# Question 29 Chapter 3 of Class 12 Part – 1 VK Publication

Question 29 Chapter 3 of Class 12 Part - 1 VK Publication

Question 29 Chapter 3 of Class 12 Part – 1

29. A, B and C are partners sharing profits and losses in the ratio of 5:3:2. From 1st April, 2018, they decided to share profits and losses equally. The partnership deed provides that in the event of any change in profit-sharing ratio, goodwill should be valued at two years’ purchase of the average profit of the previous 5 years. The profits and losses of the preceding five years are as follows:

 Year Rs. 31st March, 2014 (Loss) 25,000 31st March, 2015 (Profit) 70,000 31st March, 2016 (Profit) 45,000 31st March, 2017 (Profit) 90,000 31st March, 2018 (Profit) 1,20,000

It is the practice of the firm not to show goodwill in the books. Give a journal entry to record the above change.

## The solution of Question 29 Chapter 3 of Class 12 Part – 1: –

Journal Entry

 Date Particulars L . F Dr. ₹ Cr. ₹ 2018 B’s Capital A/c Dr. 4,000 April 1 C’s Capital A/c Dr. 16,000 To A’s Capital A/c 20,000 ( Being proportionate share of Goodwill adjusted among partners )

Working Notes:

 Average Profit = Total Profit Total No. of Year
 = -25,000+70,000+45,000+90,000+1,20,0000 5

= Rs. 60,000

Goodwill= Average Profit x Number of Years’ Purchase = 60,000 x 2 = Rs. 1,20,000

 Particulars P Q R Partners’ Old Ratio 5/10 3/10 2/10 Partners’ New Ratio 1/3 1/3 1/3 Difference 5/30 (-1)/30 (-4)/30 Net Effect Sacrifice Gain Gain

Thus Proportionate Share of Goodwill to be adjusted

 A= 1,20,000 X 5 30

= Rs. 20,000 (Cr.)

 B = 1,20,000 X 1 30

= Rs. 4,000 (Dr.)

 C = 1,20,000 X 4 30

= Rs. 16,000(Dr.)