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Question

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.

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Solution

Journal

Date

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

2018

June 30

X’s Capital A/c

Dr.

15,000

Z’s Capital A/c

Dr.

5,000

To Y’s Capital A/c

20,000

(Y’s share of goodwill adjusted through X and Y’s Capital Account in gaining ratio, i.e. 3 : 1)

June 30

Profit and Loss Suspense A/c

Dr.

12,500

To Y’s Capital A/c

12,500

(Y’s profit share till his death debited to P&L Suspense A/c)

Working Notes:
WN 1: Calculation of Y's Share of Goodwill
Goodwill of the Firm= Rs 60,000Y's Share of Goodwill = 60,000 × 26 = Rs 20,00020,000 will be debited to X's & Z's Capital A/c in gaining ratio of 3 : 1X will pay = 20,000 × 34 = Rs 15,000Z will pay = 20,000 × 14 = Rs 5,000

WN 2: Calculation of Y's Share of Profit
Previous Year's Profit = Rs 1,50,000Y's share of Profit (till death) = Previous Year's Profit × Y's Profit Share × 3 months (April 01, 2017 till June 30, 2017)Y's share of Profit (till death) = 1,50,000 × 26 × 312= Rs 12,500


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