Question 16 Chapter 4 of Class 12 Part – 1 Usha Publication

Question 16 Chapter 4 of Class 12 Part – 1 Usha Publication 16. (Comprehensive Illustration) X and Y are in partnership, sharing profits in 2:3 ratio. With effect from 1st April 2019, they agreed to share profits in the ratio of 1:2. For this purpose, the goodwill of the firm is to be valued at two years purchase of the average profits of the last three years, which were Rs.75,000, Rs.80,000 and Rs.1,00,000 respectively. The reserve appears in the books at Rs.55,000. Partners neither want to show the goodwill in the books nor want to distribute the reserve. You are required to give effect to the change by passing a single journal entry.

The solution of Question 16 Chapter 4 of Class 12 Part – 1 Usha Publication: -

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Journal

Date	Particulars		L.F.	Debit	Credit
2019
April 1	Y's Capital A/c	Dr.		15,000
	To X's Capital A/c				15,000
	(Being capitals adjusted on account of change in profit ratio)

Working Notes: -

Average Profit	=	Total Profit for past given years
		Number of years
	=	75,000 + 80,000+ 1,00,000
		3
	=	2,55,000
		3
	=	85,000

Number of years’ purchase	=	2
Goodwill	=	Average Profit X Number of years’ purchase
Goodwill	=	85,000X 2
Goodwill	=	1,70,000

Old Ratio = 2 : 3 New Ratio = 1 : 2 Calculate the Sacrificing or Gaining Ratio of Partners Sacrificing or Gaining Ratio = Old ratio - New ratio

X’s Share Sacrificing/Gaining	=	2	-	1
		5		3

=	6- 5
		15

=	1	(Sacrifice)
			15

Y’s Share Sacrificing/Gaining	=	3	-	2
		5		3

=	9 - 10
		15

=	-1	(Gain)
			15

Calculation of net adjustment in the partner’s capital accounts:

Particulars	A	B
On account of goodwill (Rs.1,70,000*1/15)	(Cr.)11,333	(Dr.)11,333
On account of Reserve (Rs.55,000*1/15)	(Cr.) 3,667	(Dr.) 3,667
Adjustment	(Cr.)15,000	(Dr.)15,000

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