# Kabir and Farid Are Partners in a Firm Sharing Profits in the Ratio of 3:1 on 1-4-2019 They Admitted Manik into Partnership for 1/4th Share in the Profits of the Firm. - Accountancy

Journal Entry

Kabir and Farid are partners in firm sharing profits in the ratio of 3: 1 on 1-4-2019 they admitted Manik into partnership for 1/4th share in the profits of the firm. Manik brought his share of goodwill premium in cash. Goodwill of the firm was valued on the basis of 2 years purchase of the last three years' average profits. The profits of last three years were:

 2016-17 ₹ 90,000 2017-18 ₹ 1,30,000 2018-19 ₹ 86,000

During the year 2018-19, there was a loss of ₹ 20,000 due to fire which was not accounted for while calculating the profit. Calculate the value of goodwill and pass the necessary journal entries to the treatment of goodwill.

#### Solution

In the books of Kabir and Farid
Journal

 Date Particulars L.F. Debit Amount (₹) Credit Amount (₹) 2019 Apr.01 Premium for Goodwill A/c Dr. 51,000 To Kabir’s Capital A/c 38,250 To Farid’s Capital A/c 12,750 (Being share of goodwill credited to the existing partners in 3: 1)

 Working Notes: Average Profit for the last three years = (90,000 + 1,30,000 + 86,000)/3= ₹ 1,02,000 Goodwill of the firm = Average Profits of the last three years × Number of Years’ Purchase= ₹ (1,02,000 × 2) = ₹ 2,04,000 Manik’s share of goodwil = ₹ (2,04,000 × ¼) = ₹ 51,000 Sacrificing Ratio among the partners will be same as old ratio = 3 : 1

Note: Loss due to fire has not been accounted for thus; the profits for the year 2018-19 are normal profits only.

Is there an error in this question or solution?