Question

Rani, Jaya and Rathi are partners sharing profits and losses in the ratio of 2:2:1. On 31.3.2018, Rathi retired from the partnership. Profit of the preceding years is as follows: 2014: ₹ 10,000; 2015; ₹ 20,000; 2016; ₹ 18,000 and 2017; ₹ 32,000.
Find out the share of profit of Rathi for the year 2018 till the date of retirement if

1. profit is to be distributed on the basis of the previous year’s profit
2. Profit is to be distributed on the basis of the average profit of the past 4 years.

Also pass necessary journal entries by assuming partners’ capitals are fluctuating.

Answer 1

(a) on the basis of previous years profit

Profit of 2017 = Rs.32,000

Date of retirement = 31.3.2018

share of profit of Rathi for 3 months = `32,000 xx 3/12 xx 1/5` = Rs. 1600

Date	Particulars	L.F.	Debit	Credit
31.3.2018	Profit and loss Suspense A/c   Dr.     To Rathi's Capital A/c [Rathi's current year profit credited to her capital A/c]		1,600	1,600

(b) Profit is to be distributed on the basis of the average profit of the past 4 years.

Average profit = `(10,000 + 20,000 + 18,000 + 32,000)/4` = 20,000

Share of profit of Rathi for 3 months = `20,000 xx 3/12 xx 1/5` = Rs. 1,000

Date	Particulars	L.F.	Debit	Credit
31.3.2018	Profit and loss Suspense A/c   Dr.     To Rathi's Capital A/c [Rathi's current year profit credited to her capital A/c]		1,000	1,000