Question

L, M and N were partners in a firm sharing profits in the ratio of 3 : 2 : 1. The firm closes its books on 31st March every year. M died on 12.06.2024. On M’s death the goodwill of the firm was valued at ₹1,80,000. On M’s death his share in the profit of the firm till the time of his death was to be calculated on the basis of previous year’s profit which was ₹3,00,000. Calculate M’s share in the profit of the firm. Pass necessary journal entries for the treatment of Goodwill and M’s share of profit at the time of his death.

Hint:

On death of a partner, goodwill and share of profit till date of death are credited to the deceased partner’s capital account.

Answer 1

Step 1: Calculation of M’s share of profit till date of death Previous year’s profit = ₹3,00,000 Profit sharing ratio of M = \( \frac{2}{6} \) Period from 1st April to 12th June = 2.5 months \[ \text{M’s share of profit} = 3,00,000 \times \frac{2}{6} \times \frac{2.5}{12} = ₹25,000 \] Step 2: Treatment of Goodwill Goodwill of the firm = ₹1,80,000 M’s share in goodwill: \[ 1,80,000 \times \frac{2}{6} = ₹60,000 \] Journal Entry for Goodwill L’s Capital A/c Dr. ₹45,000
N’s Capital A/c Dr. ₹15,000
To M’s Capital A/c ₹60,000 Journal Entry for M’s Share of Profit Profit & Loss Suspense A/c Dr. ₹25,000
To M’s Capital A/c ₹25,000