Question

Ajay, Bhawna and Shreya were partners sharing profits in the ratio of 2 : 2 : 1. On 1st July, 2017, Shreya died. The books of accounts are closed on 31st March every year. Sales for the year 2016-17 ₹ 5,00,000 and that from 1st April to 30th June, 2017, were ₹ 1,40,000. Rate of profit during the past three years had been 10% on sales. Since Shreya’s legal representative was her only son, who is differently abled, it was decided that the profit for the purpose of settling Shreya’s account is to be calculated as 20% on sales.

Calculate Shreya’s share of profits till the date of her death and pass the necessary journal entry for the same.

Answer 1

Journal entries
Date	Particulars	Dr. (₹)	Cr. (₹)
	Profit and Loss Suspense A/c   ...Dr.	5,600
	To Shreya’s Capital A/c		5,600

Working note:

Shreya’s profit-sharing ratio = `1/5`.

Since the partners agreed to calculate profit for settlement at 20% of sales, we use sales from 1 April 2017 to 30 June 2017.

Sales for the period = ₹ 1,40,000

Estimated profit = ₹ 1,40,000 × 20% = ₹ 28,000

Shreya’s share of profit:

`₹ 28,000 xx 1/5 = ₹ 5,600`

So, Shreya’s share of profit till the date of her death = ₹ 5,600.