Accountancy Part AReconstitution of Partnership Firm: Retirement and Death

A, B and C are partners in a partnership firm. On 30th June 2021 C di…

A, B and C are partners in a partnership firm. On 30^th June 2021 C died. His share of profit is to be calculated on the basis of average profit of last three years which were Rs 1,00,000, Rs 2,00,000 and Rs 3,00,000 for the year ending on 31^st March 2018, 2019 and 2020 respectively. Their profit sharing ratio was 3 : 3 : 4. What will be C's share of profit?

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → ₹20,000

A deceased partner's share of profit up to the date of death may be worked out on the average profit of past years.

Average profit = (₹1,00,000 + ₹2,00,000 + ₹3,00,000) ÷ 3 = ₹2,00,000

Period from 1st April 2021 to 30th June 2021 = 3 months

C's share = ₹2,00,000 × 3/12 × 4/10 = ₹20,000

NCERT (2026-27 edition):
Death of a Partner – “… Since, it is considered cumbersome to close the books and prepare final account, for the period, the deceased partner’s share of profit may be calculated on the basis of last year’s profit (or average of past few years) or on the basis of sales.”