Goodwill

Meaning :- Goodwill is an valuable intangible asset ( an assets which can not ne

seen and touched) like patents ., trademark , copy rights, its not depreciated like
tangibal assets but it is amortised for use of it. Its an extra value of the
Business.

Decrees in value of intangible asset is known as Amortanistion .

Need for calculating of Goodwill :-

1) When there is a change in the profit sharing ratio.

2) A new partner is admitted
3) A partner retires or dies
4) Firm sold their business
5) Two or more firm amalgamated.

Factors affecting the value of Goodwill.

Goodwill of a firm is a affected by all the factors which increase the earning
capitcity of the firm . the factors are.

1. Efficient management.
2. Favourable Location.
3. Favourable Contracts
4. Longer term business.
5. Advantage of patents.
6. Quality
7. Market situation
8. Other factors :- like customers relation labour relation after sales
services. Etc.

Classification of Goodwill –( Types of Goodwill)

A) Purchased goodwill :- purchased Goodwill is that G/W which is
acquired by a firm for a consideration , weather paid in cash or in kind
.

Ex.of purchased Goodwill :- Business value is 200000 but purchased for its Rs,
240000 so here Goodwill is 240000- 200000 = 40000.

Feature of Purchased G/W. :-

1. Its arises on the purchase of business.

 2. Its Recorded in the books of account.
3. Its shown in Balance sheet.
4. Its subjective assessment and its ascertained when both parties agreed to
that valuation.
5. Its amortized at the earliest
6.
Problems 1.
Balance sheet of Amar. As on 31st /3 /2018
Liabilities Amount Assets Amount
Capital 500000 Furniture 65000
Creditors 400000 Stock ( inventory) 750000
Outstanding interest. 75000 Debtors 150000
cash 10000

975000 975000
Rohit purchase it for Rs.545000/- amount paid Rs 45000 in Cash and
balance by Cheque, pass entries in the books of Rohit .
Jornal of Rohit.

Date Particulars l Debit (Rs. ) Credit (Rs.)

/
f
1 Furniture . ….Dr. 65000
Stock. ….Dr. 750000
Debtors. ….Dr. 150000
Cash. ….Dr. 10000
Goodwill A/c. ….Dr. 45000
To Creditors 400000
To O/S. Interest. 75000
To Amar capital A/c. 545000
(being business purchased for the
valualation of Rs 545000 and difference tr.
To Goodwill a/c.)

2. Amar Capital a/c Dr.. 545000

To Cash a/c 45000
To Bank a/c. 500000
(being Purchase Consideration paid in csh
and cheque.)
 (B) Self- generated Goodwill.

The Goodwill which is generated by self effort of the management or

partners. which depends on no.of factors like location , efficient
management, good quality, and services etc . its generated internally ,over
the years. Its not recorded in the books of account.

Methods of valuation of Goodwill :-

1. Simpal Average Profit Method.

Step 1. Find out average profit :-

Average profit = Total profit - Total loss

---------------------------------------------------------

No.of years given

Step 2. Goodwill = Average profit * No. years purchases.( which is given)

Q.1 Goodwill of the firm is valued at Three years purchase of four year,s average
profit. The profit earned by the firm in last four year is Rs. 15000, Rs.11000,Rs,
6000(loss) , Rs. 10000 . find out goodwill.

Year Profit Loss

1 15000
2 11000
3 6000
4 10000
Total 36000 6000
Average profit = Total profit - Total loss
---------------------------------------------------------

No.of years given

Average profit = 36000 -6000 30000
4 = 4
Average profit = 7500
Goodwill = Average profit * No. years purchases
7500 * 3 = 22500
Goodwill = 22500.

Q. 2 Shiva, sambha and Rama are partners in the ratio of 3:2:1 carraying the
business.goodwill of the firm is to be valued at 3 years purchased of average
profit of last 6 years.
Year 2012 2013 2014 2015 2016 2017
Results 10500 3500 22000 27000 40000 60000
 (loss)
Find out the goodwill of the firm and share of each partner.
Year Profit Loss
2012 10500
2013 3500
2014 22000
2015 27000
2016 40000
2017 60000
6 Total 159500 3500

Average profit = Total profit - Total loss

---------------------------------------------------------

No.of years given

Average profit = 159500 -3500 156000
6 = 6
= 26000
Goodwill = Average profit * No. years purchases
26000 * 3 = 78000
Goodwill = 78000.

Goodwill Share of Shiva = 78000 * 3/6 = 39000

Share of Sambha = 78000 * 2/6 = 26000
Share of Rama = 78000 * 1/6 = 13000

Q.3 A, B and c are partners sharing p&l in the ratio of 3:2:1 they decided to take
D in to firm from 1st april 2018 for ¼ share in the profits for this purpose , goodwill
is valued at twice the average annual profit of the previous three years or four
years whichever is higher.
The annual profit for the purpose of goodwill for the last four year were.
Year ended profit
31 mar.2018
st
48000
31st mar.2017 30300
31 mar.2016
st
31200
31st mar.2015 42200

Calculate goodwill .
Year Profit Loss
2018 48000
2017 30300
2016 31200
2015 42200
6 151700 0
Total
 Year Profit Loss
2018 48000
2017 30300
2016 31200
1. Average profit for 4 years = 151700 / 4
6 109500 0
= 37925 Total
2.Average
profit for 3 years = 109500 /3 = 36500
Here average profit of last four year is Rs. 37925
Average profit of last three year is Rs . 36500
37925 .> 36500
So goodwill is 37925 * 2 = 75850 ..
And Share of D = 75850 * ¼ = 18962.50

Q. 5 page no. 2.8

Year Profit Loss

2008 98000
2009 80000
2010 76000
2011 120000
4 Total 374000 0

Average profit = 374000/ 4 = 93500

2009 80000
2010 76000
2011 120000
3 Total 276000 0
Average profit +276000 /3 = 92000

Here 93500 > 92000 & so

Goodwill is 93500 * 80/100 = 74800
Calculation of Normal profit

Noraml profit of Busines = profit

*******
Add :- 1. Abnormal Losses ( loss by fire, theft etc.) -- --
2. Loss on sale of fixed assets. -- --
3. Under valuation of closing stock -- --
4. Over valuation of opening stock -- -
5. Non-recurring exp. ( not expected in future) -- --
6. Capital exp.which charage as revenue exp.( -- -- ******
( purchse of machinery , purchsee of typewriter etc)
Included in purchases. ) *********
Less :-
1. non recurring incomes :- --- --
 2. abnormal gains ( profit on sale of fixed Assets ) -- --
3. income from non Trade investment. -- --
4. Partners remuneration if its not deducted. -- --
5. Future exp. -- -- ******

Normal profit.. *********

Q.1 A & B are the partners sharing Profits And Losses in the ratio of 3:2. They
Agree to take C into firm for 1/3 rd share. For this purpose, goodwill is to be
valued at Two year,s purchase of the averge profit of last four years which were
as follows :-
Year ended profit
31 mar.2008
st
50000
31st mar.2009 120000
31st mar.2010 180000

31st mar.2011 (70000) loss.

On 1st april 2010 a Motor Bike costing Rs. 50000 was purchased and Debited to
Travelling Expenses Acc.. on which depreciation is to be charged @ 20% p.a.
calculate the value of goodwill.

