Question

X, Y and Z were partners in a firm sharing profits in the ratio of 4 : 3 : 1 . The firm closes its books on 31st March every year . On 1st February, 2018 , Y died and it was decided that the new profit-sharing ratio between X and Z will be equal. Partnership Deed provided for the following on the death of a partner :
(a) His share of goodwill be calculated on the basis of half of the profits credited to his account during the previous four completed years . The firm's profits for the last four years were:

Year	2013-14	2014-15	2015-16	2016-17
Profit(₹)	1,50,000	1,00,000	50,000	1,00,000

(b) His share of profit in the year of his death was to be computed on the basis of average profit of past two years .
Pass necessary journal entries realting to goodwill and profit to be transferred to Y's Capital Account.

Answer 1

Journal
Date 2018	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
Feb 1	Z’s Capital A/c	Dr.		75,000
	To Y’s Capital A/c				75,000
	(Adjustment of Y’s share of Goodwill )
Feb 1	Z’s Capital A/c	Dr.		23,438
	To Y’s Capital A/c				23,438
	(Adjustment of Y’s share of Profit)

Working Notes:

WN1: Calculation of Gaining Ratio

$\begin{array}{l}\text{X :Y :Z}=4\text{:3:1}\left(\text{Old ratio}\right)\\ \text{X :Z=1:1(New ratio)}\\ \text{Gaining Ratio = New Ratio - Old Ratio}\\ \text{X's Gain=}\frac{1}{2}-\frac{4}{8}=\frac{4-4}{8}=0\\ \text{Z's Gain=}\frac{1}{2}-\frac{1}{8}=\frac{4-1}{8}=\frac{3}{8}\\ \text{X:Z}=0:3\end{array}$

WN2: Calculation of Retiring Partner’s Share of Goodwill
$\begin{array}{l}\text{Y's share of goodwill=4,00,000}\times \frac{3}{8}\times \frac{1}{2}=\text{Rs 75,000}\\ \text{Y's share of goodwill will be brought by Z only.}\end{array}$

WN3: Calculation of Retiring Partner’s Share of Profit

$\begin{array}{l}\text{Y's share of profit}=75,\text{000}\times \frac{3}{8}\times \frac{10}{12}=\text{Rs 23,438}\\ \text{Average profit for last two years}=\text{Rs 75,000}\end{array}$