37.
Sita, Reeta and Geeta are partners in a firm sharing profit and losses in the ratio of 4:3:1. As
per the firm of partnership deed. On the death of any partner goodwill was to be valued at 50%
of the net profits credited to that partners capital account during the last three completed years
before her death. Sita died on 28 February, 2015. The profit for the last five years were 2010-
*60,000, 2011- 97,000, 2012- 1,05,000, 2013- 30,000 and 2014- 84,000.
On the date of Sita's death. Building was found undervalued by 3 80,000, which was to be
considered. Calculate amount of Sita's share of goodwill in the firm and record the adjustment
Journal entries of goodwill and revaluation of building. The new profit-sharing ratio between
Reeta and Geeta will be equal.
Ans Gaining
Answers
Journal entry after Sita's Death:
Explanation:
1) Building A/c Dr. 80,000
To Revaluation A/c 80,000
2) Revaluation A/c Dr. 1,64,000
To Sita's Capital A/c 82,000
To Reeta's Capital A/c 61,500
To Geeta's Capital A/c 20,500
3) Geeta's Capital A/c Dr. 13,688
Reeta's Capital A/c Dr. 41,062
To Sita's Capital A/c 54,750
Working Note:
Calculation of Sita's share of Goodwill
Profit credited to Sita's Capital A/c in 3 years = Net profit of the three years X Sita's share
= ( 84,000+30,000+1,05,000) X 4/8
= (2,19,000) X 4/8
= 1,09500
Therefore,
Sita's share of Goodwill
=50% of (profit credited to Sita's Capital A/c for past 3 years)
= 1/2 of 1,09,500
=54,750
This share of Goodwill to be distributed between Reeta and Geeta in their gaining ratio 3:1
• Reeta's share in Goodwill
=54,750 X 3/4
=41,062 (approx.)
• Geeta's share in Goodwill
=54,750 X 1/4
= 13,688 (approx.)