Puneet, Ryan and Sahil are in a partnership sharing profits 7/12, 3/12 and 2/12 respectively. It is
provided under the partnership deed that on the death of any partner his share of goodwill is to be valued at one half of the net profits credited to his account during the last 4 completed years
(Accounts are closed on 31st December)
Ryan died on 1st March, 2008. The firm’s profits for the last 4 years were as follows: 2004 Profits
Rs.1,20,000, 2005 Profits Rs.60,000, 2006 Loss Rs.20,000 and 2007 Profits Rs.80,000.
Pass the journal entry regarding goodwill assuming that profit sharing ratio between Puneet and Sahil in future will be 3:2.
Dear Student
| Puneet's Capital A/c | Dr. | 2,000 | |
| Sahil's Capital A/c | Dr. | 28,000 | |
| To Ryan's Capital A/c | 30,000 | ||
| (Being goodwill adjustment done) |
| Calculation of Sacrificing and Gaining Partners | |||
| Puneet | Ryan | Sahil | |
| New Ratio | 3/5 | 0 | 2/5 |
| Less : Old Ratio | 7/12 | 3/12 | 2/12 |
| 1/60 | -3/12 | 14/60 | |
| Gaining | Sacrificing | Gaining | |
| Calculation of Profits Credited to Ryan's A/c and His Goodwill share | ||
| Year | Total Profits | Share of Ryan (3/12) |
| 2004 | 120000 | 30,000 |
| 2005 | 60000 | 15,000 |
| 2006 | -20000 | (5,000) |
| 2007 | 80000 | 20,000 |
| Total | 60,000 | |
| Share of Goodwill of Ryan | (60,000 x 1/2) | 30,000 |
| (Half of Net profits credited to Ryan ) | ||
| Gaining Ratio | 1:14 | |
| Goodwill Adjustment | ||
| Ryan's share of Goodwill | 30,000 | |
| Distribution in Gaining Ratio | ||
| TO Be Adjusted from Puneet's Capital A/c | (30,000 x 1/15) | 2,000 |
| TO Be Adjusted from Sahil's Capital A/c | (30,000 x 14/15) | 28,000 |