Treatment of Goodwill

 (Change in Profit Sharing Ratio of Existing Partners)

Topic : Treatment of Goodwill

1. Vinod and Kumar were partners in a firm sharing profits in 3:2 ratio. From 1st March, 2013 they decided to change it to 3:1. For this purpose the goodwill of the firm was valued at Rs.60,000. Give necessary journal entry for the treatment of goodwill.                             [3]

2. X, Y and Z were partners sharing profits and losses in the ratio of 4:3:2. Goodwill does not appear in the books but it is worth Rs.72,000. The partners decided to share future profits in equal proportions. Give a journal entry to record the above change and show gain/loss of partners due to change in ratio.                                                                                                                                             [3]

3. A and B were partners in a firm sharing profits in the ratio of 3 : 2. With effect from 1st January 2004 they agreed to share profits equally. For this purpose the goodwill of the firm was valued at Rs.30,000. Pass the necessary Journal entry for the treatment of goodwill.                                   [3]

4. X, Y and Z are partners in a firm sharing profits and losses in the ratio of 3:2:1. In future they decided to share profits in the ratio of 6:5:2. For this purpose, the goodwill of the firm was valued at Rs.78,000. Pass necessary journal entry for the treatment of goodwill due to change in profit sharing ratio.                                                                           [3]

5. A, B and C are partners sharing profits in the ratio of 4/9 : 1/3 : 2/9. They have decided to share profits in the ratio of 1 : 1 : 1. Goodwill of the firm is valued at Rs.10,800. Give Journal entries to record the above arrangement.                                                     [3]

6. A, B and C are partners sharing profits and losses in the ratio of 3 : 1 : 1. On 1st January 2014, they decided to share profits in equall ratio. The goodwill of the firm is valued at Rs.45,000. Give necessary journal entry due to the change in profit sharing ratio.                                                        [3]

7. Akshita , Bakshi and Chanda were partners in a firm sharing profits in 3 : 2 : 1 ratio. They decided to share the future profits in 5 : 3 : 2 ratio. For this purpose the goodwill of the firm was valued at Rs.60,000. Pass an adjustment entry for the treatment of goodwill due to change in the profit sharing ratio.                                                                                                [3]                       

8. Vinod, Mohan and Kumar are partners sharing profits in the ratio of 3:2:1 respectively. From 1st January, 2015, they decided to share profits in the ratio of 2:3:1. The partnership deed provides that in the event of any change in profit sharing ratio. , the goodwill should be valued at three years purchase of the average of five years profits. The Profits and losses of the preceding five years are:

2010 Rs.60,000

2011 Rs.1,50,000

2012 Rs.1,70,000

2013 Rs.1,90,000 Loss

2014 Rs.70,000

Showing the working clearly, give necessary journal entry to record the change.                                [6]

                                                            Accountancy Challenge

                                                                

                                                                    Challenge : 1

Vinod, Gaurav and Swami are partners sharing profits equally. They decided that in future Swami will

get 1/5th share in profits and remaining profit will be shared by Vinod and Gaurav in the equall ratio.

On the day of change, firm’s Goodwill is valued at Rs.45,000. Give Journal entry due to change in

profit sharing ratio.

                                                                     Challenge : 2

X, Y and Z were partners in a firm sharing profits in the ratio of 5:3:2. On 1st January, 2015, they

decided to share the profits equally. It was also agreed that the change to be carried out retrospectively

for the last 4 years. The profits for the last 5 years were:

2010 Rs.1,00,000

2011 Rs.80,000

2012 Rs.20,000 Loss

2013 Rs.1,20,000

2014 Rs.2,00,000

Pass the necessary adjustment entry

ANSWERS

1. Dr. Vinod’s Capital A/c Rs.9,000 and Cr. Kumar’s Capital A/c Rs.9,000

2. Dr. Z Rs.8,000 and Cr. X Rs.8,000.

3. A’s Sacrifice 1/10 ; B’s Gain 1/10 ; B’s Cap. Dr. 3,000 & A’s Cap. Cr.3,000

4. Y’s Capital A/c Dr.4,000 ; Cr. X’s Capital A/c Rs.3,000 and Z’s Capital A/c Rs.1,000

5. A’s Sacrifice 3/27 ; B No sacrifice/No Gain ; C Gain 3/27

6. B’s Capital A/c Dr.6,000; C’s Capital A/c Dr.6,000 and A’s Capital A/c Cr.12,000.

7. Chanda’s Capital A/c Dr.2,000 & Bakshi’s Capital A/c Cr.2,000

8. Sacrifice of Vinod 1/6 ; Mohan’s Gain 1/6; Amrit’s Gain/Sacrifice = Zero

Mohan’s Capital A/c Dr.26,000; Vinod’s Capital A/c Cr.26,000

Value of Goodwill Rs.1,56,0000

Challenge-1 : Vinod’s Capital A/c Dr.3,000; Gaurav’s Capital A/c Dr.3,000; Swami Cr.6,000

Challenge-2 : X’s Capital A/c Dr.64,000; Y’s Capital A/c Cr.12,800 A/c ; Z’s Capital A/c Cr.51, 200