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CMA Intermediate · Financial Accounting · Death of Partner

Kiran, Lata and Manoj share profits 2:2:1. Manoj dies on 1 January, and accounts close on 31 March. The loss for the year was Rs 90,000 and, on a time basis, the loss up to the date of death is to be provided. What entry is correct for Manoj's share of loss up to the date of death?

Loss up to death is Rs 90,000 x 9/12 = Rs 67,500. Manoj's one-fifth share is Rs 13,500, debited to his capital account and credited to the Profit and Loss Suspense Account. Reversing the entry would wrongly treat it as profit.

  1. ADebit Manoj's capital Rs 13,500 and credit Profit and Loss Suspense AccountCorrect
  2. BCredit Manoj's capital Rs 13,500 and debit Profit and Loss Suspense Account
  3. CDebit Manoj's capital Rs 18,000 and credit Profit and Loss Suspense Account
  4. DDebit Profit and Loss Suspense Account Rs 13,500 and credit Manoj's capital

Explanation

Loss up to death = 90,000 x 9/12 = 67,500. Manoj's share 1/5 = Rs 13,500. A loss is debited to the deceased partner's capital, with credit to the Profit and Loss Suspense Account. Rs 18,000 uses the full-year loss, and reversing the sides treats the loss as a profit.

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