Question

A, B, and C are partners sharing profits in the ratio of 3:2:1. C died on 1st July, 2023. On this date, final accounts were prepared to ascertain profits for the period. It resulted in a profit of ₹1,75,000 to the firm. To give effect to the above

• A. Profit and Loss Account will be debited
• B. Profit and Loss Appropriation Account will be debited
• C. Profit and Loss Appropriation Account will be credited
• D. Profit and Loss Account will be credited

Answer 1

The Correct Option is D

To address this issue, we must ascertain the accounting method for profits earned up to C's demise. The key details are:

• Partners A, B, and C share profits in a 3:2:1 ratio.
• C died on July 1, 2023. The profits for the period up to this date were ₹1,75,000.
• In partnership accounting, profits accrued before a partner's death are calculated and distributed among the surviving partners and the deceased partner's estate based on the pre-existing profit-sharing ratio.
• This earned profit is recognized in the firm's Profit and Loss Account.

To record the earned profit, the Profit and Loss Account requires a credit entry, signifying an increase in the firm's profitability.

Consequently, in this situation, the appropriate accounting entry is: Credit the Profit and Loss Account