Question

P, Q and R were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 1. P died on 1st September, 2022. On the date of P's death, the profits of the firm were calculated as 80,000. P's share of profit will be adjusted by : (a) Debiting Profit and Loss Account with 40,000. (b) (c) Debiting Profit and Loss Appropriation Account by 40,000. Debiting Profit and Loss Suspense Account with ₹ 80,000. Debiting Profit and Loss Suspense Account with ₹ 40,000. (d) ​

Answer 1

P's share of the profits on the date of their death would be calculated based on the profit-sharing ratio and total profits, resulting in a share of ₹40,000. This amount would be adjusted by debiting the Profit and Loss Appropriation Account with ₹40,000.

Step-by-step explanation:

The question relates to the adjustment of a deceased partner's share of profits in a partnership firm. If P, Q, and R were sharing profits and losses in the ratio of 4:3:1, and the total profits on the date of P's death were 80,000, the calculation to find P's share will be based on the profit sharing ratio. In this case:

• Total profit = ₹ 80,000
• P's share = ⅔ of the profit
• P's share = ₹ 80,000 * ⅔ = ₹ 40,000

P's share of the profit (₹ 40,000) will be adjusted by Debiting Profit and Loss Appropriation Account with ₹ 40,000. This entry correctly reflects P's entitlement up to the date of death and reduces the profits available for distribution to the remaining partners, Q and R.

Answer 2

The correct treatment is to debit the Profit and Loss Appropriation Account by 40,000 to reflect the deceased partner P's share of the profits, calculated as a part of the partnership's profit-sharing ratio. The correct answer is option (b).

Step-by-step explanation:

The student's question pertains to the accounting treatment required upon the death of a partner (P) in a partnership firm that shares profits and losses in the ratio 4:3:1. As P died on 1st September, 2022, and the profits of the firm on that date were 80,000, to calculate P's share, we multiply the total profit by P's share in the ratio, which is 4/8 (since the total ratio is 4+3+1=8).

Thus, P's share of profit till the date of death would be 80,000 * (4/8), resulting in 40,000. This amount would be usually adjusted by debiting the Profit and Loss Appropriation Account to reflect the appropriation of profit to the deceased partner's capital or current account.

Therefore, the correct entry to adjust P's share of profits on P's death would be (b) Debiting Profit and Loss Appropriation Account by 40,000.