Question

X, Y and Z were partners in a firm. Z died on 31st May, 2018. His share of profit from the closure of the last accounting year till the date of death was to be calculated on the basis of the average of three completed ₹ 19,000 and ₹ 17,000 respectively.
Calculate Z’s share of profit till his death and pass necessary journal entry for the same assuming:
(a) there is no change in profit-sharing ratio of remaining partners, and
(b) there is change in profit-sharing ratio of remaining partners, new ratio being 3 : 2.

Answer 1

Calculation of Z’s Share of Profit

Z's share=Firm's Average Profit×Z's Profit Share×Period for which Z remained in the business

$\begin{aligned}\text { Average Profits } &=\frac{\text { Total Profits }}{\text { Number of Years }} \\&=\frac{18,000+19,000+17,000}{3} \\&=\frac{54,000}{3}=\mathrm{Rs} 18,000\end{aligned}$

Z's share=18,000×$\frac{1}{3}$×$\frac{2}{12}$=1,000 (to be borne by gaining partners in gaining ratio in case (b))

Calculation of Gaining Ratio

Gaining Ratio = New Ratio − Old Ratio

$\begin{aligned}&\mathrm{X}^{\prime} \text { s gain }=\frac{3}{5}-\frac{1}{3}=\frac{4}{15}\\&\text { Y's gain }=\frac{2}{5}-\frac{1}{3}=\frac{1}{15}\end{aligned}$

Gaining Ratio=4:1

$\begin{array}{l}\text { X's share }=18,000 \times \frac{4}{5}=800 \\\\\text { Y's share }=18,000 \times \frac{1}{5}=200\end{array}$