Question 07 Chapter 4 of +2-A
7. Mandeep, Vinod and Abbas are partners sharing profits and losses in the ratio of 3: 2: 1. From 1st April 2019, they decided to share profits equally. The Partnership Deed provides that
in the event of any change in profit-sharing ratio, goodwill shall be valued at three years’ purchase of the average profit of the last five years. The profits and losses of the past five years are:
Profit − Year ended 31st March, 2015 − 1,00,000; 2016 − 1,50,000; 2018 − 2,00,000; 2019 − 2,00,000.
Loss − Year ended 31st March 2017 − 50,000.
Pass the Journal entry showing the working.
The solution of Question 07 Chapter 4 of +2-A:
| Old Ratio of Mandeep, Vinod, & Abbas | = | 3: 2: 1 |
| New Ratio of Mandeep, Vinod, & Abbas | = | 1: 1: 1 |
Calculate the Sacrificing or Gaining Ratio of Partners
Sacrificing or Gaining Ratio = Old Ratio – New Ratio
| Mandeep’s Sacrificing/Gaining share | = | 3 | – | 1 |
| 6 | 3 |
| = | 3 – 2 | |
| 6 |
| = | 1 | (Sacrificing) |
|
| 6 |
| Vinod’s Share Sacrificing/Gaining | = | 2 | – | 1 |
| 6 | 3 |
| = | 2 – 2 | |
| 6 |
| = | Nil |
|
| Mandeep’s Sacrificing/Gaining share | = | 1 | – | 1 |
| 6 | 3 |
| = | 1 -2 | |
| 6 |
| = | – 1 | Gaining |
|
| 6 |
Calculation of Goodwill: –
| Average Profit | = | Total Profit for past given years |
| Number of years |
| Average Profit | = | 1,00,000 + 1,50,000 + 2,00,000 + 2,00,000 + (-)50,000 |
| 5 |
| Average Profit | = | 6,00,000 |
| 5 | ||
| = | 1,20,000 |
Number of years’ purchase = 3
| Goodwill | = | Average Profit x Number of years of purchase |
| = | 1,20,000 x 3 | |
| = | 3,60,000 |
Adjustment of Goodwill: –
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| Amount of Goodwill Credited to Mandeep’s Capital | = | 3,60,000 | X | 1 |
| 6 | ||||
| = | 60,000 |
| Amount of Goodwill debited to Abbas’s Capital | = | 3,60,000 | X | 1 |
| 6 | ||||
| = | 60,000 |
| In the Books of _______________ | |||||
| Date | Particulars |
L.F. | Debit | Credit | |
| 2019 | |||||
| April 1 | Abbas’s Capital A/c | Dr | 60,000 | ||
| To Mandeep’s Capital A/c | 60,000 | ||||
| (Being amount of goodwill adjusted through a capital account) | |||||
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
