Advertisements
Advertisements
Question
Arjun, Bhim and Nakul are partners sharing profits & losses in the ratio of 14 : 5 : 6 respectively.
Bhim retires and surrenders his 5/25th share in favour of Arjun. The goodwill of the firm is valued at 2 years purchase of super profits based on average profits of last 3 years. The profits for the last 3 years are Rs 50,000, Rs 55,000 & Rs 60,000 respectively. The normal profits for the similar firm are Rs 30,000. Goodwill already appears in the books of the firm at Rs 75,000.
The profit for the first year after Bhim's retirement was Rs 1,00,000. Give the necessary Journal
Entries to adjust Goodwill and distribute profits showing your workings.
Advertisements
Solution
|
Journal Entries |
|||||
|
Date |
Particulars |
|
L.F. |
Debit Amount Rs |
Credit Amount Rs |
|
|
Arjun’s Capital A/c Bhim’s Capital A/c Nakul’s Capital A/c To Goodwill A/c (Goodwill written-off)
Arjun’s Capital A/c To Bhim’s Capital A/c (Arjun’s share of goodwill purchased by Bhim)
Profit and Loss Appropriation A/c To Arjun’s Capital A/c To Nakul’s Capital A/c (Profit after Bhim’s retirement distributed) |
Dr. Dr. Dr.
Dr.
Dr.
|
|
42,000 15,000 18,000
10,000
1,00,000 |
75,000
10,000
76,000 24,000 |
Average Actual Profit = 50,000 + 55,000 + 60,000
=`(1,65,000)/3`
=`Rs 55,000`
Super Profit = Actual Average Profit − Normal Profit
= 55,000 − 30,000
= Rs 25,000
Goodwill of the new firm = Super Profit × Number of Years’ Purchased
= 25,000 × 2
= Rs 50,000
Bhim’s share of Goodwill=`50,000xx5/25`
Rs 10,000
Bhim Share = Arjun’s Gain
=`5/25`
New Ratio = Old + Gaining
Arjun=`14/25+5/25` (Bhim Share)
=`19/25`
Nakul=`6/25+0`
=`6/25`
New Ratio:Arjun Nakul
`19/25:6/25`
`19:6`
Profit of the firm after Bhim’s retirement = Rs 1,00,000
Bhim Will get =`1,00,000xx19/25`
=`Rs 76,000`
Nakul will get =`1,00,000xx6/25`
= Rs 24,000
