question_answer

A, B and C are partners sharing profits and losses equally. From 1st April, 2018, they decided to share profits and losses in the ratio of 5 : 3 : 2. The partnership deed provides that in the event of any change in profit sharing ratio, the goodwill should be valued at three years' purchase of the average of five years profits. The profits and losses for the preceding five years were: Profits: 2013 ? Rs. 90,000; 2014 ? Rs. 2,25,000; 2015 ?Rs. 2,55,000; 2016 - 2,85,000; 2017 - Rs. 1,05,000 (Loss). You are required to complete the following journal entry: JOURNAL

Date	Particulars		LF	Amt (Dr)	Amt (Cr)
2018
April 1	???	Dr		75,000
	To......				15,000
	To......				60,000
	(Being the adjustment for goodwill made on change in profit-sharing ratio)

Answer:

Average Profit \[=\,\frac{90,000+2,25,000+2,55,000+2,85,000+(1,05,000)}{5}=Rs.\,1,50,000\] Goodwill \[=3\times 1,50,000=Rs.\,4,50,000\] Calculation of Sacrificing or Gaining Ratio A \[=\frac{1}{3}-\frac{5}{10}=\frac{10-15}{30}=\left( \frac{5}{30} \right)Gain\] B \[=\frac{1}{3}-\frac{3}{10}=\frac{10-9}{30}=\left( \frac{1}{30} \right)\,\,Sacrifice\] C \[=\frac{1}{3}-\frac{2}{10}=\frac{10-6}{30}=\left( \frac{4}{30} \right)\,\,Sacrifice\] JOURNAL

Date	Particulars		LF	Amt (Dr)	Amt (Cr)
	A's Capital A/c \[\left( 4,50,000\times 5/30 \right)\]	Dr		75,000
	To B's Capital A/c \[\left( 4,50,000\times 1/30 \right)\]				15,000
	To C's Capital A/c \[\left( 4,50,000\times 4/30 \right)\]				60,000
	(Being the adjustment for goodwill made on change in profit sharing ratio)