Question 05 Chapter 4 of +2-A
Table of Contents
5. A, B and C shared profits and losses in the ratio of 3 : 2 : 1 respectively. With effect from 1st April, 2019, they agreed to share profits equally. The goodwill of the firm was valued at 18,000. Pass necessary Journal entries when: (a) Goodwill is adjusted through Partners’ Capital Accounts; and (b) Goodwill is raised and written off.
The solution of Question 05 Chapter 4 of +2-A:
| Old Ratio of X, Y, & Z | = | 3 : 2 : 1 |
| New Ratio of X, Y, & Z | = | 1 : 1 : 1 |
Calculate the Sacrificing or Gaining Ratio of Partners
Sacrificing or Gaining Ratio = Old Ratio – New Ratio
| X’s Share Sacrificing/Gaining | = | 3 | – | 1 |
| 6 | 3 |
| = | 3 – 2 | |
| 6 |
| = | 1 | Sacrificing |
|
| 6 |
| Y’s Share Sacrificing/Gaining | = | 2 | – | 1 |
| 6 | 3 |
| = | 2 – 2 | |
| 6 | ||
| = | Nil |
| Z’s Share Sacrificing/Gaining | = | 1 | – | 1 |
| 6 | 3 |
| = | 1 -2 | |
| 6 |
| = | -1 | Gaining |
|
| 6 |
Case (a)
| Amount of Goodwill for Adjustment | = | 18,000 X | 1 |
| 6 | |||
| = | 3,000 |
| In the Books of _______________ | |||||
| Date | Particulars |
L.F. | Debit | Credit | |
| 2019 | |||||
| April 1 | C’s Capital A/c | Dr | 3,000 | ||
| To A’s Capital A/c | 3,000 | ||||
| (Being amount of goodwill adjusted through capital account) | |||||
Case (B)
| In the Books of _______________ | |||||
| Date | Particulars |
L.F. | Debit | Credit | |
| 2019 | |||||
| April 1 | Goodwill A/c | Dr | 18,000 | ||
| To A’s Capital A/c | 9,000 | ||||
| To B’s Capital A/c | 9,000 | ||||
| To C’s Capital A/c | 9,000 | ||||
| (Being amount of goodwill raised in the books in the old ratio) | |||||
| April 1 | A’s Capital A/c | Dr | 6,000 | ||
| B’s Capital A/c | Dr | 6,000 | |||
| C’s Capital A/c | Dr | 6,000 | |||
| To Goodwill A/c | 18,000 | ||||
| (Being amount of goodwill written off in the new profit sharing ratio) | |||||
T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)
- Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
- Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
- Chapter No. 3 – Goodwill: Nature and Valuation
- Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
- Chapter No. 5 – Admission of a Partner
- Chapter No. 6 – Retirement/Death of a Partner
- Chapter No. 7 – Dissolution of a Partnership Firm
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 8 – Company Accounts – Accounting for Share Capital
- Chapter No. 9 – Company Accounts – Issue of Debentures
- Chapter No. 10 – Redemption of Debentures
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 1 – Financial Statements of a Company
- Chapter No. 2 – Financial Statement Analysis
- Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
- Chapter No. 4 – Accounting Ratios
- Chapter No. 5 – Cash Flow Statement
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
