Question

In case of death of a partner, for deceased partner's share of profits for the intervening period (from the closing of last year account till the date of death) in the books of accounts, the following journal entry is recorded:
Profit and Loss Suspense A/c Dr.
       To Deceased Partner's Capital A/c
Which of the following entry is to be made later to close the Profit and Loss Suspense Account?

• A. Profit and Loss Suspense A/c Dr.
     To Gaining Partners Capital A/c
• B. Gaining Partners Capital A/c Dr.
     To Profit and Loss Suspense A/c
• C. Deceased Partner's Capital A/c Dr.
     To Profit and Loss Suspense A/c
• D. Profit and Loss Suspense A/c Dr.
     To Deceased Partner's Capital A/c

Hint:

The suspense account has a debit balance, so the closing entry must credit it.

Answer 1

The Correct Option is B

Step 1: Understanding the Question:
On death, the deceased partner's share of profit up to the date of death is only estimated. The entry Profit and Loss Suspense A/c Dr. to Deceased Partner's Capital A/c gives him that share. The suspense account now has a debit balance and must be closed later.

Step 2: Key Idea:
When the actual profit for the year is known, the suspense debit is cleared. The remaining partners, who carry on the business, bear that amount through their capital accounts. The entry credits the suspense account.

Step 3: Check option 1:
This debits the suspense account again and increases its debit balance. It closes nothing, so it is wrong.

Step 4: Check option 2:
This debits the capital accounts of the continuing partners and credits Profit and Loss Suspense A/c. The credit wipes out the earlier debit, so the account is closed. This is the entry needed, so option 2 is correct.

Step 5: Check option 3:
Debiting the deceased partner's capital would take back what was given to him. His share was fixed on his death, so this is wrong.

Step 6: Check option 4:
This repeats the original entry. It cannot close the account, so it is wrong.

Final Answer:
To close the suspense account, credit it and debit the continuing partners' capital accounts. This is option 2. \[ \boxed{2} \]