Question 1 1 / -0
R, J & D are the partners sharing profits in the ratio $$7:5:4$$. D died on $$30$$th June, $$2015$$. It was decided to value the goodwill on the basis of $$3$$ year's purchase of last 5 years average profits. It the profits are $$Rs.29,600$$; $$Rs.28,700$$; $$Rs.28,900$$; $$Rs.24,000$$ & $$Rs.26,800$$. What will be D's share of goodwill?
Solution
Old ratio (R, J and D) = 7 : 5 : 4
Calculation of goodwill :
1. Average profit = (29600 + 28700 + 28900 + 24000 + 26800) /5
= 138000/5
= 27600
2. Goodwill = Average profit * No. of year's purchase
= 27600 * 3
= 82800
D's share of goodwill = Total goodwill * D's share
= 82800 * (4/16)
= 20700
Question 2 1 / -0
H & M are partners in a firm sharing profits and losses in the ratio of 3:2. Their capitals are Rs 90,000 and Rs 60,000 respectively. They admit K as a new partner who will get 1/6th share in the profits of the firm. K brings in Rs 37,500 as his capital. Calculate hidden goodwill?
Question 3 1 / -0
A & B are partners sharing profits & losses in the ratio of 3:2. C was admitted to the firm and to introduce a capital of Rs 25,000. The new profit sharing ratio of A, B and C will be 3:2:1 respectively. C is unable to bring in cash for his share of goodwill, partners therefore, decide to raise goodwill account in the books of the firm. They further decide to calculate goodwill on the basis of C's share in the profits and the capital contribution made by him to the firm. Before admission of C capital account balance of A & B was Rs 44,000 & Rs 36,000 respectively. Total goodwill to be raised in the books of the firm = ?
Question 4 1 / -0
Capital accounts of partner A & B are Rs 30,000 & Rs 16,000, They admitted C on the following conditions.
Question 5 1 / -0
A, B and C are the partners sharing profits in the ratio 7 : 5 : 4. C died on 30th June. It was decided to value the goodwill on the basis of three year's purchased of last five year average profits. If the Profits are Rs. 53,600; Rs. 57,400; Rs.57,800; Rs. 48,000 and Rs. 26,800. What will be C's share of goodwill?
Solution
Goodwill is created in the ledger accounts , as it is an asset the opening entry in the Goodwill account is a debit. The credit entries for this are entered into the Capital accounts for the existing partners using the old profit sharing ratio. calculation of C's share of goodwill:
(a) Average of last five year's profit and losses:
( Rs. 53,600; Rs. 57,400; Rs.57,800; Rs. 48,000 and Rs. 26,800)/5
= 243600/5
= Rs.48720
(b) Goodwill at 3 year's purchase = Average profit * Year's purchase
= Rs. 48720 * 3
= Rs. 146160
C's share of goodwill for the period of 3 months (April to june)
= Rs. 146160 * 3/12 * 4/16
= Rs. 9135
Question 6 1 / -0
A and B are in partnership sharing profits and losses in the ratio of 3: 2. The capitals of A and B remaining after adjustments are Rs. 48,000 and Rs. 36,000 respectively. They admit 'C' as a partner who contributes Rs.21,000 as capital for a 1/5th share of profits to be acquired equally from both A and B. The capital accounts of old partners are to be adjusted by the proportion of C's capital to his share in the business. Calculate the amount of actual cash to be paid off or brought in by A will be ________.
Question 7 1 / -0
Balance of R,H & M sharing profits & losses in the ratio 2:3:2 stood as R - 10,000; H - 15,00,000; M - 10,00,000; Joint Life Policy 3,50,000 H desired to retire from the firm and the remaining partners decided to carry on with the future profit sharing ratio of 3:2 Joint policy of the partners surrendered and cash obtained 3,50,000 What would be the treatment for JLP A/c?
Solution
A Joint Life Policy (JLP) is an insurance policy which is taken out by the partnership firm on the joint lives of all the partners. The amount of policy is payable by the Insurance Company either on the death or on maturity of policy , whichever is earlier. The firm pays annual premium to the insurer against the policy . The journal entry when joint life policy of the partners surrendered and cash obtained is:
Bank A/c Dr. 350000
To joint life policy A/c 350000
Question 8 1 / -0
A and B are sharing profits in the ratio of 3: 1. According to their partnership deed, on reconstitution of a firm, "goodwill is to be valued at two and a half years purchase of the average profits of the last three completed years." The profits were: Year I Rs. 20,000, Year II. Rs. 30,000, Year III Rs. 40,000, Year IV Rs. 50,000, Year V Rs. 60,000. C is admitted for 1/5th share in profits at end of Year VI. The amount which 'C' will be required to bring by way of his share of goodwill will be ________.
Question 9 1 / -0
If three partners A, B & C are sharing profits as $$5:3:2$$, then on the death of a partner A, how much B & C will pay to A's execute on account of goodwill if Goodwill is to be calculated from $$2$$ years purchase of the last three years average profits. Profits for three years are: $$Rs.6,58,000$$; $$Rs. 6,92,000$$ and $$Rs.8,10,000$$.
Solution
Profit sharing ratio of A, B and C is 5 : 3 : 2
A's share of goodwill = (5/10) * 1440000 = 720000 (working note)
Contribution for A's share of goodwill by:-
B = 720000 * (3/15) = 432000 (Note)
C = 720000 * (2/5) = 288000 (Note)
Working note:-
Calculation of goodwill :-
1. Average profit = (658000 + 692000 + 810000) / 3
= 2160000/3
= 720000
2. Goodwill = Average profit * No. of year's purchase
= 720000 * 2
= 1440000
Note : In the absence of information gaining ratio and new ratio will be same as old ratio.
Question 10 1 / -0
Balance of A,B & C sharing profits & losses in proportionate to their capitals, stood as:
Solution
Profit sharing ratio of A,B and C is in proprtionate to their capital i.e., 200000 : 300000 : 200000 or 2 : 3 : 2, Herein, after called as old ratio. After retirement of A, profit sharing ratio of B and C is 1 : 1, Herein, after called as new ratio. calculation of gaining and sacrificing ratio of partners:
Partner
Old share
New share
Gain
Sacrifice
A
2/7
-
-
2/7
B
3/7
½
1/14
-
C
2/7
1/2
3/14
-
Therefore, A's share of goodwill is :
Rs. 140000 * (2/7) = Rs. 40000
Adjusting entry would be :
B's capital A/c Dr. 10000
C's capital A/c Dr. 30000
To A's capital A/c 40000
(The amount of share of goodwill adjusted on A's retirement)
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