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 executor on account of good will. Good will is to be calculated on the basis of $2$ years purchase of last $3$ years average profits. Profits for last three years are : $Rs.3,29,000$; $Rs.3,46,000$ and $Rs.4,05,000$.

• A. $Rs.2,16,000$ & $Rs.1,42,000$
• B. $Rs.2,44,000$ & $Rs.2,16,000$
• C. $Rs.3,60,000$ & $Rs.3,60,000$
• D. $Rs.2,16,000$ & $Rs.1,44,000$

Answer 1

Answer: (D)

$Rs.2,16,000$ & $Rs.1,44,000$

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

A's share = 5/10

A's share of goodwill = Total goodwill * A's share

= 720000 * (5/10)

= 360000 (W.N 1 & 2)

B and C will contribute to A's share of goodwill in their new profit sharing ratio i.e., 3 : 2

B's ccontributio = 360000 * (3/5) = 216000

C's contribution = 360000 * (2/5) = 144000

WORKING NOTES:

1. Clculation of average profit

= (329000 + 346000 + 405000 ) / 3

= 1080000 / 3 = 360000

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

= 360000 * 2

= 720000