Question

A, B, and C are partners sharing profits in the ratio of 3:2:1. C died on 1st July, 2023. On this date, final accounts were prepared to ascertain profits for the period. It resulted in a profit of ₹1,75,000 to the firm. To give effect to the above

• A. Profit and Loss Account will be debited
• B. Profit and Loss Appropriation Account will be debited
• C. Profit and Loss Appropriation Account will be credited
• D. Profit and Loss Account will be credited

Answer 1

The Correct Option is D

To solve this problem, we need to determine the accounting treatment of the profit obtained up to the date of C's death. Let's break it down:

• A, B, and C are partners sharing profits in a ratio of 3:2:1.
• C passed away on 1st July 2023, after which profits for the period were calculated at ₹1,75,000.
• In partnership accounting, profits up to the date of death are calculated and divided among the remaining partners and the deceased partner's estate as per the profit-sharing ratio before any settlement.
• The profit earned is recorded in the Profit and Loss Account of the firm.

To reflect the earned profit, we need to credit the Profit and Loss Account. This entry shows an increase in the firm’s profits.

Therefore, in this scenario, the correct accounting action would be: Profit and Loss Account will be credited

Answer 2

In the case of a partnership where one of the partners dies during the financial year, the profits up to the date of death are generally shared in the agreed profit-sharing ratio, and the Profit and Loss Account is credited with the share of profit of the deceased partner.

Since the profit for the period is ₹ 1,75,000, this amount will be divided between the partners A, B, and C according to their respective profit-sharing ratio. The profits up to the date of death will be credited to the Profit and Loss Account.

The remaining part of the question involves calculating the deceased partner's share, but the crucial point here is that the Profit and Loss Account is credited with the profit amount, not the Profit and Loss Appropriation Account, as that is typically used for appropriating profits after determining the final profit.

Therefore, the correct answer is: (4) Profit and Loss Account will be credited.