Question

X, Y and Z were partners in a firm. Z died on 31st May, 2018. His share of profit from the closure of the last accounting year till the date of death was to be calculated on the basis of the average of three completed ₹ 19,000 and ₹ 17,000 respectively.
Calculate Z's share of profit till his death and pass necessary Journal entry for the same when:
(a) there is no change in profit-sharing ratio of remaining partners, and
(b) there is change in profit-sharing ratio of remaining partners, new ratio being 3 : 2.

Answer 1

Journal
S.No.	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
(a)	Profit & Loss Suspense A/c	Dr.		1,000
	To Z’s Capital A/c				1,000
	(Proportionate profit dispensed to deceased partner)
(b)	X’s Capital A/c	Dr.		800
	Y’s Capital A/c	Dr.		200
	To Z’s Capital A/c				1,000
	(Proportionate profit dispensed to deceased partner)

Working Notes:

WN1: Calculation of Z’s Share of Profit

$$\begin{gathered} \mathrm{Z}\text{'}\mathrm{s}\mathrm{share}=\mathrm{Firm}\text{'}\mathrm{s}\mathrm{Average}\mathrm{Profit}\times \mathrm{Z}\text{'}\mathrm{s}\mathrm{Profit}\mathrm{Share}\times \mathrm{Period}\mathrm{for}\mathrm{which}\mathrm{Z}\mathrm{remained}\mathrm{in}\mathrm{the}\mathrm{business} \\ \begin{array}{c}\begin{array}{rcl}\mathrm{Average}\mathrm{Profits}& =& \frac{\mathrm{Total}\mathrm{Profits}}{\mathrm{Number}\mathrm{of}\mathrm{Years}}\\ & =& \frac{18,000+19,000+17,000}{3}\\ & =& \frac{54,000}{3}=\mathrm{Rs}18,000\end{array}\end{array} \\ \mathrm{Z}\text{'}\mathrm{s}\mathrm{share}=18,000\times \frac{1}{3}\times \frac{2}{12}=1,000\left(\mathrm{to}\mathrm{be}\mathrm{borne}\mathrm{by}\mathrm{gaining}\mathrm{partners}\mathrm{in}\mathrm{gaining}\mathrm{ratio}\mathrm{in}\mathrm{case}\left(\mathrm{b}\right)\right) \end{gathered}$$

WN2: Calculation of Gaining Ratio

Gaining Ratio = New Ratio − Old Ratio

$$\begin{gathered} \begin{array}{l}\mathrm{X}\text{'}\mathrm{s}\mathrm{gain}=\frac{3}{5}-\frac{1}{3}=\frac{4}{15}\\ \mathrm{Y}\text{'}\mathrm{s}\mathrm{gain}=\frac{2}{5}-\frac{1}{3}=\frac{1}{15}\\ \mathrm{Gaining}\mathrm{Ratio}=4:1\end{array} \\ \begin{array}{l}\mathrm{X}\text{'}\mathrm{s}\mathrm{share}=18,000\times \frac{4}{5}=800\\ \mathrm{Y}\text{'}\mathrm{s}\mathrm{share}=18,000\times \frac{1}{5}=200\end{array} \end{gathered}$$