Question

X and Y shared profit and losses in the ratio of $3:2$ . With effect from 1st April, 2018 they agreed to share profits equally. The goodwill of the firm was valued at Rs. $60,000$ . The necessary single adjustment entry will be :

Answer 1

New profit sharing ratio is 1/2:1/2.

Share of Goodwill as per old ratio

X = Rs.60000 *3 = Rs.36000

5

Y = Rs.60000 *2 = Rs.24000

5

As per new ratio, Share of Goodwill will be Rs.30000 to X and Rs.30000 to Y. Hence an adjustment entry need to be passed for adjustment of Goodwill for Rs.6000.

X A/c Dr. 6000

To Y A/c 6000

(Being different of goodwill as per old ratio and new ratio is adjusted)