Year Adjustments in profit Normal profit

2008 50000 50000
2009 120000 120000
2010 180000 180000
2011 -70000+50000(motor bike)-10000(Dep.) 30000 (loss)
Total profit 320000

Average profit = Average profit = Total profit - Total loss

---------------------------------------------------------

No.of years given

Average profit = 32000 0 / 4

= 80000
Goodwill = Average profit * No. years purchases
GOodwill= 80000 * 2 = 160000

2001 = loss70000 – motor bike assets 50000= 20000 + 20%dep. on bike 10000
= 30000
Q.2 Simran purchase Anita,s business on 1 st april 2018. It was agreed to value
goodwill at three year,s purchase of average normal profit of the last four years.
The profits of Anit,s business for the last four years were
Year ended profit,s
31 mar.2015
st
90000
31st mar.2016 160000
31 mar.2017
st
180000
31st mar.2018 220000
It was observed that in the books of account.
1. During the year 31st mar 2015, an assets was sold at a gain ( profit) of Rs.
10000.
2. During the year ended 31st mar 2016 a machine got destroyed in an
accident and Rs. 30000 was written off in the profit and loss account.
3. During the year ended 31st mar 2017 firm,s assets were not insured due to
oversight insurance premium being Rs. 10000.
Calculate the goodwill of the firm.
Year Adjustments in profit Normal profit
2015 90000 - Abnoral gain in sale of assets 10000 80000
2016 160000 + abnormal loss of machine + 30000 190000
2017 180000 - insurance premium 10000 170000
2018 220000 220000
Total normal profit 660000

Average profit = Average profit = Total profit - Total loss

---------------------------------------------------------

No.of years given

Average profit = 660000 / 4

= 165000
Goodwill = Average profit * No. years purchases
Goodwill= 165000 * 3 = 495000

Q.4 A & B are partners sharing P&l in equal ratio. They admiteed C in tofirm for
equal shre. Goodwill was agreed to valued at two years prucahsed of last four
years.
Year ended profit,s
31 mar.2015
st
70000
31 mar.2016
st
100000
31st mar.2017 55000 (loss)
31 mar.2018
st
150000

It was observed that in the books of account.

1. The firm had abnormal gain of Rs. 10000 during 2015 ended.
2. The firm incurred abnormal loss of Rs. 20000 for 31 st mar 2016.
3. Repair’s to Car amounting to Rs. 50000 was wrongly debited to Vehicle
account on 1st may ,2016 depreciation was charged on vehical is @ 10% on
fixed installment system.
 4. A bad debts of Rs. 5000 was omitted to be written off in the year 2017-18.
Calculate goodwill of the firm.

Year Adjustments in profit Normal profit

2015 70000 -10000 60000
2016 100000 +20000 120000
2017 -55000 -50000 Repairs + 5000 Wrong -100000 (loss)
Debited
2018 150000 + 5000 Dep.on machine - 5000 bad 150000
debts
Total normal profit 230000

Average profit = Average profit = Total profit - Total loss

---------------------------------------------------------

No.of years given

Average profit = 230000 / 4
= 57500
Goodwill = Average profit * No. years purchases
Goodwill= 57500 * 2 = 115000

w.n. Let vehical is valued at Rs. 50000

In 2016 vehical repairs is added to vehical i.e. now balance sheet shows
Vehical is 50000 +50000 = 100000.
Right so dep. Is also increase by Rs. 5000.

In 2016 we have to increase repairs to machinery Rs .50000 ( loss increae)

Extry depreciation of Rs. 5000 is credited ( loss decrease )
Thasts why In 2016
Loss = - 50000 – 50000 repairs + extra dep. 5000 = 100000 total loss

Q. 5 X sold his business to Y calculate the value of goodwill taking into

consideration in the following factors
1) goodwill is valued at 3 yers prchses of the average profits of the last four
years were year 2009- Rs. 40000. Year 2010- Rs. 58000. Year 2011- Rs. 53000
Year 2012- Rs. 62000.
2) Abnormal loss of Rs. 2000 due to theft has reduced the profits of the year
2009.
3) profits of the year 2010 inclued abnormal profit of Rs. 4000
4) A speculative and lottery profit of Rs, 5000 was recived during the year 2011,
which was included in that year,s profit.
5) profit of the year 2012 weere reduced by Rs. 10000 on such a machinery
which was destroyed by fire during the year.

Ans =
Average profit = 216000 / 4 = 54000
Goodwill is 54000 * 3 = 162000.
  Weighted average profit method : *

It is method where by weight is assigned to each year and thereafter,

normal business profit of each year is multiplied by that assigined weight
to determine the value of .

Q/1 . The profits of the firm of last 5 years were.

Year 31/3 /13 31/3/14 31/3/15 31/3/16 31/3/17
Profits 40000 48000 60000 50000 36000

Calculate the valaue of goodwill on the basic of three years purchase of the
weighted averge profit after assignied weights 1,2,3,4, &5 respecitvely fot the
years.

Years Profits ( A) Weights (B) Products (A * B)

31/3 2013 40000 1 40000
31/3 2014 48000 2 96000
31/3 2015 60000 3 180000
31/3 2016 50000 4 200000
31/3 2017 36000 5 180000
Total 15 696000

Weighted Average profit = total of products of profit

---------------------------------------------------------

Total weights

Weighted Average profit = 696000 / 15 = 46400

= 46400
Goodwill = weighted Average profit * No. years purchases
Goodwill= 46400 * 3 = 139200

Q. 2 profits of tehe firm for the year ended 31 st mar. for the last five years were.

Year 31/3 /14 31/3/15 31/3/16 31/3/17

Profits 80000 100000 110000 150000

Calculate the valaue of goodwill on the basic of three years purchase of the
weighted averge profit after assignied weights 1,2,3,4 to the respective profits.

Ans. = 363000
 SUPER PROFIT METHOD.

In this method Goodwill is calculated on the basis of Surplus ( excess )

profit earned by a firm in a comparison to average profits earned by other
firms .
Stepes to find out goodwill
1. Find out Average Normal profit = Total profit - total loss /
no.of.years

2. Find out Normal profit =

Capital employed * Normal Rate of return ( N.R.R.) / 100

3. Capital employed = Total capital invested + Gen. reserve +reserve

fund + p&L
( liabilities side – P&l ( Assets side ) - fictitious assets (discount on
Deb) –
Advt Suspense A/c. - Non trade investment.

4. Super profit = Average normal profit - Normal profit

5. Goodwill = Super profit * no. of years purchases.

Q. 1 A firm earned net profits during the last three years were .
Years 1 2 3
Profits 18000 20000 22000
The capital investment of the firm is Rs. 60000 , Normal rate of return on
the capital is 10% . calculate value of goodwill on the basis of three years
purchase of the average super profit for the last three years.

Years Profits Loss

1 18000
2 20000
3 22000 = 60000
1. Average normal profit = Total profit - total loss / no.of.years
60000 / 3 = 20000
2. Normal profit = Capital employed * normal Rate of return ( N.R.R.) / 1 00
60000 * 10 /100 = 6000

3. Super profit = Average normal profit - Normal profit

20000 - 6000 = 14000

Goodwill = Super profit * no. of years purchases

14000 * 3 = 42000
Q. 2 A firm earned profits of Rs. 80000, 100000, 120000 & Rs. 180000
during the year 2011-12 , 2012-13, 2013-14 ,and 2014-15 respectively.
The firm has capital invest of Rs. 500000. A fair return on investment is
15% p.a.. calculate goodwill of the firm based on three years purchase of
average super profits of last four years. ( CbSe 2015) ans ( 135000)

Q. 3 The average net profits expected in future by ABC firm are Rs. 100000
per year . The Average capital employed in the business by the firm is Rs.
500000. The rate of interest expected from the capital invested in this clss
of business is 15% p.a. The remuneration of partners is estimated to be Rs,
10000 p.a. find out the value of goodwill on the basis of two years purchase
of super profit.
Average profit = 100000
Remuneration of partner is = 10000
So Average normal average profit = 100000-10000 = 90000

Normal profit = Capital employed * NRR /100

500000 * 15% = 75000

Super profit = Average normal profit –normal profit

90000 - 75000

Super profit = 15000.

Goodwill = Super profit * no. of years purchase
15000 * 2 = 30000

Q. 4 on 1st April 2015 a existing firm has assets of Rs. 500000 including
cash
Of Rs. 20000, the firm had Reserve Fund of Rs. 90000. Parrtnrs capital
accounts showed a balance of Rs. 380000. And creditrs of Rs. 30000. If the
normal rate of return is 20% in the business and the goodwill is valued at
64000 at four years purchase of super profits, find the average profit.

