Question

Dinesh, Ramesh and Suresh are partners in a firm sharing profits and losses in the ratio of 3:3:2. They decided to share the profits equally w.e.f. April 1, 2015. Their Balance Sheet as on March 31, 2016 was as follows :

It was also decide that :
1. The fixed assets should be valued at Rs. 3,31,000.
2. A provisions of 5% on sundry debtors be made doubtful debts.
3. The goodwill of the firm at this date be valued at `4½` years purchase of the average net profits of last, five years which were Rs. 14,000, Rs. 17,000, Rs. 20,000, Rs. 22,000 and Rs. 27,000 respectively.
4. The value of stock be reduced to Rs. 1,12,000.
5. Goodwill was not to appear in the books. Pass the necessary journal entries and prepare the revised Balance sheet of the firm.

Answer 1

Working Notes:
1. Gain or sacrifice of partners
`{:(,"Dinesh","Ramesh","Suresh"),("Old Share",3//8,3//8,2//8),("New Share",1//3,1//3,1//3),("Difference",1//24,1//24,2//24),(,("sacrifice"),("sacrifice"),("gain")):}`
2. Goodwill
Total Profits: Rs. `14,000+ Rs. 17,000 +Rs. 20,000 + Rs. 22,000 + Rs. 27,000`
`{:(,=Rs.100000),("Average Profits",=Rs.100000//5),(,=Rs.20000),("Goodwill",=Rs.20000 xx 4(1)/(2)),(,=Rs.90000):}`
Suresh in expected to bring in Rs. 7,500 as he gain `(2)/(24)` share in profits.
Dinesh in expected to receive Rs. 3,750 as he sacrifices `(1)/(24)` share in profits
Ramesh is expected to receive Rs. 3,750 as he sacrifices `(1)/(24)` share in profits
Had we raised Goodwill A/c in the old ratio and written it off in the new ratio, the net effect would have been the same.