Question

John, Honey and Racob were partners in a firm sharing profits and losses equally. On 31st July, 2025 John died. His share in the profits of the firm from the date of last balance sheet till the date of his death will be:

• A. Debited to Profit and Loss Account
• B. Credited to Profit and Loss Account
• C. Debited to Profit and Loss Suspense Account
• D. Credited to Profit and Loss Suspense Account

Hint:

On death of a partner:

• Share of profits till death = Estimated
• Journal Entry: \[ \begin{array}{ll} \text{P\& L Suspense A/c} & \text{Dr.}
  \quad \text{To Deceased Partner's Capital A/c} \end{array} \]

The suspense account is later adjusted when actual profits are known.

Answer 1

The Correct Option is D

We are asked how John's share of profits from the last balance sheet date till his death will be treated.
Step 1: Understand the situation.
When a partner dies, the firm may earn profits or losses from the date of the last balance sheet until the date of death. The deceased partner is entitled to their share of these interim profits.
Step 2: Treatment of deceased partner's share of interim profits.
The deceased partner's share of profits for the intervening period is calculated and then:

• It is credited to the deceased partner's capital account.
• The corresponding entry is: \[ \begin{array}{ll} \text{Profit and Loss Suspense A/c} & \text{Dr.} \\ \quad \text{To Deceased Partner's Capital A/c} \end{array} \]
• Alternatively, it may be directly credited to the deceased partner without using suspense account, but the standard treatment is to use a suspense account.

Step 3: Why Profit and Loss Suspense Account?

• The actual profit for the full year is not yet known.
• The interim profit is an estimate (based on previous year's profit or average profits).
• This estimated amount is temporarily recorded in a suspense account.
• At the end of the accounting period, when actual profits are known, the suspense account is adjusted.

Step 4: Analyze each option.

• (A) Debited to Profit and Loss Account:
  • Incorrect. P\& L A/c is not directly used for interim profits of deceased partner.
• (B) Credited to Profit and Loss Account:
  • Incorrect. P\& L A/c is not credited for this purpose.
• (C) Debited to Profit and Loss Suspense Account:
  • Incorrect. When crediting the deceased partner, the suspense account is debited, not credited.
• (D) Credited to Profit and Loss Suspense Account:
  • ✓ Correct. The deceased partner's share of interim profits is credited to P\& L Suspense A/c (and then transferred to deceased partner's capital).

Final Answer: (D) Credited to Profit and Loss Suspense Account