T.S. Grewal Class 12 Chapter 6 Q.25 - Death of a Partner

Question 25

Karim, Saleem and Raheem were partners in a firm sharing profits and losses in the ratio of 3 : 4 : 3. The firm closes its books on 31st March every year. On 1st October, 2019, Karim died. On Karim’s death, goodwill of the firm was valued at ₹3,50,000. Karim’s share of profit in the year of his death was calculated on the basis of the average profits of the last four years. Profits for the last four years were 2015-16 – ₹1,70,000; 2016-17 – ₹1,30,000; 2017-18 – ₹1,90,000; 2018-19 – ₹1,10,000. The total amount payable to Karim’s executors on his death was ₹7,35,000, paid on 15th October, 2019. Pass the necessary Journal entries. (CBSE 2020)

Solution

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
2019 Oct 1	Saleem’s Capital A/c    Dr.		60,000
	Raheem’s Capital A/c    Dr.		45,000
	To Karim’s Capital A/c			1,05,000
	(Karim’s share of goodwill adjusted through Saleem’s and Raheem’s Capital Accounts in gaining ratio 4 : 3)
Oct 1	Profit & Loss Suspense A/c    Dr.		22,500
	To Karim’s Capital A/c			22,500
	(Karim’s share of profit till the date of death credited to his Capital Account)
Oct 1	Karim’s Capital A/c    Dr.		7,35,000
	To Karim’s Executors’ A/c			7,35,000
	(Balance of Karim’s Capital Account transferred to his Executors’ Account)
Oct 15	Karim’s Executors’ A/c    Dr.		7,35,000
	To Bank A/c			7,35,000
	(Amount paid to Karim’s executors)

Working Notes: Karim’s share of goodwill = 3,50,000 × 3/10 = ₹1,05,000, borne by Saleem and Raheem in gaining ratio 4 : 3 (Saleem 60,000; Raheem 45,000). Average profit = (1,70,000 + 1,30,000 + 1,90,000 + 1,10,000) / 4 = ₹1,50,000; Karim’s share of profit for 6 months (1st April to 1st October, 2019) = 1,50,000 × 3/10 × 6/12 = ₹22,500.