Given -
Goodwill = 64000.
Capital employed = Capital + Gen reserve = 380000+90000 = 470000

Normal profit = 470000* 20% = 94000

Goodwill = Super profit * no. year purchse

64000 = X * 4
Super profit = 64000/4 = 16000

Super profit = Averge normal profit – Normal profit

16000 = A.P. – 94000.

Average profit = 16000 +94000 = 110000.
A.p. = 110000.
Q.5 M/s Hi- tech ltd has assets of Rs. 500000 whereas liabilities are :- partners
capital Rs. 350000, genral reserve Rs. 60000 and careditors Rs. 90000. If the
normal rate of return is 10% and goodwill of the firm is valued at Rs. 90000. At 2
years purchase of super profits find out Average profits. ( ans. Average profit
86000/-)

Given - 1 ) Goodwill – 90000.

Capital employed = Tatal Capital + Genreal Res.
= 350000 + 60000 = 410000.
Normal Profit = Capital employed * N.R.R. /100
= 410000 * 10 /100 = 41000.

Goodwill = Sper profit * 2 =

90000 = S.p. *2 = i.e Super prfit = 90000 /2 = 45000.

Super profit = Average profit - Normal Profit

45000 = A.P. – 41000= Average profit = 45000+41000 = 86000.

Q. 6 The average profit earned by the firm is Rs. 250000 which includes
overvaluation of stock of Rs. 10000 on an average bassis The capital invested is
Rs. 1400000 and the normal rate of Return is 15% .
Calculate goodwill of the firm on the basis of 4 times the super profit,

Average profit is = 250000.

Normal Average profit = Average profit – Abnorprofit of overvaluation of stock
= 250000 – 10000 = 240000

Normal profit = Capital employed * NRR /100

= 1400000 * 15/100 = 210000.

Super profit = Average profit - Normal Profit

= 240000 -210000 = 30000
Goodwill = Super profit * No. of purchase
= 30000 * 4 = 120000.

Note :- overvaluation of stock increase the net profit so we have to deduct that
amount to find correct average profit. Ans = 120000.

Q. 7 The following information relates to a firm of Yuraj, Maharaj & Rahuraj.

1. profits for the firm for 4 years.
2012 - rs. 250000, 2013- Rs. 270000, 2014- loss 180000, 2015- 524000 profit
2. Remunaration to eacah partners Rs. 1000 p.m.( to be trated as acharge of
profit)
3. Average capital employed in the business is Rs. 800000 and NRR. On it is 15%
4. Assets (excluding goodwill ) Rs. 875000, liabilities Rs. 32000

4. You are rewuired to clucuate the value of goodwill if

1. At 2 years purchse of Average profit
2. At 3 years purchase of superprofit.

Average profit = 864000/4 = 216000

Remuneration of partner is 1000 * 12 *3 partners = 36000
Adjusted agverga profit = 216000 -36000 = 180000.
Normal profit = 800000 * 15% = 120000
Super profit = Average adjusted profit - normal profit
180000- 120000 = 60000
Ans for 1 = goodwill = Average * no. of years
st

180000 * 2 = 360000
Ans for 2 = Goodwill = super profit * no. of years.
nd

60000 * 3 = 180000.

Q.8 Alok and Akash are partners in M/s Mega Entrerprises they admitted Ashish
as partners W.E.F. 1st april 2018 .They agree to to value goodwill at 3 years
purchse by super profit method for which they deided to take average of last 5
years profits were.
Year ended profit,s
31 mar.2014
st
200000 including gain of Rs. 25000 from sale of
Asets
31st mar.2015 170000 including abnormal loss of Rs. 50000
31st mar.2016 210000
31 mar 2017
st
230000
31st mar.2018 250000

Capital employed in the firm is Rs. 1500000 and normal rate in similar business
10%
Calculate the value of goodwill. Ans 201000

Goodwill method – No. 4 Capitalisation of Average profit,.

In this method we find out first Average profit and then find capital required for
that.

= Average profits * 100 / Normal rate of

Capitalized value of average profit
return.
Goodwill = Capitalisation Average profit - net assets. ( capital employed)

Q.v1 From the following information calculate goodwill according to the

capitalization of average profit method.
 1) Actual average profit = 72000
2) Normal rate of return = 10%
3) Assets = 970000
4) Liabilities = 400000.

Capitalized value of average profit = Average profits * 100 / Normal rate of return
( required Capital )
720000 = 72000 *100 / 10

Capital employed = Assets - liabilities.

570000 = 970000 - 400000

Goodwill = Capitalisated Average profit - Capital Employed

150000 = 720000 - 570000

Q.2 Rajan & Rajni are paraterns in a firm their capital were Rs. 300000 and Rs.
200000 During the year ended 31st mar 2016 the firm earned a profit of Rs.
150000. Calculate the value of Goodwill on the basis of capitalization of average
profit method assuiming that NRR is 20%.

Capitalized value of average profit = Average profits * 100 / Normal rate of return
( required Capital )
750000 = 150000 *100 / 20

Capital employed = Assets - liabilities.

300000 +200000 = 500000

Goodwill = Capitalisated Avergae profit - Capital Employed

250000 = 750000 - 500000

Q. 3 puneet And Tarun are partners having credit balance in their fixed capital
accounts as Rs. 250000 each . they have credit balance in their Current account
of Rs. 30000 and Rs, 20000 respectively the firm does not have any liabilities .
They are regularly earnings profits s and their average profits of last 5 years is Rs.
100000 .if the NRR is 12% find the goodwill by Capitalization method.

Capitalized value of average profit = Average profits * 100 / Normal rate of return
( required Capital )
1200000 = 100000 *100 / 12

Capital employed = Assets - liabilities.

 250000 + 30000+ 250000+ 2000 = 550000

Goodwill = Capitalisated Avergae profit - Capital Employed

650000 = 1200000 - 550000

Goodwill = 650000.

Method no .5 Capitalization of Super profit :-

Goodwill = Super profit * 100 / NRR

1) Actual average profit = 72000

2) Normal rate of return = 10%
3) Assets = 970000
4) Liabilities = 400000.

Capital employed = assets - liabilities

970000-400000 = 570000
Super profit = Average profit -normal profit

Normal profit = Capital employed * NRR /100

570000 * 10/100 = 57000
Super profit = Average profit - normal profit
72000 - 57000 = 15000.

Goodwill = Super profit * 100 /NRR

15000 * 100 / 10 = 150000

Goodwill is = 150000.

Q.2 J&K ar partners therir capitals are Rs 300000 and Rs 200000

respectivley.durig the year ended 31st mar 2020 the firm earned a profit of Rs
150000. Assuming that the Normal rate of return is 20%, calculate the value of
goodwill .by
1. capitalsation of aveage profit method
2. by super profit method if the goodwill is valued at 2 years purhcse of supr
profit.

1. by Capitalisation method :-
Capitalized value = average profit *100 / NRR.
= 150000 * 100 /20 = 750000.
Goodwill = capitalization value of the business – Capital employed
= 750000 – ( 300000 +20000) = 250000.
Goodwill = 250000.

2. by Super profit method :-

Normal profit = Capital employed * N.R.R. /100
N.p = 500000 * 20/100= 100000.

Super profit = Average profit - Normal profit

S. p. = 150000 – 100000 = 50000.

Goodwill = Super profit * Np. Of Purchases

Goodwill = 50000 * 2 = 100000

Q. 5 From the following information calculate the goodwill of the firm.

A) At three years purchase of average profit.
B) At three years purchase of super profit.
C) on the basic of Capitalisation of super profit.
D) on the basis of Capitalisation of Average profit.
Information.
1) Average Capital Employed is Rs. 600000.
2) Net profit / ( loss ) of the firm for the last three years are.
31st mar 2018- 200000. 31st mar 2017- 180000. 31st mar. 2016 –
160000.
3) Normal rate of return in similar business is 10%
4) Remuneration of Rs. 100000 to partners is to be taken as charge against
profit.
(5) Assets of the firm ( excluding goodwill, fictitious assets and non –trade
investment) is Rs. 700000, where as partners capital is Rs. 600000 and
outside liabilities is Rs. 100000.

