratio. The firm closes its books on 31st March every year. B died on 12-6-2007. On B's death the goodwill of the firm was valued at Rs 60,000. On B's death his share in the profits of the firm till the time of his death was to be calculated on the basis of previous year's profit which was Rs 1,50,000. Calculate B's share in the profit of the firm. Pass necessary journal entries for the treatment of goodwill and B's share of profit at the time of his death.

Answer 1

Working Notes :

(i) B's share of Goodwill = Rs $60,000\times \frac{2}{6}=Rs20,000$. It will be debited to the Capital accounts of A and C in their gaining ratio, i.e, 3 : 1.

(ii) Number of days from March 31 to June 12 = 73.

B's share of Profit $=1,50,000\times \frac{73}{365}\times \frac{2}{6}=Rs10,000$

JOURNAL

$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F}& \text{Dr. (Rs)}& \text{Cr. (Rs)}\\ 2007& & & & & \\ \text{June 12}& & & & & \\ \text{(i)}& \text{A's Capital A/c}& \text{Dr.}& & 15,000& \\ & \text{C's Capital A/c}& \text{Dr.}& & 5,000& \\ & \text{To B's Capital A/c}& & & & 20,000\\ & \text{(B's share of goodwill adjusted to the Capital A/cs}& & & & \\ & \underset{–}{\text{of A and C in their gaining ratio, i.e., 3 : 1)}}& & & & \\ \text{(ii)}& \text{Profit and Loss Suspense A/c}& \text{Dr.}& & 10,000& \\ & \text{To B's Capital A/c}& & & & 10,000\\ & \text{(B's share of profit up to June 12, 2007)}& & & & \end{array}$