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.
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