Question

A and B have been carrying on business in partnership with fixed capitals of 2,40,000 and 21,20,000 respectively and sharing profits in the same proportion. They decided that with effect from April 1, 2021 they would share profits and losses in the ratio of 3: 2. For this purpose goodwill is to be valued at three year's purchase of the average of preceding three year's profits. The profits for the years ending 31st March were 2018: 75,000; 2019: 360,000; 2020: 280,000 and 2021: 1,30,000. Give the necessary journal entry.​

Answer 1

Answer:

Value of Goodwill Rs. 2,70,000, Debit B's Current A/c by Rs. 18,000 and Credit A's Current A/c by Rs. 18,000. <br> Note : Since the capitals are fixed, adjustment will be made through current accounts.