1,400)1. (Distribution of Reserves/Profit) X and Y are in partnership,

1.	1,400)1. (Distribution of Reserves/Profit) X and Y are in partnership, sharing profits in 2:3ratio. With effect from 1st April 2019, they agreed to share profits in the ratio of 1: 2. Forthis purpose, the goodwill of the firm is to be valued at two years' purchase of the averageprofits of last three years, which were *75,000, 80,000 and 1,00,000 respectively. Thereserve appears in the books at 55,000. Partners neither want to show the goodwill in thebooks nor want to distribute the reserve. You are required to give effect to the change bypassing a single journal entry.
Answer» Explanation: 1. A's Capital a/c.......Dr. 30000 To B's Capital a/c 30000 (Being ADJUSTMENT for goodwill and reserve MADE) Working notes: 1. Goodwill = Average profit x no. of years of purchase = (150000 + 160000 + 200000)/3 x 2 = 340000 2. A: 2/5 - 1/3 = 1/15 gain B: 1/15 sacrifice 3. Debit A's capital A/c for goodwill + reserve = 22667 + 7333 =30000

1,400)1. (Distribution of Reserves/Profit) X and Y are in partnership, sharing profits in 2:3ratio. With effect from 1st April 2019, they agreed to share profits in the ratio of 1: 2. Forthis purpose, the goodwill of the firm is to be valued at two years' purchase of the averageprofits of last three years, which were *75,000, 80,000 and 1,00,000 respectively. Thereserve appears in the books at 55,000. Partners neither want to show the goodwill in thebooks nor want to distribute the reserve. You are required to give effect to the change bypassing a single journal entry.

Answer»

Explanation:

1. A's Capital a/c.......Dr. 30000

To B's Capital a/c 30000

(Being ADJUSTMENT for goodwill and reserve MADE)

Working notes:

1. Goodwill = Average profit x no. of years of purchase

= (150000 + 160000 + 200000)/3 x 2 = 340000

2. A: 2/5 - 1/3 = 1/15 gain

B: 1/15 sacrifice

3. Debit A's capital A/c for goodwill + reserve = 22667 + 7333 =30000

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