Question

The firm of A,B and C has existed for the last 5 years. Partners decide to raise Goodwill account in their books at twice the average of the last 5 years profit. The profit of the last 5 years is as under:
1st year 4,00,000
2nd year4,80,000
3rd year 33,000( loss)
4th year 7,33,000
5th year 2,20,000
Calculate Goodwill.​

Answer 1

Answer:

                                         JOURNAL

1. Stock a/c....                                               Dr.          60000

   Debtors a/c...                                            Dr.          80000

   Land a/c....                                                Dr.           100000

   Plant and machinery a/c...                       Dr.            40000

                To Z's Capital a/c                                                    130000

                To Premium for goodwill a/c                                  150000

(Being capital and premium for goodwill brought in by C in the form of assets)

2. Premium for Goodwill a/c....                   Dr.             150000

                 To X's Capital a/c                                                    90000

                  To Y's Capital a/c                                                    60000

(Being premium for goodwill distributed among partners in the ratio of 3:2)

Working Note:

1. Calculation of Z's share of goodwill:

Z's share of Goodwill= 600000 * 1/4= 150000

Z's share of capital = 280000 - 150000 = 130000

2. Distribution of premium for goodwill:

X's share= 3/5 * 150000= 90000

Y's share= 2/5 * 150000= 60000