7 :- P, R and S are in partnership sharing profits 4/8, 3/8 and 1/8 respectively. It is provided in the partnership deed that on the death of any partner his share of goodwill is to be valued at one-half of the net profit credited to his account during the last four completed years.
R died on 1st April 2025. The firm’s profit for the last four years ended 31st March, were as
2022 – Rs 1,20,000; 2023 – Rs 80,000; 2024 – Rs 40,000; 2025 – Rs 80,000
(a) Determine the amount that should be credited to R in respect of his share of goodwill.
(b) Pass journal entry for adjustment of goodwill.
Solution :-
WORKING NOTES :-
(i) Calculation of R’s share in goodwill
Profit of the last 4 years = 1,20,000 + 40,000 + 80,000 + 80,000
= Rs 3,20,000
R’s share in the last four years profit = 3,20,000 x 3/8 = Rs 1,20,000
R’s share of goodwill = 1,20,000 x 1/2 = Rs 60,000
P and S will contribute it in their gaining ratio I.e, 4:1
P will contribute = 60,000 x 4/5 = Rs 48,000
S will contribute = 60,000 x 1/5 = Rs 12,000