Question

A, B and C are partners sharing profits in 2 : 2 : 1. D was admitted with `1/5` th share of profits, and it was agreed that A would retain his original share. D brings his share of goodwill, ₹ 1,20,000 in Cash. The following balances appeared in their books at this date: Particulars Amount (₹) Amount (₹) Plant   3,00,000 Investments   2,00,000 Investment Fluctuation Reserve   20,000 Advertisement Suspense Account   60,000 Contingency Reserve   90,000 Capitals:     A   4,00,000 B   3,00,000 C   2,00,000 Sundry Debtors 1,26,000 1,18,000 Less: Provision for Doubtful Debts 8,000 It was agreed that: The plant is overvalued by 25%. The market value of Investments is ₹ 1,50,000. Bad-debts ₹ 6,000 be written off, and a provision for doubtful debts be maintained @ 10% on debtors. You are required to choose the correct option:

In respect of goodwill:

Options

• ₹ 1,20,000 will be credited to A, B and C in 2 : 2 : 1.

• ₹ 1,20,000 will be credited to B and C in 2 : 1.

• ₹ 24,000 will be credited to B and C in 2 : 1.

• ₹ 1,20,000 will be credited to A, B and C in 6 : 4 : 2.

Answer 1

₹ 1,20,000 will be credited to B and C in 2 : 1.

Explanation:

Total goodwill = ₹ 1,20,000

Profit-sharing ratio changes only B and C sacrifice.

Sacrificing ratio = 2 : 1

B’s share = `1,20,000 xx 2/3`

= 80,000

B’s share = `1,20,000 xx 1/3`

= 40,000

₹ 1,20,000 will be credited to B and C in a 2 : 1 ratio.