X, Y and Z are partners sharing profits and losses

8 :- X, Y and Z are partners sharing profits and losses in the ratio of 5 : 3 : 2. From 1st April 2025, they decided to share profits and losses equally. The Partnership Deed provides that in the event of any change in the profit sharing ratio, goodwill is to be valued at two years’ purchase of the average profit of the preceding five years. The Profits and losses of the preceding years ended 31st March are:

Calculate the value of goodwill and pass journal entry.

Solution :-

WORKING NOTES :-

Calculation of their share of goodwill
Old profit sharing ratio = 5:3:2
New profit sharing ratio = 1:1:1

Calculation of Sacrificing/gaining share
X = 5/10 – 1/3 = 5/30  (sacrifice)
Y = 3/10 – 1/3 = -1/30  (gain)
Z = 2/10 – 1/3 = -4/30  (gain)

X’s share in goodwill = 90,000 x 5/30 = Rs 15,000 (credit)
Y’s share in goodwill = 90,000 x 1/30 = Rs 3,000 (debit)
Z’s share in goodwill = 90,000 x 4/30 = Rs 12,000 (debit)