Question

X, Y and Z were partners in a firm sharing profit in the ratio of 3 : 2 : 1. The firm closes its books on 31st March every year. Y died on 30th June, 2026. On Y’s death, goodwill of the firm was valued at ₹ 60,000. Y’s share in the profit of the firm till the date of his death was to be calculated on the basis of previous year’s profit, which was 1,50,000.

Pass necessary journal entries for goodwill and Y’s share of profit at the time of his death.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
June 30	X’s Capital A/c   ...Dr.		15,000	-
	Z’s Capital A/c   ...Dr.		5,000	-
	To Y’s Capital A/c			20,000
	(Being Y’s share of goodwill adjusted into the capital accounts of gaining partners X and Z in their gaining ratio of 3 : 1)
June 30	Profit & Loss Suspense A/c   ...Dr.		12,500	-
	To Y’s Capital A/c		-	12,500
	(Being Y’s share of profit up to the date of his death credited to his capital account based on the previous year’s profit)

Working Notes:

Gaining Ratio of Remaining Partners:

Since there is no information about the new profit-sharing ratio, it is assumed that X and Z will continue in their old relative proportions.

Old Ratio (X : Y : Z) = 3 : 2 : 1

Gaining Ratio (X : Z) = 3 : 1

Total Goodwill of the firm = ₹ 60,000

Y’s Share of Goodwill = `60,000 xx 2/6`

= 20,000

This ₹ 20,000 will be contributed by X and Z in their gaining ratio (3 : 1):

X’s contribution = `20,000 xx 3/4`

= 15,000

Z’s contribution = `20,000 xx 1/4`

= 5,000

Period from the last closing (31st March) to date of death (30th June) = 3 months

Estimated profit of the firm for 3 months = `1,50,000 xx 3/12`

= 37,500

Y’s Share of Profit = `37,500 xx 2/6`

= 12,500