Death 24-25

Loss for the year ended 31st March, 2023 was  ` 90,000. Calculate deceased partner’s share of profit/loss from the beginning of the accounting year up to 31st December, 2023.

 

Date	Particulars		L.F.	(Dr.)  `	(Cr.)  `
2021 31st Dec.	Param’s Capital A/c  To Profit and Loss Suspense A/c (Being loss transferred)	Dr.		15,000	15,000

Working Notes:

Sales for the year ended 31st March, 2023 was  ` 12,00,000

Loss for the year ended 31st March, 2023 was  ` 90,000

Percentage of Loss for the year ended 31st March, 2023 was 90,000 × 100 ÷ 12,00,000 = 7.5 %

Sales for the nine months ended 31st December, 2023 was  ` 6,00,000.

Param’s share of Loss for the nine months ended 31st December, 2023 was  ` 6,00,000 × 7.5 ÷ 100 = 15,000

 

Pass the necessary Journal entry to record Bhuwan’s share of profit/loss up to the date of death.

 

Date	Particulars		L.F.	(Dr.)  `	(Cr.)  `
2021 30st Sep.	Bikram’s Capital A/c (WN-1)  To Profit and Loss Suspense A/c (Being loss transferred)	Dr.		1,20,000	1,20,000
30st Sep.	Profit and Loss Suspense A/c (WN-2) To Akhil’s Capital A/c To Charu’s Capital A/c (Being loss transferred)			1,20,000	36,000 84,000
	Or (Alternative Journal Entry)
30st Sep.	Bikram’s Capital A/c (WN-1)  To Akhil’s Capital A/c (WN-2)  To Charu’s Capital A/c (WN-2) (Being loss transferred)	Dr.		1,20,000	36,000 84,000

 

Working notes:

WN-1

Loss from the beginning of the accounting year till the date of death was estimated at  ` 3,60,000

Bikram’s Share of Loss till the beginning of the accounting year till the date of death  ` 3,60,000 × 2/6 = 1,20,000

WN-2

Old share of Akhil is 3/6 and Charu is 1/6

Akhil and Charu New share future profits in the ratio of 3:2 w.e.f. 1st October, 2023.

Akhil = 3/6 - 3/5= 15-18/30=-3/30 (Gain)

Charu = 1/6 - 2/5= 5-12/30= -7/30 (Gain)

Gaining ratio of Akhil and Charu is 3:7

Akhinl = 1,20,000 × 3/10 = 36,000

Charu = 1,20,000 × 7/10 = 84,000

 Abha, Beena and Chanda were partners in a firm sharing profts and losses in the ratio of 5 : 3 :2. Abha died on 1st July, 2023. The Partnership Deed provided that Abha's executors are entitled to her share of profit till the date of death calculated on the basis of sales for the immediate previous year. Sales for the year ended 31st March, 2023 was Rs. 12,00,000 and the profit for the same year was 3,00,000. Sales shows a growth trend of 20% and percentage of profit earning remains the same.

Journalise the transaction along with working notes.

Date	Particulars		Dr. ( `)	Cr. ( `)
	Abha's Capital A/c		45,000
	To Profit & Loss Suspense A/c			45,000
	(Being Capital Written-off with the share of loss)

 

Working Note:

Profit 3,00,000 Grows as Sales shows a growth trend of 20% =

Profit for the current year =3,00,000×120/100=3,60,000

Abha’s share of profit for 3 Month =3,60,000×3/12×5/10=45,000

 

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, 2024. 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	2020	2021	2022	2023
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.

 

Journal
Date	Particulars		L.F.	Debit  (  `)	Credit  (  `)
2021
Feb 1	Z’s Capital A/c	Dr.		75,000
	To Y’s Capital A/c				75,000
	(Adjustment of Y’s share of Goodwill )
Feb 1	Z’s Capital A/c	Dr.		23,438
	To Y’s Capital A/c				23,438
	(Adjustment of Y’s share of Profit)

 

Working Notes:

WN1: Calculation of Gaining Ratio

X :Y :Z=4:3:1(Old ratio)

X :Z=1:1(New ratio)

Gaining Ratio = New Ratio - Old Ratio

X's Gain=1/2−4/8=4−4/8=0

Z's Gain=1/2−1/8=4−1/8=3/8

X:Z=0:3

WN2: Calculation of Retiring Partner’s Share of Goodwill
Y's share of goodwill=4,00,000×3/8×1/2= ` 75,000

Y's share of goodwill will be brought by Z only.

WN3: Calculation of Retiring Partner’s Share of Profit

Y's share of profit=75,000×3/8×10/12= ` 23,438

Average profit for last two years= ` 75,000

 

Iqbal and Kapoor are in partnership sharing profits and losses in 3 : 2. Kapoor died three months after the date of the last Balance Sheet. According to the Partnership Deed, the legal heir is entitled to the following:
(a) His capital as per the last Balance Sheet.
(b) Interest on above capital @ 3% p.a. till the date of death.
(c) His share of profits till the date of death calculated on the basis of last year's profits.
His drawings are to bear interest at an average rate of 2% on the amount irrespective of the period.
The net profits for the last three years, after charging insurance premium, were  ` 20,000;  ` 25,000 and  ` 30,000 respectively. Kapoor's capital as per Balance Sheet was  ` 40,000 and his drawings till the date of death were  ` 5,000.
Draw Kapoor's Capital Account to be rendered to his representatives.

 

Kapoor’s Account
Dr.		Cr.
Particulars	`	Particulars	`
Drawings A/c	5,000	Balance b/d	40,000
Interest on Drawings A/c	100	Interest on Capital A/c	300
Balance c/d	38,200	Profit and Loss Adjustment A/c	3,000
	43,300		43,300

 

Working Notes

 

WN1 Calculation of Interest on Capita of Kapoor till date of his death

Interest	= capital ×Rate100×time /12
	=40,000×3/100×3/12 =300

WN2 Calculation of Share of Profit of Kapoor till date of his death

Profit	= last years’ profit ×time /12×share of profit
	=30,000×3/12×3/5 =3,000

WN3 Calculation of Interest on Drawings
 

Interest	= Drawing ×2%
	=5,000×2% =100