A, B and C were partners sharing profits in the ratio of 3 : 2 : 1. The firm closes its books on 31st March every year. B died on 30th June, 2018. On his death, Goodwill of the firm was valued at ₹ 6,00,000. B's share in profit or loss till the date of death was to be calculated on the basis of previous year's profit which was ₹ 15,00,000 (Loss). Pass necessary Journal entries for goodwill and his share of loss.

Open in App

Solution

In the books of the A, B and C

Journal

Date

Particulars

L.F.

Debit
Amount

(₹)

Credit
Amount

(₹)

2018

June 30
A’s Capital A/c (2,00,000 × 3/4)
Dr.

1,50,000

C’s Capital A/c (2,00,000 × 1/4)
Dr.

50,000

To B’s Capital A/c (WN1)

2,00,000

(Being B’s share of goodwill adjusted in gaining ratio 3 : 1)

B’s Capital A/c (WN2)
Dr.

1,25,000

To Profit & Loss Suspense A/c

1,25,000

(Being B’s Share of loss debited to his Capital)

Working Notes:
1. Calculation of B’s Share of Goodwill

Goodwill = ₹ 6,00,000

B’s Share of Goodwill = ₹ (6,00,000 × 2/6) = ₹ 2,00,000

2. Calculation of B’s Share of Loss till the date of his death i.e. 30^th June, 2018

Previous year’s loss = ₹ 15,00,000

B’s share of loss till the date of death = Previous year’s loss × B’s Share of Loss × Months till the date of his death/12

= ₹ (15,00,000 × 2/6 × 3/12)

= ₹ 1,25,000

Suggest Corrections

Similar questions

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.

Q. X, Y and Z were partners in a firm sharing profit in 3 : 2 : 1. The firm closes its books on 31st March every year. Y died on 30th June, 2018. On Y's death goodwill of the firm was valued at ₹ 60,000. Y's share in the profit of the firm till the date of his death was to be calculated on the basis of previous year's profit which was ₹ 1,50,000.
Pass necessary Journal entries for goodwill and Y's share of profit at the time of his death.

Q. X, Y and Z were partners in a firm sharing profits in the ratio of 2 : 2 : 1. On 31st March, 2018, their Balance Sheet was as follows:

Liabilities		Amount (₹)	Assets	Amount (₹)
Trade Creditors		1,20,000	Cash at Bank	1,80,000
Bills Payable		80,000	Stock	1,40,000
General Reserve		60,000	Sundry Debtors	80,000
Capital A/cs:			Building	3,00,000
X	7,00,000		Advance to Y	7,00,000
Y	7,00,000		Profit and Loss A/c	3,20,000
Z	60,000	14,60,000
		17,20,000		17,20,000

Y died on 30th June, 2018. The Partnership Deed provided for the following on the death of a partner:
(i) Goodwill of the business was to be calculated on the basis of 2 times the average profit of the past 5 years. Profits for the years ended 31st March, 2018, 31st March, 2017, 31st March, 2016, 31st March, 2015 and 31st March, 2014 were ₹ 3,20,000 (Loss); ₹ 1,00,000; ₹ 1,60,000; ₹ 2,20,000 and ₹ 4,40,000 respectively.
(ii) Y's share of profit or loss from 1st April, 2018 till his death was to be calculated on the basis of the profit or loss for the year ended 31st March, 2018.
You are required to calculate the following:
(a) Goodwill of the firm and Y's share of goodwill at the time of his death.
(b) Y's share in the profit or loss of the firm till the date of his death.
(c) Prepare Y's Capital Account at the time of his death to be presented to his executors.

Q. B, C and D were partners in a firm sharing profits in the ratio of 5 :3 : 2. On 31st December, 2008, their Balance Sheet was as follows:

Liabilities		Amount (₹)	Assets	Amount (₹)
Creditors		43,000	Cash	10,200
Bills Payable		17,000	Stock	24,500
General Reserve		70,000	Debtors	27,300
Capital A/cs:			Land and Building	1,40,000
B	40,000		Profit and Loss A/c	70,000
C	50,000
D	52,000	1,42,000
		2,72,000		2,72,000

B died on 31st March, 2009. The Partnership Deed provided for the following on the death of a partner:
(a) Goodwill of the firm was to be valued at 3 years' purchase of the average profit of last 5 years. The profits for the years ended 31st December, 2007, 31st December, 2006, 31st December, 2005, and 31st December, 2004 were ₹ 70,000; ₹ 60,000; ₹ 50,000 and ₹ 40,000 respectively.
(b) B's share of profit or loss till the date of his death was to be calculated on the basis of the profit or loss for the year ended 31st December, 2008.
You are required to calculate the following:
(i) Goodwill of the firm and B's share of goodwill at the time of his death.
(ii) B's share in the profit or loss of the firm till the date of his death.
(iii) Prepare B's Capital Account at the time of his death to be presented to his Executors.

Q. X, Y and Z were partners in a firm sharing profits in the ratio of 4 : 3 : 1. The firm closes its books on 31st March every year. On 1st February, 2019, Y died and it was decided that the new profit-sharing ratio between X and Z will be equal. Partnership Deed provided for the following on the death of a partner:
(a) His share of goodwill be calculated on the basis of half of the profits credited to his account during the previous four completed years. The firm's profits for the last four years were:

Year	2014-15	2015-16	2016-17	2017-18
Profits (₹)	1,50,000	1,00,000	50,000	1,00,000

(b) His share of profit in the year of his death was to be computed on the basis of average profit of past two years.
Pass necessary Journal entries relating to goodwill and profit to be transferred to Y's Capital Account.

Join BYJU'S Learning Program

In the books of the A, B and C Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2018
June 30	A’s Capital A/c (2,00,000 × 3/4)	Dr.		1,50,000
	C’s Capital A/c (2,00,000 × 1/4)	Dr.		50,000
	To B’s Capital A/c (WN1)				2,00,000
	(Being B’s share of goodwill adjusted in gaining ratio 3 : 1)

	B’s Capital A/c (WN2)	Dr.		1,25,000
	To Profit & Loss Suspense A/c				1,25,000
	(Being B’s Share of loss debited to his Capital)

Goodwill	=	₹ 6,00,000
B’s Share of Goodwill	=	₹ (6,00,000 × 2/6) = ₹ 2,00,000

Previous year’s loss	=	₹ 15,00,000
B’s share of loss till the date of death	=	Previous year’s loss × B’s Share of Loss × Months till the date of his death/12
	=	₹ (15,00,000 × 2/6 × 3/12)
	=	₹ 1,25,000