Question

$X$ and $Y$ shared profits and losses in the ratio of $3:2$ with effect from $1^{st}$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 :

• A. Dr. $Y$ and Cr. $X$ with $Rs.6,000$.
• B. Dr. $X$ and Cr. $Y$ with $Rs.6,000$.
• C. Dr. $X$ and Cr. with $Rs.600$.
• D. Dr. $Y$ and Cr. $X$ with $Rs.600$.

Answer 1

The correct option is A Dr. $Y$ and Cr. $X$ with $Rs.6,000$.

Old ratio (X and Y) = 3 : 2

New ratio (X and Y) = 1 : 1

Gaining ratio = New ratio - Old ratio

X's gain = (1/2) - (3/5) = -1/10 (sacrifice)

Y's gain = (1/2) - (2/5) = 1/10

Total goodwill of the firm = Rs. 60000

Amount of goodwill will be compensated by gaining partner to sacrificing partner in their gaining and sacrificing ratio. Therefore, necessary single adjustment entry will be:

Y's capital A/c Dr. 6000

To X's capital A/c 6000