Question

Q. 16. A and B were in partnership sharing profits in the ratio of 2 : 3. With effect from 1st May
2018 they agreed to share profits in the ratio of 1:2. For this purpose the goodwill of the
firm is to be valued at 1.5 year's purchase of the average profits of last three
years, which
were 31,90,000, 530,000 (Loss) and 2,00,000 respectively. Reserves appear in the books
at 1,20,000. Partners do not want to distribute the reserves. You are required to give
effect to the change by passing a single journal entry.
4​

Answer 1

sharing profits in the ratio of 2 : 3. With effect from 1st May

2018 they agreed to share profits in the ratio of 1:2. For this purpose the goodwill of the

firm is to be valued at 1.5 year's purchase of the average profits of last three

years, which

were 31,90,000, 530,000 (Loss) and 2,00,000 respectively. Reserves appear in the books

at 1,20,000. Partners do not want to distribute the reserves. You are required to give

effect to the change by passing a single journal entry.

4