Question : B, K and P are partners sharing profits in the ratio of 2:3:4. P died on 31st March 2012 and for this purpose, goodwill is valued at one and half year’s purchase of average super profits of the last three years. Profits for the last three years are as under : First-year Rs. 50,000 Second year Rs. 55,000 Third year Rs.75,000 The normal profits for similar firms is Rs.45,000. Choose the correct Journal entry with respect to the treatment of goodwill.
Option 1: Debited B by Rs 6,000 and K debited by Rs 4,000 and credited P’s account by Rs 10,000
Option 2: Debited B by Rs 4,000 and K debited by Rs 6,000 and credited P’s account by Rs 10,000
Option 3: Debited B by Rs 10,000 and credited P By Rs 10,000
Option 4: Debited K by Rs 10,000 and credited P by Rs 10,000
Correct Answer: Debited B by Rs 4,000 and K debited by Rs 6,000 and credited P’s account by Rs 10,000
Solution : Answer = Debited B by Rs 4,000 and K debited by Rs 6,000 and credited P’s account by Rs 10,000
Total profits = 50000+55000+75000
= 1,80,000 Average profit = 1,80000/3 = 60,000 Mormal profit = 45000 Super profit = AP - NP
= 60,000 - 45000 = 15000
Goodwill = 15000 * 1.5 = 22500 P's Capital = 22500 * 4/9 = 10000 E B's Capital A/C Dr. 4000 K's Capital A/C Dr. 6000 To P's Capital A/C = 10,000 G.Ratio = NR - OR B:K = 2:3 Hence, the correct ratio is 2.
Question : D, E, F, P and Z were partners in a firm sharing profits in the ratio 5:4:3:2:1 respectively. Unfortunately, P and Z met with a tragic car accident in which both of them died. The goodwill of the firm was valued at Rs. 1,50,000 and D, E and F decided to share future
Question : P Q and R are partners sharing profit and losses in the ratio of 5:3:2. R retires and goodwill is valued at Rs 80,000. Adjustments for goodwill will be
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