Question

Ram, Manohar and Joshi were partners. Joshi died on 28 Feb 2018. His share of profit is calculated on average of 3 years profits. Find Joshi's share. Profits: 2015 = 8000, 2016 = 9000, 2017 = 10000

• A. ₹500
• B. ₹3000
• C. ₹4500
• D. ₹2750

Hint:

On death of partner: Always use Average Profit Method + Time Ratio + Profit Sharing Ratio.

Answer 1

The Correct Option is A

Concept: On death of a partner, profit up to the date of death is calculated separately from normal annual profit sharing. Since final accounts cannot be prepared at the exact date of death, firms generally use the average profit method. Under this method, profits of previous years are averaged and then allocated for the period from the beginning of the accounting year up to the date of death. The main idea is: \[ \text{Profit up to death = Average profit × time ratio × share ratio} \] This ensures fair distribution of profit earned during the incomplete accounting year.

Step 1: Find average profit.
\[ \text{Average Profit} = \frac{8000 + 9000 + 10000}{3} = 9000 \]

Step 2: Find time period up to death.
Joshi died on 28 Feb 2018. Accounting year = calendar year. So time = 2 months (Jan–Feb): \[ \frac{2}{12} \]

Step 3: Compute total profit for period.
\[ 9000 \times \frac{2}{12} = 1500 \]

Step 4: Apply profit sharing ratio assumption.
Assuming equal sharing among partners (standard MCQ assumption unless stated): \[ \text{Joshi share} = \frac{1500}{3} = 500 \] Final Answer: ₹500