Question

Rita, Nina and Mita are partners in a firm sharing profits and losses in the ratio of 3:2:1. Mita dies on 1st April, 2017. On the date of her death, it was decided to value goodwill on the basis of two year’s purchase of
weighted average profits of the firm for the last three years.

The profits of the last three years and weights assigned were:

Year	Profit (₹)	Weights assigned
2014-15	30,000 (including gain from speculation ₹ 10,000)	1
2015-16	80,000	2
2016-17	1,00,000	3

You are required to:

1. Calculate the firms goodwill on the date of Mita’s death (show working formula).
2. Pass the necessary journal entry to credit Mita’s capital account with her share of goodwise.

Answer 1

	Rita	Nina	Mita
OR	3	2	1
GR	3	2

(i) Goodwill = weighted average profit × number of year’s purchase.

= `"Total product" / "Total weight"  xx  "number of year’s purchage" .`

Year	Profit	Weight	Product
2014-15	20,000	1	20,000
2015-16	80,000	2	1,60,000
2016-17	1,00,000	3	3,00,000
		6	4,80,000

Goodwill = `(4,80,000) /6  xx 2 = (1,60,000) /6`

Mita’s share of goodwill = `(1,60, 000) / 6 = 26,666.67` 

(ii)

Journal
Date	Particulars	L.F.	Amount (₹)	Amount (₹)
	Rita’s Capital A/c            ...Dr.		16,000
	Nina’s Capital A/c          ...Dr.		10,667
	To Mita’s Capital A/c			26,667
	(Being Mita’s Capital A/c credited with her share of GW in the gaining ratio)