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Mohan and Sohan were partners in a firm sharing profits and losses in the ratio of 3 : 2. They admitted Ram for 1/4th share on 1st April, 2018. It was agreed that goodwill of the firm will be valued at 3 years purchase of the average profit of last 4 years which were ₹ 50,000 for 2014-15, ₹ 60,000 for 2015-16, ₹ 90,000 for 2016-17 and ₹ 70,000 for 2017-18. Ram did not bring his share of goodwill premium in cash. Record the necessary journal entries in the books of the firm on Ram’s admission when: (a) Goodwill appears in the books at ₹ 2,02,500. (b) Goodwill appears in the books at ₹ 2,500. (c) Goodwill appears in the books at ₹ 2,02,000. |
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Answer» Profit sharing refers to various incentive plans INTRODUCED by businesses that provide direct or INDIRECT payments to employees that depend on company's profitability in addition to employees' REGULAR salary and bonuses. In publicly traded companies these plans TYPICALLY amount to ALLOCATION of shares to employees. |
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