Question

0.42. Ram, Ghanshyam and Vrinda were partners in a firm sharing profits in the
ratio of 4:3:1. The firm closes its books on 31st March every year. On 1st February,
2015 Ghanshyam died and it was decided that the new profit-sharing ratio between
Ram and Vrinda will be equal. The Partnership Deed provided for the following on the
death of a partner:
(a) His share of goodwill be calculated on the basis of half of the profits credited
to his account during the previous four completed years :
The firm's profit for the last four years were.
2010-11 - 31,20,000, 2011-12 – 80,000, 2012-13 – 340,000, and
2013-14 — 380,000
(6) His share of profit in the year of his death was to be computed on the basis of
average profits of past two years.
Pass necessary Journal entries relating to goodwill and profit to be transferred to
Ghanshyam's Capital Account. Also show your workings clearly.
(C.B.S.E. 2016 Comptt. Delhi)
​

Answer 1

Answer:

PROFIT & LOSS SUSPENSE A/C DR 112500

TO GHANSHYAM CAPTIAL A/C 112500

(PROFIT FOR CURRENT YR)

2 VRINDA CAPITAL A/C DR 275625

TO GHANSHYAM CAPITAL A/C 275625

(GOODWILL CREDITED )

Explanation:

1. GOODWILL -

CALCULATION OF RATIO

GAIN RATIO= NEW- OLD

RAM- 1/2- 4/8= 0

VRINDA =1/2-1/8=3/7

, AVG OF PROFITS OF 4 YRS = 3920000/4= 1470000

1470000*1/2= 735000

SHARE OF PARNER DIED=735000*3/8

= RS 275625.

. PROFIT

AVG OF LAST TWO YRS= 720000/2= 360000

360000*10/12*3/8= 112500

Answer 2

We have to prepare Journal entries relating to Goodwill and Profit transferred to Capital a/c. Journal entries are provided below:

                                           JOURNAL ENTRIES

DATE                PARTICULARS                       LF     DEBIT               CREDIT

$1st$ Feb        Ram Capital a/c        Dr.                       $2,45,000$

                 To, Ghanshyam Capital a/c                                            $2,45,000$

               (Adjustment of Goodwill)

$1st$ Feb        Ram's Capital a/c       Dr.                     $1,12,500$

                  To, Ghanshyam Capital a/c                                            $1,12,500$

                (Being adjustment of Ghanshyam share

                       of profits)

WORKING NOTES:

Calculation of Ratio

R : Gh: V               =    $4 : 3: 1$

R: V                     =     $1 : 1$

Gaining Ratio = New Ratio- Old Ratio

R's gain = $\frac{1}{2} - \frac{4}{8}$ = $\frac4-4}{8} = \frac{0}{8}$

V's gain = $\frac{1}{2} - \frac{1}{8} = \frac{3}{8}$

R: V      = $0 : 3$

Calculation of Ghanshyam Goodwill:

$4$ year's profit = $31,20,000 + 80,000 + 340,000 + 380,000$

                       $= 39,20,000$

Ghanshyam's share of Goodwill $= 39,20,000$ × $\frac{3}{8}$ ×$\frac{1}{2}$

                                                   = $4,90,000$× $\frac{1}{2}$

                                                    = $2,45,000$

Calculation of Ghanshyam Share of Profit

Last two year's profit = $3,40,000 + 3,80,000$

                                 $= 7,20,000$

Average profit $= 3,60,000$

Since Ghanshyam died on $1$st Feb the profit for Feb and March isn't taken.

Ghanshyam Share of Profit = $3,60,000$ × $\frac{3}{8}$ × $\frac{10}{12}$

                                           = $1,12,500$

PROJECT CODE: #SPJ3