Question

If three partners A, B & C are sharing profits as $5:3:2$, then on the death of a partner A, how much B & C will pay to A's execute on account of goodwill if Goodwill is to be calculated from $2$ years purchase of the last three years average profits. Profits for three years are: $Rs.6,58,000$; $Rs.6,92,000$ and $Rs.8,10,000$.

• A. $Rs.4,32,000$ & $Rs.2,84,000$
• B. $Rs.4,88,000$ & $Rs.4,32,000$
• C. $Rs.7,20,000$ & $Rs.7,20,000$
• D. $Rs.4,32,000$ & $Rs.2,88,000$

Answer 1

Answer: (D)

$Rs.4,32,000$ & $Rs.2,88,000$

Profit sharing ratio of A, B and C is 5 : 3 : 2

A's share of goodwill = (5/10) * 1440000 = 720000 (working note)

Contribution for A's share of goodwill by:-

B = 720000 * (3/15) = 432000 (Note)

C = 720000 * (2/5) = 288000 (Note)

Working note:-

Calculation of goodwill :-

1. Average profit = (658000 + 692000 + 810000) / 3

= 2160000/3

= 720000

2. Goodwill = Average profit * No. of year's purchase

= 720000 * 2

= 1440000

Note : In the absence of information gaining ratio and new ratio will be same as old ratio.