Question

Kiran, Raveena and Hina were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. The firm closes its books on 31st March every year. As per the terms of the partnership deed, on the death of any partner, the goodwill of the firm will be calculated on the basis of four times the average profits of the last three years. Hina died on 1st July 2025. The Profits for the last three years were:

2022-23: ₹ 4,75,000

2023-24: ₹ 4,05,000

2024-25: ₹ 3,20,000

Hina’s share of profit up to the date of death was to be calculated on the basis of the previous year’s profit.

1. Calculate the goodwill of the firm and Hina’s share of goodwill.
2. Calculate Hina’s share in the profits of the firm till the date of her death.
3. Pass necessary journal entries for the treatment of goodwill without opening a goodwill account and for Hina’s share of profit at the time of her death.

Answer 1

(i) Calculation of goodwill:

Average profit = `(4,75,000 + 4,05,000 + 3,20,000)/3`

= `(12,00,000)/3`

= 4,00,000

Goodwill of the firm = Average profit × Number of years’ purchase

= 4,00,000 × 4

= 16,00,000

Hina’s share of goodwill = `16,00,000 xx 2/10`

= 3,20,000

(ii) Calculation of Hina’s share of profit:

Hina died on 1st July (she worked for 3 months).

The previous year’s profit (2024-25) = ₹ 3,20,000

Hina’s Share of Profit = `3,20,000 xx 2/10 xx 3/12`

= 16,00,000

(iii)

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2025
July 1	Kiran’s Capital A/c ... Dr. `(3,20,000 xx 5/8)`		2,00,000	-
	Raveena’s Capital A/c ... Dr.		1,20,000	-
	To Hina’s Capital A/c		-	3,20,000
	(Being Hina’s share of goodwill adjusted in gaining partners’ capital accounts in their gaining ratio 5 : 3)
July 1	Profit & Loss Suspense A/c ... Dr.		16,000	-
	To Hina’s Capital A/c		-	16,000
	(Being Hina’s share of profit till date of death credited to her account)