X, Y, and Z are partners in a firm and they close their books on December 31 every year. They are sharing profits and losses in the ration of 3: 2: 1.

Question

X, Y, and Z are partners in a firm and they close their books on December 31^st every year. They are sharing profits and losses in the ration of 3: 2: 1. The partnership deed provides that if a partner retires from the firm during the course of an accounting year, his share of profit from the date of last balance sheet to the date of retirement should be calculated on the basis of the average profits of the last three completed years. On 1^st April 2004 Y retired from the firm. The profits of the firm during the years 2001, 2002 and 2003 were Rs. 12,500, Rs. 8,500 and Rs. 6,000 respectively. Write the journal entry to record the share of profit of the retiring partner for the year 2004.

Answer 1

(Being Y’s share of profit for 2004 brought into A/c) 

Notes: Prots for the last 3 years

= 12,500 + 8.500 + 6,000 = Rs. 27,000 

Average profit = 27,000/3 = Rs. 9,000 

Profit from the date of last balance sheet to the date . of retirement. = 9,000 × 3/12 = Rs. 2,250 

Y’s share there of = 2,250 × 2/ 6 = Rs. 750