Question

Sharma, Verma and Khan were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. The firm closes its books on 31st March every year. On 31st December, 2024, Khan died. Khan’s share in the profits of the firm till the date of his death was to be calculated on the basis of the profit of the previous year. During the year ended 31st March, 2024, the firm earned a profit of ₹ 6,00,000. The treatment for Khan’s share in the profits of the firm till the date of his death will be ______.

Options

• Khan’s Capital Account will be debited by 90,000, and Profit & Loss Suspense Account will be credited by 90,000.

• Profit & Loss Suspense Account will be debited by 90,000, and Khan’s Capital Account will be credited by 90,000.

• Khan’s Capital Account will be debited by 1,20,000, and Profit & Loss Suspense Account will be credited by 1,20,000.

• Profit & Loss Suspense Account will be debited by 1,20,000, and Khan’s Capital Account will be credited by1,20,000.

Answer 1

Sharma, Verma and Khan were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. The firm closes its books on 31st March every year. On 31st December, 2024, Khan died. Khan’s share in the profits of the firm till the date of his death was to be calculated on the basis of the profit of the previous year. During the year ended 31st March, 2024, the firm earned a profit of ₹ 6,00,000. The treatment for Khan’s share in the profits of the firm till the date of his death will be Profit & Loss Suspense Account will be debited by 90,000, and Khan’s Capital Account will be credited by 90,000.

Explanation:

Profit for year ended 31 Mar 2024 = ₹ 6,00,000.

Profit sharing ratio Sharma : Verma : Khan = 2 : 2 : 1

Khan’s annual share = `(1/5) × ₹ 6,00,000`

= ₹ 1,20,000

Khan died on 31 Dec 2024 → period from 1 Apr 2024 to 31 Dec 2024 = 9 months.

Khan’s share up to death = `₹ 1,20,000 × (9/12)`

= ₹ 90,000