Question 31 Chapter 5 of +2-Part-1

31. (Goodwill is to be calculated and not brought in cash) A and B are partners sharing profits in the ratio of 2/5 and 3/5. They admit C as a partner who brings in Rs. 10,000 as capital. Goodwill is to be valued at three years purchase of the five years average profits. The profits for the years were Rs. 2,500,Rs. 3,500, Rs. 5,500, Rs. 4,000 and Rs. 4,500. The new profits sharing ratio will be 2/5, 2/5 and 1/5.

## The solution of Question 31 Chapter 5 of +2 Part-1: –

 Journal Date Particulars L.F. Debit Credit 2019 i) Bank A/c Dr. 10,000 To C’s Capital A/c 10,000 (Being capital brought by C in cash ) ii) C‘s capital A/c Dr. 2,400 To B’s Capital A/c 2,400 (Being C’s share of goodwill distributed into capital account of B)

Working notes

Calculation of new profit sharing ratio

 Goodwill = Total profits x No. Of year purchase No. Of years = Rs. ( 2,500+3,500+5,500+4,000+4,500 x 3 5 = 20,000 x 3 5 = Rs 12,000

2. Sacrificing ratio= Old ratio – new ratio

 A’s sacrifice = 2 – 2 5 5 = NIl
 B’s sacrifice = 3 – 4 5 5 = 3 – 4 5 = 1 5

Comment if you have any questions.

Also, Check out the solved question of previous Chapters: –