Question

Sangeet, Anju and Shiva were partners in a firm sharing profits and losses in the ratio of 3 : 4 : 5. Sangeet died on 31st July, 2023. Sangeet’s share in the profits of the firm till the date of death was to be calculated on the basis of sales. Sales during the year 2022 – 23 were ₹ 40,000 and sales from 1st April, 2023 to 31st July, 2023 were ₹ 10,000. The profit for the year ended 31st March, 2023 was ₹ 40,000. Calculate Sangeet’s share of profit up to the date of death and pass the necessary journal entry for the same in the books of the firm. Show your workings clearly.

Hint:

When a partner dies, their share of profit is calculated based on the sales or other factors agreed upon, up to the date of death.

Answer 1

To ascertain Sangeet’s profit share, calculate the sales proportion up to the date of death: - Total sales: ₹ 40,000 (pre-April 1, 2023) + ₹ 10,000 (April 1 - July 31, 2023) = ₹ 50,000. - Sangeet’s profit share is determined by sales during the period of death. - Sales during the period of death: ₹ 10,000. Profit share is distributed proportionally to sales. Sangeet’s profit share is calculated as: \[ Sangeet’s share} = \frac{Sangeet’s sales}}{Total sales}} \times Profit} = \frac{10,000}{50,000} \times 40,000 = ₹ 8,000 \] Journal Entry: \[ Sangeet’s Capital A/c Dr} \, ₹ 8,000 \quad To Profit and Loss A/c} \, ₹ 8,000 \]