P,Q and R were partners in a firm sharing profits in the ratio 2:2:1. the firm closes its books on 31 march every year. P died at 3 months after the last accounts were prepared. on that date the goodwill of the firm was valued at rs.90,000 on the death of a partner his share of profit in the year of death was to be calculated on basis of average profits of last 4 years. the profit of last 4 years were 2007 - rs. 2,00,000 2006 - rs. 1,80,000 2005 - 2,10,000 2004 - 1,70,000(loss). pass necessary journal for the treatment of goodwill and p's share of profit on his date of death.

Since, in this question, nothing explicitly has been mentioned regarding the ratios, so the new ratio between Q and R is 2:1 and the gaining ratio is also 2:1 (you can calculate it on your own). Thus, for goodwill, we need to simply pass on the JE as Remaining Partners' Capital A/c Dr. To Retiring Partner's Capital A/c..

Q Dr. 24,000
R Dr. 12,000
To P 36,000

Calculation of Goodwill = 90,000×P's share =90,000×25=36,000Q's share =36,000×Q's Gaining Share =36,000×23=24,000R's share =36,000×R's Gaining Share =36,000×13=12,000

Calculation of P's Share upto date of his death

Average Profit = 2,00,000+1,80,000+2,10,000 -1,70,0004=1,05,000P's up-to-date profit =1,05,000×P's profit share×No. of months he remained in business12                                        =1,05,000×25×312=10,500

  • 13
What are you looking for?