Question

A and B are partners sharing profits & Losses in the ratio of 3:1. Their capitals were Rs. 60,000
and Rs. 40,000 respectively. As from 1 st April 2005 it was agreed to change the profit sharing
ratio to 3:2. According to the partnership deed goodwill should be valued at three years purchase
of the average of five year’s profits. The profits of the previous five years were 2001- Rs 30,000,
2002 – Rs.40,000, 2003 – Rs 50,000, 2004 – Rs. 60,000 & 2005 – Rs. 70,000. Pass necessary
Journal entry.
The profit for the last five years of a firm were as follows -year 2002 Rs. 4,00,000; year 2003 Rs.
3,98,000; year 2004 Rs. 4,50,000; year 2005 Rs. 4,45,000 and year 2006 Rs. 5,00 ,000. Calculate
goodwill of the firm on the basis of 4 years purchase of 5 years average profits

Answer 1

1st
Goodwill = Avg Pft * NYP
=(30+40+50+60+70/5)*3
50,000*3=1,50,000
Now
Old - New = +Sac/-gain
3/4-3/5=3/20
1/4-2/5=(-3/20)
Journal
B Dr.
To A
150000*3/20=22,500