1. Average Profit = Total profit / no. of years

200000+180000+160000 / 3 = 540000 / 3 =
180000
Average Normal profit = Average profit - remuneration
180000- 100000 = 80000.

2. Normal profit = Capital Employed * NRR.

600000 * 10% = 60000

3. Super profit = Average normal profit –Normal profit

80000 - 60000 = 20000.

Goodwill = by methods
Q.(1 ) Goodwill = Average profit * No. of purchase
800000 * 3 = 240000.

Q.(2) Goodwill = Super profit * No. of purchase

 20000 * 3 = 60000.

Q.(3) Goodwill by Capitalisation super profit = Super profit * 100 /

NRR
= 20000 * 100 / 10 =
200000.

Q.(4) Capitalization valued method = Averge profit * 100 / NRR

80000 * 100 / 10 =
800000.

Goodwill = expected Capital Average employed - Capital employed

800000 - 60000 = 200000

Q. 18 page no.2.16

Average profit = 147600 – 148100 +448700 / 3 =149400

1) Average normal profit = Average profit – remuneration
149400 – 12000 ( 500 *12 *2 ) = 137400

2) Normal profit = 70000 * 18% = 126000

3) Super profit = Average normal profit –Normal profit

= 137400 - 126000 = 11400

Goodwill is Valued by
(A) Aaverage profit * 3 years purchse 137400 * 3 = 412200

(B) Super profit * 3 years, purchse = 11400 * 3 = 34200

( C ) Capitalisition of super profit method

Super profit * 100 / NRR

11400 * 100 / 18 = 63333.

 ( D ) Capitilisition of Average profit

Capitilisation value of aveage profit = Average normal profit * 100 /

NRR

= 137400 * 100 / 18 = 763333.

Goodwill = Capitalisation Value - Capital employed

= 763333 - 700000 = 63333.

a. Profits of last five years

1. 80000 2. 100000 3. 200000 4. 150000 5 . 270000.
2. Average capital employed is 500000
3. Rate of normal profit is 20%
Find out goodwill
A. 3 yr, purchase of average profit - 480000
B. 3 yr, purchase of super proit - 180000
C. Capitalisation of super profit . - 300000.

Accounting Treatment of goodwill :-

When goodwill adjusted through Capital / Current A/c.. ( without opening Goodwill
A/c.)

Gaining partners Capiatal / Curretn A/c. Dr…

To Sacrificing partners Capital /Curretnt A/c..
( being Goodwill is adjusted due to change in p&L ratio, )

Q. 1 A, B And C are partners sharing p&L in 5:4:1. It was decided that w.e.f. 1 st
april 2016 the profit sharing ratio will be 9:6:5. Goodwill is to be valued at 2years
purchse of average profit of last 3 years. The profits for 2013-14 and 2014-15,
and 2015-16 were Rs. 48000, Rs-42000 and Rs. -60000 respectively.
Pass the necessary journal entries for the treatment of goodwill without
opening goodwill account,

Old ratio = 5 4 1
New ratio = 9 6 5

Sacrifice ratio = Old ratio – new ratio

A = 5/10 – 9/20 = ( by lcm 20) 10-9 / 20 = 1/20 ( sacrifice)

B= 4/10 - 6/20 = ( by lcm 20) 8-6 / 20 = 2 /20 (sacrifice )

C= 1/ 10 - 5/ 20 = ( by lcm 20) 2 – 5 /20 = -3 /20 ( gain)

Average profit = profits / no. of years = 150000/3 = 50000

Average profit = 50000.
Goodwill = Average profit * no. of yers
50000 * 2 = 100000
Goodwill of the firm = 100000.

So here
A is Sacrificied , so he will be credited by 1/20 * 100000 = 5000. As goodwill.

B is Sacrificied , so he will be credited by 2/20 * 100000 = 10000. As goodwill.

C has gained , so he will be debited by 3/20 * 100000 = 15000. As goodwill.

Journal entries
Date Particulars l/f Dr. Cr.
1/4/20 C capital A/c .. Dr… 15000
16 To A Capital A/c. 5000
To B Capital A/c. 10000
Aadjustment for goodwill due th change
in P&l ratio.

For fee transfer

For googal pay my no. 9422019570.. bank HDFC
For RTGS
mahes suresh khabe. baramati
Axis bank acc. No. 913010044504616
Ifsc code :- UTIB0000135
Method no. 2 When goodwill account is opended :-
1. Goodwill distributed to all partnes I old ratio

1. A Capital A/c .. Dr…. 50000

B Capital A/c .. Dr… 40000
C Capaital A/c. Dr. 10000
To Goodwill A/c. 100000.
( Being raised goodwill distributed in old P&L ratio )

2. Goodwill A/c. Dr. 100000.

To A Capital A/c .. 45000
To B Capital A/c .. 30000
To C Capital A/c .. 25000
( being G/D written off in NPSR 9:6:5)

Q.2 kumar gupta And Kavita were partners sharing P&L equally. The firm was
recontracted and partners were decided to share profits in their new ratio which
was 1:2:1 . for this purpose the goodwill of the firm was valued at two years
purchse of the average profits pf last 5 years which were :-
Year 1 2 3 4 5
Profit/ loss 400000 480000 733000 33000(loss) 220000

You are reuired to

1. Calculate goodwill of the firm
2. Pass necessary journal entry for the treatment of goodwill due to change in
p&l ratio. 4 MARK (CBSE 2015)

Gupta capital ac dr 120000

To. Kumar capital ac 60000
To. Kavita capital ac 60000

X AND Y were partners sharing p&l as 3:1. They decided that with effect from 1 st
april 2016, they decided to share p&l as 5:3. The deed provides that in the event
of any change in p&l ratio ,the goodwill should be valued at the total of two years
profits preceding (last) the date of decision become effective. The profits for
2013-14 , 2014-15 , an d 2015-16 were Rs. 60000 Rs 70000 and Rs. 90000.
Respectively . pass the necessary journal entry to give effect to the above
arrangement,

Goodwill = average profit = 70000 +90000 = 160000 /2= 80000

Goodwill = average profit * 2 = 80000 * 2= 160000.

Sacrifice ratio= old ratio – new ratio

X= ¾ - 5/8 = 6-5/8 = 1/8 ( sacrifice) == 160000 * 1/8 = 20000

Y = ¼ - 3/8 = 2-3/8 = -1/8 ( gain) === 160000 * -1/8 = 20000 ( gain)

Entry will be
Y capital Ac. Dr. 20000
To x capital Ac. 20000

Accounting treatment of existing goodwill in Balance

sheet.
1. Distribute existing goodwill to old partners in their old ratio.

Old paratenrs Capitlal A/c / Current A/c.. ..Dr…

To goodwill A/c.

Q.1 X Y & Z are partners with ratio of 5:3:2 decided to share future profit
and losses equally with from 1st april 2018. On that date the goodwill
appeared in the books at Rs. 12000 But it was revalued at Rs. 30000. Pass
 journal entries assuming that goodwill will not appear in the books of
account.

Date Particulars Dr. Cr.

