Kumar, Gupta and Kavita were partners in a firm sharing-profits and losses equally. The firm was engaged in the storage and distribution of canned juice and its godowns were located at three different places in the city. Each godown was being managed individually by Kumar, Gupta and Kavita. Because of increase in business activities at the godown managed by Gupta, he had to devote more time. Gupta demanded that his share in the profits of the firm be increased, to which Kumar and Kavita agreed. The profit-sharing ratio wasto be 1: 2: 1 .For this purpose, goodwill of thefirmwasvalued at two year'spurchase of theaverageprofits of last five years. The profits of thelast five years were as follows: Youarerequired to : (a) Calculate the goodwill of the firm . (b)Pass necessaryJourbalentryfor the treatment of goodwillon changein profits-sharingratio of Kumar , Guptaand kavita.

Kumar, Gupta and Kavita were partners in a firm sharing-profits and lo

1.	Kumar, Gupta and Kavita were partners in a firm sharing-profits and losses equally. The firm was engaged in the storage and distribution of canned juice and its godowns were located at three different places in the city. Each godown was being managed individually by Kumar, Gupta and Kavita. Because of increase in business activities at the godown managed by Gupta, he had to devote more time. Gupta demanded that his share in the profits of the firm be increased, to which Kumar and Kavita agreed. The profit-sharing ratio wasto be 1: 2: 1 .For this purpose, goodwill of thefirmwasvalued at two year'spurchase of theaverageprofits of last five years. The profits of thelast five years were as follows: Youarerequired to : (a) Calculate the goodwill of the firm . (b)Pass necessaryJourbalentryfor the treatment of goodwillon changein profits-sharingratio of Kumar , Guptaand kavita.
Answer» SOLUTION :(a) AverageProfit `=(â‚¹(4,00,000 + 4,80,000 + 7,33,000- 33,000 + 2,20,000))/(5) = â‚¹3,60,000` Gooddwill of the Firm= Average Profit `XX` No. of Year's Pruchase = â‚¹ 3,60,000 xx 2 = â‚¹7,20,000. (B) Working Note : Calculationof SACRIFICE /(Gain ) of EachProfit -Sharing Ratio Guptahas gained,so he willde debited by`2//12` of`â‚¹ 7,20,00 = â‚¹ 1,20,000` Kumarand kavita havesacrified, so theywill becredited by2/12 of â‚¹7,20,000 =â‚¹ 60,000 (each).

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