T.S. Grewal Class 12 Chapter 6 Q.18 - Death of a Partner

Question 18

X, Y and Z were partners in a firm sharing profits equally. Z died on 31st May, 2025. His share of profit from the close of the last accounting year till the date of death was to be calculated on the basis of the average of the three completed years’ profits before death. Profits for the years ended 31st March, 2023, 2024 and 2025 were ₹18,000, ₹19,000 and ₹17,000 respectively. Calculate Z’s share of profit till his death and pass the necessary Journal entry when: (a) there is no change in the profit-sharing ratio of the remaining partners, and (b) there is a change in the profit-sharing ratio of the remaining partners, the new ratio being 3 : 2.

Solution

Average Profit = (18,000 + 19,000 + 17,000) / 3 = ₹18,000. Z died on 31st May, 2025, i.e. 2 months after the beginning of the year. Z’s share of profit = 18,000 × 1/3 × 2/12 = ₹1,000.

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
(a) No change in profit-sharing ratio
	Profit & Loss Suspense A/c    Dr.		1,000
	To Z’s Capital A/c			1,000
	(Z’s share of profit till death credited to his Capital Account)
(b) New ratio of X and Y is 3 : 2
	X’s Capital A/c    Dr. (1,000 × 4/5)		800
	Y’s Capital A/c    Dr. (1,000 × 1/5)		200
	To Z’s Capital A/c			1,000
	(Z’s share of profit borne by the gaining partners X and Y in gaining ratio 4 : 1)

Working Note (Gaining Ratio for case b): Old ratio (equal) X : Y = 1/3 : 1/3. New ratio 3 : 5 : 2/5. X’s gain = 3/5 – 1/3 = 4/15; Y’s gain = 2/5 – 1/3 = 1/15 → Gaining Ratio = 4 : 1.