1/4/201 X Capital A/c. Dr…. 6000
8 y Capital A/c. Dr…. 3600
z Capital A/c. Dr…. 2400
To Goodwill A/c. 12000
Existing goowill distrinbuted to old partners
in old 5:3:2 ratio)

y Capital A/c. Dr…. 1000

1/4/201 z Capital A/c. Dr…. 4000
8 To X capital A/c. 5000
Being Goodwill adjusted due to npsr

Sacrifice ratio = old Ratio – new ratio

X= 5/10 - 1/3 = 15-10/30= 5/30 == new value of G/W/ 30000 * 5/30 =

5000

Y= 3/10 – 1/3 = 9-10 /30 = -1/30 ( gain )=== 30000 * -1/30 = -1000

Z = 2/10 – 1/3 = 6- 10/30= -4 /30 ( gain) === 30000 * -4/30 = - 4000

Q. 2Chandrkala And Anita were partenrss in a firm sharing p&L in 2:1 they
decided that W.E.F 1st 2015 they would share parofit And losses in 3:2 . but
decision was taken after the profits of the year ended 31 st mar 2016 amounting to
Rs. 30000 has been distributed in the old ratio.
Goodwill was to be aggregated of two years profits preceding the date
decision become effective . the profits for 2013-14 Rs. 20000 and 2014-15 Rs.
25000. It was decided that no goodwill would be raised and the necessary
adjustment be made through capital A/.c which on mar 31 2016 stoods at Rs.
50000 for chandrkala and Rs. 30000 for Anita

Old ratio 2:1 new ratio 3:2 from 1 st april 2015

chandrakala anita firm

Profits already distributed in 2:1 -20000 -10000

30000

Profit distributed din new ratio 3:2 18000 12000 30000

Net effect -2000

2000 0 0
1.Chandrakala capital A/c Dr. 2000
To anita Capital A/c. 2000.
Being wrong profit adjuted through capital a.c.

Goodwill
Average profit = 20000 +25000 / 2 = 22500
Godwill = 2 * 22500 = 45000.

Old ratio 2:1 new ratio 3:2

Sacrifice ratio = old ratio – new ratio
Chandrkala = 2/3 – 3/5 = 10-9/ 15 = 1/15 ( sacrifice) = 45000 * 1/15 = 3000

Anita = 1/3 – 2/5 = 5-6 / 15= -1/15 ( gain ) = 45000 * -1/15 = -3000

Entry=
2. Anita Capital A/c. Dr… 3000
To Chandrkala a/c. 3000
( being adjustment of goodwill due to change of ratio )

ACCOUTNING TREATMENT OF RESERVES AND ACCUMULATED PRFOITS DUE TO

CHANGE IN P&L RATIO.
a) FOR TRANSFER OF RESERVES AND SURPLUS :- in old ratio
Reserve A/c Dr…
Profit & loss A/c .( liabilities side) Dr…
Workman Compensation Res. A/c. Dr… ( Difference )
Investment Fluctuation Res. Fund A/c Dr… ( difference )

To Old partners Capital /Current A/c.

B) For transfer of accumulated losses:- in old ratio.

Old partners Capital /Current A/c. Dr…

To profit & loss Account .( Assets side)
To Deffered Revenue Expenditures A/c. ( ex. Advt. Suspense A/c.)

Debit balance = loss & Credit balance = profit.

Q. 1 X , Y& Z are paratners sharing P& L in the ratio of 4:3:2 . from 1 st april
2008 they decided to share p&L equally. On that date their books showd a credit
balance of Rs. 180000 in P&L A/c. Rs. 45000 in Genral Reserve A/c. Record the
necessary journal entry for the above.

Date Particulars Dr. Cr.

1/4/200 Profit And loss A/c Dr… 180000
 8 Gen. reserve A/c. Dr… 45000
To X Capital A/c. 100000
To y Capital A/c. . 75000
To z Capital A/c. 50000
Transfer of P&L and Ger.Res. on change
of p&l ratio in 4:3:2 ratio

180000 +45000 = 225000 = 225000*4/9 = 100000 Y = 225000* 3/9

= 75000
And Z = 225000 * 2/9 = 50000.

X and Y are partners as 2:1 from 1st april 2018 they going to share p&l in
3:2 on that date profit And loss account shows Debit balance of Rs. 60000.
Record the entry.

Date Particulars Dr. Cr.

1/4/201 X Capital A/c. Dr.. 40000
8 Y Capital A/c Dr. 20000
To Profit and losss A/C. 60000
Being loss distributed to partners due to
change in p&l ratio.)

Q. 2 P Q & R sharing profits & losses as 3:2:1 decided to share future P&L in
4:3:2 with effefect from 1st april 2008 following is extract of their Balance sheet as
on 31st mar 2008:-
Liabilities Amount Assets Amount
WorkMan compensation 60,000
Reserve
Show the accounting treat ment under the following alternatives cases.
1. If there is no information. About Res.
2. If a claim of account of wokma,s compensation is estimated at Rs. 24000.

Date Particulars Dr. Cr.

1/4/201 Worman compensation Reserve A/c. Dr..... 60000
8 To P,s Capital A/c. 30000
Case 1. To Q,s Capital A/c. 20000
To R,s Capital A/c 10000
Being transfer of Workman compensation
res. To partners capital I 3:2:1 old ratio)

Workmen compensation Reserve A/c. Dr..... 60000

1/4/200 To workmen compensation claim A/c. 24000
8 To P,s Capital A/c. 18000
Case To Q,s Capital A/c. 12000
 no. 2 To R,s Capital A/c 6000
Being settle athe claim and bal. transfer to
partners capital in old ratio.

Q.3 P Q & R sharing profits & losses as 3:2:1 decided to share future P&L
equally with effefect from 1st april 2008 following is extract of their Balance sheet
as on 31st mar 2008:-

Liabilities Amount Assets Amount

Investment fluctuation reserve 30,000 Investment ( at Cost ) 5,00,00
0

Show the accounting treatment in the following cases.

1. If there is no information
2. If the market value of investment is Rs. 5,00,000
3. If the market value of investment is 488000.
Date Particulars Dr. Cr.
1/4/201 Investment fluctuation Reserve A/c. Dr..... 30000
8 To P,s Capital A/c. 15000
Case 1. To Q,s Capital A/c. 10000
To R,s Capital A/c 5000
Being transfer of investment flu.res. To
partners capital I 3:2:1 old ratio)

Same as above
Case no
.2
Investment fluctuation Reserve A/c. Dr..... 30000
1/4/200 To Investment Acc. A/c. ( 500000- 12000
8 488000 ) 9000
Case To P,s Capital A/c. 6000
no. 2 To Q,s Capital A/c. 3000
To R,s Capital A/c
Being excess of investment reserve. transfer
to partners capital in old ratio.

q. 3
A B & C sharing profits & losses as 4:3:2 decided to share future P&L in 2:3:4
with effefect from 1st april 2016 following is extract of their Balance sheet as on
31st mar 2016:-

Liabilities Amount Assets Amount

Investment fluctuation reserve 54,000 Investment ( at Cost ) 6,00,00
0

Show the accounting treatment in the following cases.

 1. If there is no information
2. If the market value of investment is Rs. 6,00,000
3. If the market value of investment is 591000.

Method no2..
. When Reserves and accumulated profit /losses are not to be transferred to
partners capital Account.

Q. 1 A , B And C are partners sharing p&l in 2:3:4 . they decided to share profit &
lossess is 4:3:2 they also decided to record the effect of the following without
affecting their book values.:- General reserve 40000,, profit and loss
Credit balance Rs. 20000 and advertisement suspense A/c. 15000.
You are required to give necessary single entry :

1. A,s Capital A/c Dr… 10000

To C,s Capital A/c. 10000
( being Gen res, p&l, aadn Advet. Sepens.
Adjusted due to change in ratio.)

Genral Reserv 40000

Profit& loss 20000
Advertisement sespencse a/c. ( loss ) -15000
(net profit) 45000

Sacrifice ratio = Old Ratio - new Ratio.

A,s Effect= 2/9 - 4/9 = -2/9 ( gain) 45000* 2/9 = 10000

B,s Effect = 3/9 - 3/9 = 0

C,s Effect = 4/9 - 2/9 = 2/9 ( sacrifice) = 45000* 2/ 9 = 10000.

A, B And c. are partners sharing p&L in 4:2:1 their balance sheet as on 31 st mar
2016
Liabilities Amount Assets Amount
Sundry creditos 40000 Sundry Assets 720000
Reserves 130000
Profit and loss A/c. 50000
Capital a/c.
A 200000
B 200000
C 100000 500000
720000 720000

From the 1st april 2016 partners decided to change their ratio to 5:3:2 for this
purpose goodwill valued at Rs. 100000. The partners do not want to record the
goodwill and also do not want to distribute the Reserves and profits . you are
required to record the single entry and also prepare revised balance sheet.

