Payments for the last period, January-February, 1908, shown on page 35.

The next step is to find the profit or loss, and then to prepare the respective Capital Accounts of the partners.

A good rule for finding the profit or loss of a concern for a given period from books kept by the single entry method, as suggested by Lisle, in his Accounting in Theory and Practice, is as follows:

Prepare a Statement of Affairs as at the close of the period, and so ascertain the capital at the end of the period. Prepare a Capital Account, or Capital Accounts, if the business is a partnership, for the period. From the capital brought out by the Statement of Affairs deduct the capital shown by the Capital Account or the Capital Accounts prepared. The difference is the net profit for the period. If the capital shown by the Capital Accounts is greater than the capital shown by the Statement of Affairs, the result of the period's transactions is a loss.

The profit or loss for the period under review could also be ascertained by a comparison of the Statement of Affairs of one period (December 31, 1907,) with that of the other period (February 28, 1908). If the former capital is greater than the latter, the difference would be a loss for the period, otherwise a gain.

If we proceed in accordance with the first rule (Lisle's), we would prepare the Statement of Affairs, as at that date, February 28, 1908, as shown on the preceding page.

We can now make up the following:

Leaving as profit for the period Jan.-Feb., 1908.. $1,450.40

According to the original agreement in regard to the division of profits or losses,

X. would be entitled to 2/5 of $1,450.40 = $580.16
Y. would be entitled to 7/20 of $1,450.40 = 507.64
Z. would be entitled to 4 of $1,450.40 = 362.60

Crediting the Partners' Capital Accounts with their respective shares of profits, these will appear as shown on the following

page.

6,904.27

February 28, By 2/5 of profits.

February 28, By 2/5 value of goodwill (based on

preceding 3 years' net profits)

$7,029.27

March 1, By Balance.

X.'S CAPITAL ACCOUNT.

We know now what the Capital Accounts of the respective partners amount to. Adhering to the amended provision in regard to goodwill in case of death we must first of all determine the net profits for three years preceding the partner's death, including in such calculation the broken period.

For this purpose we add the net profits for eleven periods from June, 1905, to and including December, 1907. As this addition does not give us the full three years, and as we have furthermore also to consider the broken period, we are to find the approximate net profit for one month, i. e. the month which the last quarter lacks. According to the information given, this quarter (January-March) contains the heaviest sales; hence we must, in this instance at least, in an indirect way find this sum. We proceed to do this as follows:

We add to the net profits of the last period (January-February) all the first quarters (January-March), viz.:

This we divide by the number of months comprising these sums of net profits, i. e., eleven, and so arrive, approximately, at the probable March profits. Adding this sum so derived to the profits of the last (January-February) period we get the net profits for the last (twelfth) quarter. This added to the eleven quarters gives us a total of $11,837.78, which sum represents the value of the goodwill, of which sum X. is entitled to two-fifths. X.'s Capital Account will now appear as shown on the preceding page. On our books we now have an additional account, thus:

The other Capital Accounts (Y.'s and Z.'s) remain unchanged. There are some accountants who in such cases prefer placing the entire value of the goodwill on the books of the concern, and to credit the Capital Accounts of the partners with their respective shares. This procedure is not only unscientific, but illogical.