Question

M. N and O are the partners sharing profits in the ratio $7:5:4$. O died on 30th June 2006 and profits for the accounting year 2005-06 were Rs. $24,000$. How much share in profits for the period 1st April 2006 to 30th June 2006 will be credited to O's Account?

• A. $Rs.6,000$
• B. $Rs.1,500$
• C. $Rs.3,000$
• D. $Rs.2,000$

Answer 1

The correct option is B $Rs.1,500$

At the time of death of a partner the firm gets reconstituted. In the reconstitution all assets and liabilities are revalued, profit sharing ratio gets revised, goodwill is raised etc. and finally the amount due to deceased partner is determined and discharged. The representative of deceased partner will be entitled to the partner's share of profit from the beginning of the year to the date of the death. This amount should be credited to his executor's account.

O's profit share = 4/16 or 1/4

Profit for the year = Rs. 24000

Profit from 1.4.2006 - 30.6.2006 = Rs. 24000 / 4

= Rs. 6000

O's share in profit till the date of death = Rs. (6000 * 1) / 4

= Rs. 1500