Question

Kareem, 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 1-10-2019 Karim died. On Karim’s death the goodwill of the firm was valued at ₹ 3,50,000. Karim’s share in profits of the firm in the year of his death was to be calculated on the basis of average profits of last four years. The 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. It was paid on 15.10.2019.

Pass necessary journal entries for the above transactions in the books of the firm.

Answer 1

Books of Firm Journal Entries
Date	Particulars	L.F.	Amount Dr.(₹)	Amount 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 (3,50,000 × 3/10)		-	1,05,000
	(Being Karim’s share in goodwill adjusted)
	Profit & Loss Suspense A/c    ...Dr.		22,500	-
	To Karim’s Capital A/c (WN 1)		-	22,500
	(Being Karim’s share in profit upto the date of his credited to his Capital A/c)
	Karim’s Capital A/c    ...Dr.		7,35,000	-
	To Karim’s Executor’s A/c		-	7,35,000
	(Being amount due to Karim transferred to his executor’s Account)
Oct. 15	Karim’s Executor’s A/c    ...Dr.		7,35,000	-
	To Bank A/c		-	7,35,000
	(Being Karim’s executor paid off)

Working Notes:

Karim’s Share in Profit 

Average Profit = `(₹1,70,000  + ₹ 1,30,000  + ₹ 1,90,000  +₹ 1,10,000)/4`

= ₹ 1,50,000

Karim’s Share in Profit = `1,50,000xx3/10xx6/12`

= ₹ 22,500