Net effet =
1 goodwill of the firm 100000
3. Reserves 130000
4. Profit & loss 50000
Net effect = 280000.

1. B s Capital A/c Dr… 4000

C, s capital A/c. Dr… 16000
To A,s Capital A/c. 20000

( being adjustment of Gen res, p&l,& goodwill.

Adjusted due to change in ratio.)

Sacrifice ratio = old ratio - new ratio .

A effects = 5/70 ( sacrife)= 280000 * 5/70 = 20000

B effects = -1/70 ( gain ) = 280000 * -1/70 = -4000
C effect = -4/70 ( gain) = 280000 * -4/70 = - 16000
Balance sheet as on :-
Liabilities Amount Assets Amount
Sundry creditos 40000 Sundry Assets 720000
Reserves 130000
Profit and loss A/c. 50000
Capital a/c.
A 200000+20000=
220000
B 200000-4000= 500000
196000
C 100000- 16000=
84000
720000 720000

Q. A B and C are partners with ratio of 1:3:2 they decided that w.e.f. 1 st
april 2016 they will share P&L in 4:6:5 for this purpose the goodwill of the
firm is valued at the total of preceding three years profits .the profits
were :-
Year 2011-12 2012-13 2013-14 2014-15 2015-16
Results 40000 10000 80000 120000 140000
( loss) (loss)

Reserves and profits appeared in the balancesheet at 40000 and Rs. 30000
respectively . partners neither want to show goodwill in the books nor want
to distribute the reserves and profits appearing in the balance sheet. Pass
a single entry to record the change.

Goodwill of the firm = total of profits for last 3 years

140000 +120000 – 80000 = 180000
Net effect =
Goodwill of firm = 180000
Profits at balance sheet = 30000
Recreves at balance sheet = 40000
Total effect = 250000

Sacrifice ratio = old Ratio – new Ratio 1:3 :2 new Ratio 4:6:5

A = 1/6 - 4/15 = (lcm 60) 10 -16 / 60 = - 6/60 Gain = 250000 *

6/60 = 25000

B = 3/6 - 6/15 = 30 – 24/60 = 6/60 (sacrifice) = 250000 * 6/60 =

25000

C = 2/6 - 5/15 = 20 – 20 / 60 = 0

Journal entry

1. A s Capital A/c Dr… 25000

To B,s Capital A/c. 25000

( being adjustment of Gen res, p&l,& goodwill.

Adjusted due to change in ratio.)

STAGE : REVALUATIONS OF ASSETS & LIABILITES

Assets value increase - -- profit
 Entry = Assets A/c Dr…
To Revaluation A/c

1) Assets value Decrease ---- loss

Revaluation A/c Dr…
To Assets A/c.

2) Liabilities value decrease --- profit

Liabilities A/c Dr…
To Revaluation A/c

3) Liabilities value increase ---- loss.

Revaluation A/c Dr…
To liabilities A/c.

Format of Revaluation A/c.

Particulars Amoun Particulars Amoun

t t
To Decrease ( dep) of assets *** By Increase in assets ***
To increase in liabilities **** By Decrease in Liabilites ****
To unrecorded Liabilites *** By unrecorded assets. ***
To profit on Revaluation **** By loss on Revaluations ****
A capital A/c. A capital A/c.
B capital A/c. ( old B capital A/c. ( old
Ratio ) Ratio )
Total ****** ******
Q. 1 A ,B and C are sharing profits & losses in 5:3:2 they decided to share future
p&l in 2:3:5 w.e.f. 1st april 2018. They also decided to record the effect of the
following revaluations without affecting the book value of the assets and liabilities
by passing a single entry:-
Particulars Book value Revised
value
Land and building 500000 550000
Plant and machinery 250000 240000
Sundry careditors 60000 55000
Outstanding expenses 60000 75000

REVALUAION ACCOUNT.
Particulars Amount Particulars Amount
TO PLANT & MACHINEY 10000 BY LAND & BUILDING 50000
TO O/S EXP, 15000 BY SENDRY CREDITORS 5000
TO Revalauation profit
A 15000
B 9000
C 6000 30000
 Total 55000
Sacrifice ratio old ratio - new ratio

A = 5/10 - 2/10 = 3/10 ( sacrifice) 30000 * 3/10 = 9000

B = 3/10 - 3/10 = 0

C = 2/10 - 5/10 = -3/10 ( gain ) = 30000 * -3/10 = - 9000

Journal entry

1. C s Capital A/c Dr… 9000

To A,s Capital A/c. 9000

( being revaluation profit & loss . Adjusted

due to change in ratio.)

Prepration of balance sheet with revised value of assets and liabilities.

Q. Ashok Bhim and Chetan were partners in 3:2:1 their Balance sheet as on
31st mar 2015. Were
Liabilities Amount Assets Amoun
t
Sundry creditos 100000 Land 100000
Bills payable 40000 Building 100000
General Reserve 60000 Plant 200000
Capital a/c. Stock 80000
A 200000 Debtors 60000
B 100000 Bank. 10000
C 50000 350000
550000 550000

Ashok Bhim and Chetan decided to share future profit and losses equally w.e.f.
1st april 2015. For this it was agreed that.
A) Goodwill of the firm valued at 300000
B) Land be revalued at Rs. 160000 and building be depreciated by 6%
C) Creditors of Rs. 12000 were not likely to be claimed and hence written off.
Prepare Revaluations A/c and partners capital A/c. and Balance sheet
of the Reconstituted firm.
REVALUAION ACCOUNT.
Particulars Amount Particulars Amount
To building 6000 BY land 60000
TO Revalauation profit 15000 BY SENDRY CREDITORS 12000
A 33000
B 22000
C 11000
66000
 Total 72000 72000

Capital Accounts
Particulars A B C Particulars A B c
To Ashok 50000 By bal.B/d 20000 10000 5000
Capital By Gen 0 0 0
reserve 30000 20000 1000
To Bal C/d. 31300 14200 21000 By chetan 50000 0
0 0 Capital
By 33000 22000
Revaluation 1100
profit 0
Total 31300 14200 71000 31300 14200 7100
0 0 0 0 0

Balance shet as on 1/4/2015.

Liabilities Amount Assets Amoun
t
Sundry creditos 10000 Land 10000
Les discount 0 88000 Add appreciation 0
12000 60000 16000
Bills payable 40000 Building 0
Capital a/c. Less Dep. 10000
A 313000 0 94000
B 142000 Plant 6000
C 21000 Stock 20000
476000 Debtors 0
Bank. 80000
60000
10000
604000 60400
0

Sacrifice ratio Old Ratio – New ratio

A= 3/6 - 1/3 = 3-2/6= 1/6 * 300000= 50000 ( sacrifice)

B = 2/6 - 1/3 = 2-2/6 = 0

C = 1/6 - 1/3 = 1-2/6 -1/6 = 300000* -1/6 = 50000( Gain)

NOTE:-
N.P.S.R GIVEN GOODWILL DISTIBUTED IN SACRIFICE RATION BY CAPITAL
ADJUSTMENTS.
 Amar Tarun And akhil Are partner s in 5:3:2 .when their balance sheet wer
31/3/2018
Liabilities Amount Assets Amoun
t
Sundry creditos 160000 Cash in han 25000
Bills payable 30000 Bank bal. 12500
Gen. res. 80000 Bills recrevable 0
Profit And loss 30000 Sundry betors 10000 10000
Capital a/c. Less R.D.D 0
A 300000 Stock 10000 90000
B 180000 600000 Furniture 20000
C 120000 Computers 0
Air- conditioners 50000
30000
0
10000
0
900000 90000
0
Profit Sharing aratio among the partners was agreed to be 2:2:1 w.e.f.
1/42018 they agreed to the following :-
(a) Stock to be increased to 220000
(b)R.D.D. to be reduced by Rs. 2000
(c) Furniture to be readuced by 20%
(d)Computers to be reduced to Rs. 270000
(e) Goodwill of the value at Rs. 100000
The partners decided to carry the assets an liabilities at their existing
values . they also decedied that Reserve an profit & loss accounts
balance be carried at the same value s.
Pass adjustment entry giving effect to above adjustment and prepare
balance sheet after adjustment.

