question_answer

(i) Abhinav, Bharat and Vishwas are partners sharing profits and losses equally. They agree to admit Divakar for equal share. For this purpose, value of goodwill is to be calculated on the basis of 4 years' purchase of average profit of last 5 years.

Years	Profit/Loss
2013	30,000
2014	70,000	(including an abnormal gain of Rs. 10,000)
2015	1,00,000	(after charging an abnormal loss of Rs. 20,000)
2016	1.40,000
2017	1.20,000

Calculate the value of Divakar's share of goodwill after adjusting the above. (ii) A, B and C are partners sharing profits in the ratio of 3 : 4 : 2. From 1st January, 2017 they decide to share profits equally. Goodwill was valued at Rs. 45,000 as on that date. Pass journal entry to give effect to the above adjustment.

Answer:

            (i)                                             Calculation of Goodwill

Average Maintainable Profits	Amt (Rs.)
Profit for 2013	30,000
Profit for 2014 (70,000 - 10,000)	60,000
Profit for 2015 (1,00,000 + 20,000)	1,20,000
Profit for 2016	1,40,000
Profit for 2017	1,20,000
Total Profit for Last 5 Years	4,70,000

Average Profits \[=\text{Total}\,\text{Profits}\,\text{/}\,\text{Number}\,\text{of}\,\text{Years }\,\Rightarrow \,\,\frac{4,70,000}{5}=Rs.\,94,000\] Goodwill \[=\,\,\text{Average}\,\text{Profits}\,\,\text{ }\!\!\times\!\!\text{ }\,\,\text{Number}\,\text{of}\,\text{Years }\!\!'\!\!\text{ }\,\text{Purchase}\Rightarrow 94,000\times 4=Rs.\,3,76,000\] Divakar?s Share of Goodwill \[=3,76,000\times \frac{1}{4}=Rs.\,94,000\] (ii)                                                                     JOURNAL

Date	Particulars		LF	Amt (Dr)	Amt (Cr)
2017
April 1	?C?s Capital A/c (WN 2)	Dr		5,000
	To B?s Capital A/c (WN 2)				5,000
	(Being share of goodwill adjusted on change on change in profit sharing ratio)

            Working Notes 1. Calculation of Change in Profit Share of Partners Sacrificing/Gaining Share = Old Share - New Share \[A=\frac{3}{9}-\frac{1}{3}=\frac{3-3}{9}=Nil\] \[B=\frac{4}{9}-\frac{1}{3}=\frac{4-3}{9}=\frac{1}{9}Sacrifice\] \[C=\frac{2}{9}-\frac{1}{3}=\frac{2-3}{9}\left( \frac{1}{9} \right)Gain\] 2. Share of Goodwill \[B=45,000\times \frac{1}{9}=Rs.\,5,000\] \[C=45,000\times \frac{1}{9}=Rs.\,5,000\]