Question

P, Q and R are partners running a departmental store and sharing profits equally. R started a new business of his own and since R was unable to devote any time to the existing business, they decided that R will get 1/5th in future profits. They also decided to make adjustment for goodwill on the basis of 3 years purchase of super profits of last 5 years. Capital investment of the firm is ₹ 15,00,000 and a fair return on capital is 12%. Profits of the last 5 years were as follows: Year                                                                   Profit (₹) Profit for the year ended 31st March 2020:      1,60,000 Profit for the year ended 31st March 2021:      (3,00,000) Profit for the year ended 31st March 2022:      4,60,000 (including an abnormal gain of ₹ 60,000) Profit for the year ended 31st March 2023:      4,00,000 (after charging an abnormal loss of ₹ 40,000) Profit for the year ended 31st March 2024:      3,00,000

On the basis of above information, answer the following:

For adjustment of goodwill:

Options

• Dr. P ₹ 4,000; Dr. Q ₹ 4,000; Cr. R ₹ 8,000

• Cr. P ₹ 4,000; Cr. Q ₹ 4,000; Dr. R ₹ 8,000

• Dr. P ₹ 10,000; Dr. Q ₹ 10,000; Cr. R ₹ 20,000

• Dr. P ₹ 6,000; Dr. Q ₹ 6,000; Cr. R ₹ 12,000

Answer 1

Dr. P ₹ 4,000; Dr. Q ₹ 4,000; Cr. R ₹ 8,000

Explanation:

Old Ratio of P, Q and R = `1/3 : 1/3 : 1/3`

New Ratio of P, Q and R = `2/5 : 2/5 : 1/5`

Sacrifice or Gain:

`P = 1/3 - 2/5 = (5 - 6)/15 = 1/15 "(Gain)"    60,000 xx 1/15 = ₹ 4,000  "Dr."`

`Q = 1/3 - 2/5 = (5 - 6)/15 = 1/15 "(Gain)"    60,000 xx 1/15 = ₹ 4,000  "Dr."`

`R = 1/3 - 1/5 = (5 - 3)/15 = 1/15 "(Sacrifice)"  60,000 xx 2/15 = ₹ 8,000  "Dr."`