REVALUAION ACCOUNT.
Particulars Amount Particulars Amount
To furniture 10000 By stock 20000
To computers 30000 By R.D.D. 2000
By Revalauation loss
A 9000
B 5400
C 3600
18000
Total 40000 40000
 Working note :-
Net effect of amount to be asjuted ;-
1. Gen Res. 80000
2. Profit and loss ( profit) 30000
3. Goodwill 100000
4. Revaluation loss -18000
Total 192000

Sacrifice Ratio = old Ratio – new ratio.

A= 5/10 - 2/5 = 5-4/10= 1/10 * 192000 = 19200 ( sacrifice)

B = 3/10 - 2/5 = 3-4 /10 = -1/10 * 192000 = -19200 ( gain)

C= 2/10 - 1/5 = 2-2/10 = 0

Date Particulars Debit credit

1. B s Capital A/c Dr… 19200
To A,s Capital A/c. 19200
( being revaluation profit & loss .gen res.
Adjusted due to change in ratio.)

Balance sheet as on 1/4/2018.

Liabilities Amount Assets Amoun
t
Sundry creditos 160000 Cash in han 25000
Bills payable 30000 Bank bal. 12500
Gen. res. 80000 Bills recrevable 0
Profit And loss 30000 Sundry betors 10000 10000
Capital a/c. Less R.D.D 0
A 31920 Stock 10000 90000
300000+19200 0 600000 Furniture 20000
B 180000- 16080 Computers 0
19200 0 Air- conditioners 50000
C 120000 12000 30000
0 0
10000
0
900000 90000
0

Q. A, B And c are partners with ratio 5:3:2 their B/s as at 31 st mar 2017 were.
Liabilities Amount Assets Amoun
t
Capital a/c. Land & building 35000
A 25000 Machinery 0
B 0 Computers 24000
C 25000 700000 Investment ( market value 0
Gen. res. 0 60000 90000) 70000
Investment Fluctuation 20000 Sundry Debtors 10000
Reserve. 0 30000 Cash I hand 0
Sundry creditors 90000 Cash at bank
Advertisement Suspense 50000
A/c 10000
55000
5000
880000 88000
0
They Decided to share prfofits equally W.E.F. 1 april 2017. They also agreed that
st

:-
1) Value of Land & Building be decreased by 5% .
2) Value of machinery be increased by 5%
3) R.D.D. be created @5% on Debtors
4) A Motor Cycle Valued at Rs 20000 was unrecorded , now recorded in the
books
5) Out of Sundry Creditors Rs 10000 is not payable.
6) Goodwill is to be valued at 2 year,s purchased of last 3 years profits. Profits
being for 2016-17 – Rs 50000(loss) 2015-16- Rs 250000 and 2014-15 Rs
250000.
7) C was to carry out the work for reconstituting the firm at a remuneration
( including Expenses) of Rs. 5000. Expenses came Rs. 3000.
Pass journal entries and prepare revaluation Account. - 6 mark.
REVALUAION ACCOUNT.
Particulars Amount Particulars Amount
To land & Buil 17500 BY machinery 12000
To R.D.D. 2500 BY Moter Cycle 20000
To Remunaration To C 5000 By sundry Creditors 10000
TO Revalauation profit
A 8500
B 5100
C 3400 17000

Total 42000 42000

Journal entries of A,B and C.
Date Particulars Debit credit
1/4/201 Gen Res. A/c Dr.. 60000
7 To A Capital A/c 30000
To B Capital A/c 18000
To C Capital A/c 12000

Investment Fluctuations Res. A/c Dr… 30000

To Investment A/c 10000
To A Capital A/c 10000
To B Capital A/c 6000
 To C Capital A/c 4000

A Capital A/c Dr. 2500

B Capital A/c Dr. 1500
C Capital A/c Dr. 1000 5000
To Advertisement Suspense A/c

B,sCapital A/c Dr.. 10000

C,sCaapital A/c DR. 40000
To A,s Capital A/c. 50000

Revaluation A/ce Dr.. 25000

To Land & Building a/c 17500
To Debtors A/c. 2500
To Remunaration to Capital A/c 5000

Machinery A/c Dr… 12000

M/Cycle A/ac Dr… 20000
Creditors A/c DR. 10000
To Revaluations A/c. 42000

17000
Revaluation A/c Dr.. 8500
To Aa ACapital aa/c. 5100
To B Capital A/c 3400
To Ca capital A/c
Being profit on revaluation distributed .

Valuatins of Goodwill :-
Average profit / no. of years
450000 /3 = 150000
Goodwill = 150000 * 2 = 300000

Sacrficice Ratio = Old Ratio – New Ratio

A= 5/10 – 1/3 = 15-10 /30 = 5/30 * 300000 = 50000 (sacrifice)

B= 3/10 – 1/3 = 9 -10 = -1/30 = -1/30* 300000 = 10000 ( gain)

C = 2/10 – 1/3 = 6-10= -4/30= -4/30*300000= 40000(gain)

A, B And C are partners sharing P&L in 3:3:2 their balance sheet as at 31 st mar
2013 were as followes .
Liabilities Amount Assets Amoun
t
Sundry creditos 24000 Cash in Bank 37000
Gen. res. 36000 Sundry betors 44000
Capital a/c. Stock 12000
A 20000 Machinery 0
B 0 Building 15900
C 15000 500000 0
0 20000
15000 0
0

560000 56000
0
Partners Decided that W.E.F. 1 april 2013 they would share profits and losses in
st

4:3:2. It was agred that:-

1) Stock be valued at Rs. 110000
2) Machinery is to be depreciated by 10%
3) R.D.D created on debtors at 5%
4) Building is to be appreciated by 20%
5) A liability for Rs. 2500 inclueded in Creditors is not likely to arise
Partners agreed that the revised values are to be recorded in the books .
they do not how ever want to distribute the General Reserve. You are
required to prepare Revaluation A/c. and Revised Balance sheet.

( Hint :- Gen Res. Distributed in sacrifice and Gain Ratio & show bB/S
Genreal Res. As it is .) Revaluation profit 14400 B/S-571900 A-202900 B-
156900 C- 154600
Q/. 14 Anshu Anju And Anupam are partners in the ratio of 2:2:1 their
Balaance Sheet As at 31st march 2016 was.
Liabilities Amount Assets Amoun
t
Sundry creditos 65000 Land 20000
Gen. res. 48000 Building 0
Bills payable 7000 Plant 80000
Capital a/c. stock 16000
Anshu 24000 debtors 0
Anju 0 Cash in Bank 21000
Anupam 20000 600000 0
0 50000
16000 20000
0

720000 72000
0
Anshu Anju And Anupam decided to share p&L equally W.E.F. from 1 st april
2016 and for this purpose it was agreed that :-
A) The goodwill of the firm should be valued at Rs. 60000
 B) Land should be revalued at Rs. 300000 and building & plant should be
depreciated by 5% Stock be valued at Rs. 225000.
C) Creditors amounted to Rs .2000 were not likely to be paid
You r required to prepare
a) Pass journal entries to give effect to the above agreement.
b) Prepare capital A/c.
c) Prepare balance sheet after reconstitution .
Partners decided that General reserve is to be transferred to capital Account.
where as goodwill and revised values of assets and liabilities are not to be
recorded in the books .
Recorded not recorded
Gen res. Assets & liabilities & Goodwill
Goodwill of the firm = 84000
Revaluations profit = 21000
Net effect 105000.

