Question

(a) X, Y and Z are partners in a firm sharing profits in the ratio 3 : 2 : 1. On 1st March, 2015, X retires from the firm. Y and Z agreed that the capital of the new firm shall be fixed at Rs 2,10,000 in the profit sharing ratio. The capital accounts of Y and Z after all adjustments on the date of retirement showed balance of Rs 1,45,000 and Rs 63,000 respectively, State the amount of actual cash to be brought in or to be paid to the partners.

(b) A, B and C are partners in a firm whose books are closed on 31st March each year. A died on 30th June, 2009 and according to the agreement, the share of profits of a deceased partner up to the date of the death is to be calculated on the basis of the average profit for the five years. The net profits for the last 5 years have been : 2005 - Rs 14,000; 2006 - Rs 18,000; 2007 - Rs 16,000; 2008 - Rs 10,000 (loss) and 2009 - Rs 16,000.

Calculate A's share of the profits up to the date of death and pass necessary Journal entry.

Answer 1

(a) Total capital of the new firm = Rs 2,10,000

Y's capital in the new firm = $2,10,000\times \frac{2}{3}=\text{Rs}1,40,000$

Z's capital in the new firm = $2,10,000\times \frac{1}{3}=\text{Rs}70,000$

Ascertainment of actual cash to be brought in or to be paid to the partners.

$\begin{array}{ccc}\text{Particulars}& \text{Y (Rs)}& \text{Z(Rs)}\\ \text{Capital of the new firm}& 1,40,000& 70,000\\ \text{Present (Actual) capital}& 1,45,000& 63,000\\ \text{Cash to be paid (-) / Brought in (+)}& \overline{(-)5,000}& \overline{(+)7,000}\end{array}$

(b) Average Profit = $\frac{14,000+18,000+16,000-10,000+16,000}{5}=\frac{54,000}{5}=10,800$

A's share in the profit upto the date of death

= $10,800\times \frac{3}{12}\times \frac{1}{3}=\text{Rs}900$

JOURNAL ENTRY
$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F.}& \text{Debit}& \text{Credit}\\ & & & & \text{(Rs)}& \text{(Rs)}\\ & \text{Profit and Loss Suspense A/c}& \text{Dr.}& & 900& \\ & \text{To A's Capital A/c}& & & & 900\\ & \text{(Being A's share of profit upto the date of death credited)}& & & & \end{array}$