question_answer

Sita, Reeta and Geeta are partners in a firm sharing profits and losses in the ratio of 4 : 3 : 1. As per the terms of partnership deed, on the death of any partner, goodwill was to be valued at 50% of the net profits credited to that partner?s capital account during the last three completed years before her death. Sita died on 28th February, 2017. The profits for the last five years were 2012 ? Rs. 60,000, 2013 ? Rs. 97,000,  2014 ? Rs. 1,05,000, 2015 ? Rs. 30,000 and 2016 ? Rs. 84,000. On the date of sita?s death, building was found undervalued by Rs. 80,000, which was to be considered. Calculate amount of Sita?s share of goodwill in the firm and complete the following journal entries. The new profit sharing ratio between Reeta and Geeta will be equal. JOURNAL

Date	Particulars		LF	Amt (Dr)	Amt (Cr)
	??..	Dr		?
	To ??..				?
	(Being the increase in value of building brought into account)
	Revaluation A/c	Dr		80,000
	To Sita?s Capital A/c				?
	To ??				?
	To Geeta?s Capital A/c				?
	(Being the transfer of profit on revaluation to partner?s capital account in their old profit sharing ratio)
	???.	Dr		13,688
	???.	Dr		?
	To ??..				?
	(Being Sita?s share of goodwill adjusted in the capital accounts of gaining partners in their gaining ratio, i.e. 1 : 3)

Answer:

                                                                        JOURNAL

Date	Particulars		LF	Amt (Dr)	Amt (Cr)
	Building A/c	Dr		80,000
	To Revaluation A/c				80,000
	(Being the increase in value of building brought into account)
	Revaluation A/c	Dr		80,000
	To Sita?s Capital A/c \[(80,000\times 4/8)\]				40,000
	To Reeta?s Capital A/c \[(80,000\times 3/8)\]				30,000
	To Geeta?s Capital A/c \[(80,000\times 1/8)\]				10,000
	(Being the transfer of profit on revaluation to partner?s capital accounts in their old profit sharing ratio)
	Reeta?s Capital A/c	Dr		13,688
	Geeta?s Capital A/c	Dr		41,062
	To Sita?s Capital A/c				54,750
	(being Sita?s share of goodwill adjusted in the capital accounts of gaining partners in their gaining ratio, i.e. 1 : 3)

            Working Notes             1. Calculation of Gaining Ratio                         Gaining Ratio = New Share ? Old Share                         Reeta \[=\,\frac{1}{2}-\frac{3}{8}=\frac{4-3}{8}=\frac{1}{8};\] Geeta \[\,=\,\frac{1}{2}-\frac{1}{8}=\frac{4-1}{8}=\frac{3}{8}\]                         \[\therefore \] Gaining Ratio = 1 : 3             2. Calculation of Sita?s Share of Goodwill             Total of Last Three Years Profit = 1,05,000 + 30,000 + 84,000 = Rs.2,19,000             Sita?s Share in last Three Years Profit = \[2,19,000\times \frac{4}{8}\,=\,Rs.\,1,09,500\]             Sita?s Share of Goodwill = \[1,09,500\times \frac{50}{100}\,=\,Rs.\,54,750\]             Sita?s share of goodwill will be contributed by Reeta and Geeta in their gaining ratio.             Reeta will Contribute \[\,=\,54,750\times 1/4\,=\,13,688;\]   Geeta will Contribute \[\,=\,54,750\times 3/4\,=\,41,062\]