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Question 28 Chapter 5 of +2-A
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28. Anshul and Parul are partners sharing profits in the ratio of 3 : 2. They admit Payal as partner for 1/4th share in profits on 1st April, 2019. Payal brings 5,00,000 as capital and her share of goodwill by cheque. It was agreed to value goodwill at three years’ purchase of average profit of last four years. Profits for the last four years ended 31st March,
| 2015-16 | 4,00,000 |
| 2016-17 | 5,00,000 |
| 2017-18 | 6,00,000 |
| 2018-19 | 7,00,000 |
Additional Information:
- Closing Stock for the year ended 31st March, 2018 was overvalued by 50,000.
- 1,00,000 should be charged annually to cover management cost. Pass necessary Journal entries on Payal’s admission.
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The solution of Question 28 Chapter 6 of +2-A
| Date | Particulars | L.F. | Debit | Credit | |
| Bank A/c | Dr | 8,37,500 | |||
| To Payal’s Capital A/c | 5,00,000 | ||||
| To Premium for Goodwill A/c | 3,37,500 | ||||
| (Being C brought his share of goodwill) | |||||
| Premium for Goodwill A/c | Dr | 3,37,500 | |||
| To Anshul’s Capital A/c | 2,02,500 | ||||
| To X’s Capital A/c | 1,35,000 | ||||
| (Being goodwill distributed among the old partners’ in their sacrificing ratio) | |||||
| Particulars / Year Ended | 31st March, 2016 | 31st March, 2017 | 31st March, 2018 | 31st March, 2019 |
| Profit/(Loss) | 4,00,000 | 5,00,000 | 6,00,000 | 7,00,000 |
| Less: Overvaluation of Closing Stock | – 50,000 | |||
| Add: Overvaluation of Opening Stock | 50,000 | |||
| Less: Annual Charge for Management Cost | – 1,00,000 | -1,00,000 | -1,00,000 | -1,00,000 |
| Adjusted Profits/(Loss) | 3,00,000 | 4,00,000 | 4,50,000 | 6,50,000 |
| Average Profit | = | Total Profit for past given years |
| Number of years |
| Average Profit | = | 3,00,000+4,00,000+4,50,000+6,50,000 |
| 4 |
| Average Profit | = | 18,00,000 |
| 4 | ||
| = | 4,50,000 |
| Number of years’ purchase | = | 3 |
| Goodwill | = | Average Profit X Number of years’ purchase |
| Goodwill | = | 4,50,000 X 3 |
| Goodwill | = | 13,50,000 |
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| Old Ratio of Anshul and Parul | = | 3 : 1 |
| New Ratio of Anshul, Parul and Payal | = | 1 : 1 : 1 |
Sacrificing Share = Old Ratio – New Ratio
| Anshul’s Sacrificing Share | = | 3 | – | 1 |
| 4 | 3 |
| = | 9 – 4 | |
| 12 |
| = | 5 | Sacrifice | |
| 12 |
| Y’s Sacrificing Share | = | 1 | – | 1 |
| 4 | 3 |
| = | 3 – 4 | |
| 12 |
| = | (-1) | Gains | |
| 12 |
| Total Firm’s Goodwill | = | 13,50,000 |
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| Payal’s share of Goodwill | = | 13,50,000 | X | 1 |
| 4 | ||||
| = | 3,37,500 |
Distribution of Payal’s share of Goodwill
Share of Goodwill = Payal’s Goodwill X Partners’ Sacrifice share
| Anshul’s Share of Goodwill | = | 3,37,500 | X | 3 |
| 5 | ||||
| = | 2,02,500 |
| Parul’s Share of Goodwill | = | 3,37,500 | X | 2 |
| 5 | ||||
| = | 1,35,000 |
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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
