T.S. Grewal Class 12 Chapter 6 Q.7 - Death of a Partner

Question 7

P, R and S are in partnership sharing profits 4/8, 3/8 and 1/8 respectively. The Partnership Deed provides that on the death of any partner, his share of goodwill is to be valued at one-half of the net profit credited to his account during the last four completed years. R died on 1st January, 2025. The firm’s profits for the last four years ended 31st December were: 2021 – ₹1,20,000; 2022 – ₹80,000; 2023 – ₹40,000; 2024 – ₹80,000. (a) Determine the amount to be credited to R in respect of his share of goodwill. (b) Pass the Journal entry, without raising a Goodwill Account, for its adjustment.

Solution

(a) Total profit for the last four years = 1,20,000 + 80,000 + 40,000 + 80,000 = ₹3,20,000. Profit credited to R’s Capital Account (R’s share, 3/8) over these four years = 3,20,000 × 3/8 = ₹1,20,000. R’s share of goodwill = one-half of this = ₹60,000.

(b)

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
2025 Jan 1	P’s Capital A/c    Dr.		48,000
	S’s Capital A/c    Dr.		12,000
	To R’s Capital A/c			60,000
	(R’s share of goodwill adjusted through P’s and S’s Capital Accounts in gaining ratio 4 : 1)

Working Note: Old Ratio (P : R : S) = 4 : 3 : 1. R died, so Gaining Ratio (P : S) = 4 : 1 (old ratio with R removed). P’s share = 60,000 × 4/5 = ₹48,000; S’s share = 60,000 × 1/5 = ₹12,000.