Page 112 - ISCDEBK-12

5.10 Double Entry Book Keeping (Section A)—ISC XII

Illustration 6.
X, Y and Z were partners in a partnership firm sharing profits in the ratio of 4 : 3 : 1.
Y died on 30th June, 2015. The firm’s profits for the past 5 years were:
Year 2010–11 2011–12 2012–13 2013–14 2014–15

Profit (`) 8,22,225 7,00,000 2,50,000 Loss: (50,000) 5,00,000
X and Z decided to share future profits in the ratio of 3 : 1. Goodwill is to be valued on
the basis of Y’s share of 2 year’s profits calculated on the average of 5 completed years’
profits immediately proceeding the year of death less 10%.
3 4 2
Solution: X’s Gain = − = ;
4 8 8
1 1 1
Z’s Gain = − = ;
4 8 8
2 1
Gaining Ratio of X and Z = : = 21: .
8 8
Valuation of Goodwill:
` 822 225, , + ` 700 000, , + ` 250 000, , − ` 50 000, + ` 500 000, ,
Average Profit = = ` 4,44,445
5
2 years’ Average Profit = ` 4,44,445 × 2 = ` 8,88,890
Y’s Share of 2 years’ Average Profit = ` 8,88,890 × 3/8 = ` 3,33,334
Firm’s Goodwill = ` 3,33,334 – 10% of ` 3,33,334 = ` 3,00,000
Y’s Share of Goodwill = ` 3,00,000 × 3/8 = ` 1,12,500.
JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)

X’s Capital A/c ...Dr. 75,000
Z’s Capital A/c ...Dr. 37,500
To Y’s Capital A/c 1,12,500
(Being Y’s share of goodwill credited to Y and debited to X and Z
in their gaining ratio)
Illustration 7.
X, Y and Z were partners in a firm sharing profits in the ratio of 2 : 2 : 1. On
31st March, 2018, their Balance Sheet was as follows:
Liabilities ` Assets `
Creditors 60,000 Bank 90,000
Expenses Owing 2,500 Stock 70,000
Workmen Compensation Reserve 40,000 Debtors 40,000
General Reserve 27,500 Land and Building 5,00,000
Capital A/cs: Profit and Loss A/c 1,60,000
X 3,00,000 (Loss for the year ended 31st March, 2018)
Y 3,00,000
Z 1,30,000
8,60,000 8,60,000