Question

Ram, Manohar and Joshi were partners in a firm. Joshi died on 28th February, 2018. His share of profit from the closure of the last accounting year till the date of death was to be calculated on the basis of the average of three completed years of profits before death. Profits for 2015, 2016 and 2017 were Rs. 8,000, Rs. 9,000, and Rs. 10,000 respectively. Firm follows calendar year as accounting year. Calculate Joshi’s share of profit till his death.

• A. Rs. 500/-
• B. Rs. 3000/-
• C. Rs. 4500/-
• D. Rs. 2,750/-

Hint:

In the absence of a partnership deed or specified ratio, always assume partners share profits and losses equally. Also, ensure you calculate the time period correctly based on the firm's accounting year (Calendar vs. Financial).

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
When a partner dies mid-year, they are entitled to a share of the firm's profit for the period they were alive in the current year. This is usually calculated on a Time Basis using past profits as a benchmark.
Step 2: Key Formula or Approach:
1. Calculate the Average Profit of the specified previous years.
2. Determine the Time Period (from the start of the year to the date of death).
3. Calculate the profit for that specific period.
4. Calculate the deceased partner's share based on the Profit Sharing Ratio (PSR).
Step 3: Detailed Explanation:
1. Calculate Average Profit:
\[ \text{Average Profit} = \frac{8,000 + 9,000 + 10,000}{3} = \frac{27,000}{3} = 9,000 \]
2. Determine Time Period:
The firm follows a calendar year (January to December). Joshi died on February 28, 2018.
Months worked in 2018 = 2 months (January and February).
3. Calculate Profit for 2 months:
\[ \text{Estimated Yearly Profit} = 9,000 \]
\[ \text{Profit for 2 months} = 9,000 \times \frac{2}{12} = 1,500 \]
4. Calculate Joshi's Share:
As no PSR is mentioned for Ram, Manohar, and Joshi, they are assumed to share profits equally (1:1:1).
\[ \text{Joshi's Share} = 1,500 \times \frac{1}{3} = 500 \]
Step 4: Final Answer:
Joshi’s share of profit till the date of his death is Rs. 500.
Therefore, the correct option is (a).