Anil, Sunil & Vijay are partners sharing profits in the ratio of 14:5:6. Sunil retires gives 5/25th of his share to Anil and remaining share to Vijay. Goodwill of the firm is valued at 2 years purchase of super profit &based on average profits of last 3 years. Profit of last three years is ₹ 50,000, ₹ 55,000 , and ₹ 60,000 respectively . Normal profits for the similar firm are ₹ 30,000. Goodwill already exists in the books of the firm Rs 75,000. Profit on first year after Sunil retire ₹ 1,00,000. Give necessary journal entries to adjust goodwill and distribute profit showing your workings
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Answer:
12th
Accountancy
Reconstitution of a Partnership Firm - Admission of a Partner
Accounting Treatment of Accumulated Profits and Losses and Reserves
A and B are partners sharin...
ACCOUNTANCY
A and B are partners sharing profits and losses in the ratio of 2:5. They admit C on the condition that he will bring in Rs.14,000 as his share of goodwill in cash to be distributed between between A and B. C
′
s share in the future profits or losses will be 1/4
th
. What will be the new profit-sharing ratio and what amount of goodwill brought in by C will be received by A and B?
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ANSWER
(i) New profit sharing ratio:
A's old ratio= 2/7
B's old ratio= 5/7
C is admitted for 1/4th share.
Remaining share= 1-[1/4]
= 3/4
A's new share= 3/4 * 2/7
= 6/28
B's new share= 3/4 * 5/7
= 15/28
New Profit sharing ratio of partners= 6:15:7
(ii) Distribution of Goodwill:
A's share= 2/7 * 14000
= 4000
B's share= 5/7 * 14000
= 10000