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Question
X, Y and Z are partners sharing profits and losses in the ratio of 5 : 3 : 2, decided to share future profits and losses equally with effect from 1st April, 2019. On that date, the goodwill appeared in the books at ₹ 12,000. But it was revalued at ₹ 30,000. Pass Journal entries assuming that goodwill will not appear in the books of account.
Solution
Journal
|
Date |
Particulars |
L.F. |
Debit Amount (₹) |
Credit Amount (₹) |
|
|
2019 |
|
|
|
|
|
|
|
Y’s Capital A/c |
Dr. |
|
3,600 |
|
|
|
Z’s Capital A/c |
Dr. |
|
2,400 |
|
|
|
To Goodwill A/c |
|
|
|
12,000 |
|
|
(Goodwill written off) |
|
|
|
|
|
2019 |
Y’s Capital A/c |
Dr. |
|
1,000 |
|
|
April 1 |
Z’s Capital A/c |
Dr. |
|
4,000 |
|
|
|
To X’s Capital A/c |
|
|
5,000 |
|
|
|
(Amount of goodwill adjusted on change in profit sharing ratio) |
|
|
|
|
Working Notes:
WN 1 Calculation of Sacrificing (or Gaining) Ratio
Old Ratio (X, Y and Z) = 5 : 3 : 2
New Ratio (X, Y and Z) = 1 : 1 : 1
Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio
X's share = `5/10 - 1/3 = (15-10)/30 = 5/10` (sacrifice)
Y's share = `3/10 - 1/3 = (9-10)/30 = (-1)/30` (gain)
Z's share = `2/10 - 1/3 = (6-10)/30 = (-4)/30` (gain)
WN 2 Writing off of Old Goodwill
X's share = `12,000 xx 5/10` = Rs 6,000
Y's share = `12,000 xx 3/10` = Rs 3,600
Z's share = `12,000 xx 5=2/10` = Rs 2,400
WN 3 Adjustment of Goodwill
Amount to be credited tp X's capital A/c = `30,000 xx 5/30`(share of sacrifice)
= Rs 5,000
Amount to be debited tp Y's capital A/c = `30,000 xx 1/30`(share of gain)
= Rs 1,000
Amount to be debited to Z's capital A/c = `30,000 xx 4/30`(share of gain)
= Rs 4,000
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
| Creditors |
21,000 |
Cash at Bank | 5,750 | ||
| Workmen Compensation Reserve |
12,000 |
Debtors |
40,000 |
|
|
| Investments Fluctuation Reserve |
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Less: Provision for Doubtful Debts |
2,000 |
38,000 |
|
| Capital A/cs: | Stock | 30,000 | |||
| X | 68,000 | Investment (Market Value ₹ 17,600) | 15,000 | ||
| Y |
32,000 |
|
Patents | 10,000 | |
| Z |
21,000 |
1,21,000 |
Machinery |
50,000 |
|
| Goodwill | 6,000 | ||||
| Advertisement Expenditure | 5,250 | ||||
|
1,60,000 |
1,60,000 |
||||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
| Creditors |
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Cash in Hand | 18,000 | ||
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|
|
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|
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| A |
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|
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|
|
1,68,000 |
1,68,000 |
||||
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| Employees' Provident Fund | 10,000 | Sundry Debtors | 1,00,000 | |
| Profit and Loss A/c | 85,000 | Stock | 80,000 | |
| Capital A/cs: | Fixed Assets | 60,000 | ||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
|
Sundry Creditors |
2,70,000 |
Cash in Hand |
42,500 |
||
|
General Reserve |
1,20,000 |
Cash at Bank |
2,14,500 |
||
|
Capital A/cs: |
Debtors | 1,63,000 | |||
| A |
2,00,000 |
Stock | 17,500 | ||
| B | 1,20,000 | Investment | 1,32,500 | ||
| C |
80,000 |
4,00,000 |
Building | 2,10,000 | |
| B's Loan | 10,000 | ||||
|
7,90,000 |
7,90,000 |
||||
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|
Liabilities |
₹ |
Assets |
₹ |
||
|
Creditors |
10,000 |
Plant and Machinery |
40,000 |
||
|
General Reserve |
30,000 |
Furniture |
15,000 |
||
|
Capital A/cs: |
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30,000 |
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| Rupesh |
20,000 |
80,000 |
25,000 | ||
|
1,20,000 |
1,20,000 |
||||
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Assets | Amount (₹) |
|
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Assets | Amount (₹) |
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