Sacrifice Ratio = old ratio – new ratio

Anshu = 2/5 -1/3 = 6-5/15 = 1/15 * 165000 = 11000( sacrifice)

Anju= 2/5 - 1/3 = 6-5/15 = 1/15 * 165000 = 11000(Sarcrifce)
Anupam= 1/5 – 1/3 = 3-5/15= -2/15 * 165000 = -22000 (gain)

000
REVALUAION ACCOUNT.
Particulars Amount Particulars Amount
54000 by Rd.d. 2000
28000
3000
TO Revalauation profit 21000
A 42000
B 42000
C 21000

Year Adjustments in profit Weight Normal profit Total product

2013 40000 + 6000 1 46000 46000
2014 50000-4000 2 46000 92000
2015 60000 -5000 3 55000 165000

Total normal profit 6 303000

Weighted Avaerage profit total product / total weight = 303000 / 6 = 50500

Less insurance premium 400
Less Remunaration 6000
Adjusteed average profit 44100
Goodwill = Average profit * no. of years
44100 * 2 = 88200

REVALUAION ACCOUNT.
Particulars Amount Particulars Amount
30000 30000
30000 30000

Particulars Ram Mohan Ram mohan

To Revaluation loss 12000 9000 By bal B/d 40000 45000
To current a/c 31500 205000 By Hari Capitl 0 0
To Balacen C/d 0 254000 By Sohan Capitla 54000
12700 18000
0
45400 468000 45400 46800
0 0 0

Particulars Sohan Hari Sohan Hari

To Ram Capital A/c 54000 By bal B/d 25000 20000
To mohan Capital 18000. 0 0
To Revaluation loss 6000 3000 By current a/c
To balance C/d 38100 508000 15500 36500
0 0 0
40500 565000 40500 56500
0 0 0

Liabilities Amount Assets Amount

Capital A/c Fixed Asets 900000
Ram 12700 Current assets 52000
Mohan 0
Sohan 25400 Current a/c
Hari 0 127000 Sohan 15500
Current a/c 38100 0 Hari 0 520000
Ram 0 150000 36500
Mohan 50800 0
w/C Reserve 0 520000
new add
31500
0
20500
0
194000 194000
0 0

Sacrifice ratio = old ratio – new ratio

Ram = 4/10 - 1/10 = 3/10 ( sacrifice) = 180000 /10 *3 = 54000
Mohan = 3/10 – 2/10 = 1/10 =
18000
Sohan = 2/10 – 3/10 = -1/10 ( gain )
= - 18000
Hari = 1/10 - 4/10 = - 3/10 ( gain ) = -
54000

Adjustment of Capital As per NPSR

Hear total capital of the firm is now =( 442000 +459000 +226000 +143000)=
1270000
Adjust 12 70, 000 in Npsr
Ram’s share = 1270000 * 1/10= 127000
Mohan share = 1270000 * 2/10 = 254000
Sohan share = 1270000 * 3/10 = 381000
Hari share = 1270000 * 4/ 10 = 508000

Date Particulars Debit credit

1/4/201
8 Investment Fluctuations Res. A/c Dr… 20000
To Investment A/c 10000
To A Capital A/c 6000
To B Capital A/c 4000
( Being Investment fluctuation fund distributed )

sakshi Capital a/c dr . 4740

To Bhaway’s Capital a/c 4740

Being G/R and Goodiwll adjusted through Capital

a/c .

Sacrifice Ratio = New ratio - old ratio

Bhaway’s = 1 /2 - 3 /5 = 5 – 6 /10 = -1/10( Gain ) = 47400*1/10 = 4740
Sakshi = 1 /2 - 2 /5 = 5 – 4 /10 = 1 /10 ( sacrifice )

Net effect = total of

Generel Res. 23400
Goodwill 24000 = 47400

Sacrifice ratio = old – new ratio

Jai = 3/5 - 1/ 2 = 6 – 5 / 10 = 1/ 10 ( sacrifice )
Raj = 2/5 - 1 /2 = 4 – 5 /10 = - 1/10 ( gain ) = 75000 *1/10 = 7500
Q. Samrat & Bir are partners in the ratio of 3:2. On 31 st mar2020 their Capital Rs.
480000 and Rs 600000.
On 1st May – 2019 – Smarat Introduce Rs – 120000 Capital
On 1st oct – 2019 Bir introduce Rs - 300000 capital
On 1st May – 2019 Bir Withdrwon Capitla – Rs 60000.
On 1st Oct - 2019 Samrat Withdrawn Rs. – 240000.
Interest on Capital which is omitted in profit & loss account @ 6% p.a
Profit for the year 31st mar 2020 is Rs 240000.
Drawings of the Samrt – Rs 120000 and Rs. 60000 of BIr.

Pass necessary Aadjustment entry for the effct of past adjustment.

Table to find out opening capital

Particulars Samrat Bir
Closing Balance on 31/3/2020. 480000 600000
Add - Drawing 120000 60000.
Add – Withdrwn 240000 60000
Less –introduce new capital 120000 300000
Less -profit 144000 96000

Opening Capital 576000 324000

Samrat Int. on Capital

1- 576000 - 6% *1/12 2880
From 1 /4 to 1/5 1 month
(576000 +12000) 696000*6% * *5/100= 17400
From 1/ /5 to 1/10 5 months
-Less withdran 696000- 240000 = 456000 *6/12 *6% = 13680
From 1/10 to 31/3 2020 6 months
Total Interest on Capital of Samrat =
33960

Bir int on Capitla =

32400 *1/12*6/100 1620
324000 – 60000 = 264000 *6/100 * 5/12 6600
264000+300000=564000 *6/100*6/12
16920
Total interest = 25140

Formula’s for Goodwill methods.

1. Average Profit Method.
A] Average profit = Total profit – total loss / No. of Years.

B] Goodwill = Average profit * No. of years Purchased.

( Note: if Calculate Normal Profit -

 Adjusted Profit = -----
Add.
+ Abnormal loss ( loss by fire etc) -----
+ loss on sale of Fixed assets. - -----
+ non recurring Exp. -----
+ Capital Expenditures -----
( like machinery purchased Debited to Purchsed Account.)
Less
Abnormal Gains -----
Profit on sale of Fixed Assets ----
Partners Remunaration -----
Future Expenses ----
(like insurance premium)
Adjusted Normal profit. = ====
)

2. Weighted Average profit method.

A] eighted average profit = Total of products of profits / Total
weights
Year Profits Weights Products
( profit * weights)
1 30000 3 90000
2 20000 2 40000
3 10000 1 10000.
6 140000
average profit = Total of products of profits / Total weights
140000 / 6= 23333.33
Goodwill = Weighted Average profit * No. of years.

3. Super profit method.

1] average profit
2] Capital Employed =
Total Capital +Reserves + P&L - P&L - Fictitious Assets .

3] Normal Profit = Capital Employed * N.R.R. /100

4] Super Profit = Average Profit –Normal Profit

5] Goodwill = Super Profit * No. Of Years purchased.

4. Capitalisation of Average profit method.

 Capitalisized value of = Average Profit* 100 / Normal Rate (NRR)

Goodwill = Capital sized value of Average profit – Net assets

(net Assets = Assets – liabilities )

5. Capitalisation of Super profit method.

Goodwill = Super profit * 100 / NRR

Q. The following information related with the firm of Youraj and

Maharaj and Raghuraj
1.Profits for last 4 yer
2012 2013 2014 2015
250000 270000 (180000) 524000
2. remuneration to each paratners Rs 1000 P.M
3.Average Capital Emplyoedd in the business is Rs 800000
4. N.R.R. is 15%
5. Assets excluding Goodwill Rs 875000., liabilities 32000.
You are required to calculate value of Goodwill
1.at 2 years purchase of Averag profit
2. at 3 year purchase of super profit
3. on the basis on Capitalisation of Super profit
4. on the basis on Capitlisation of Avera age profit.
Ans - 1 . 360000 2. 80000 3. 400000 4. 357000.