Question

Abey, Neha, and Anil are partners, who share profits and losses in 5:3:2 ratio. The following information is extracted from the books of accounts on 31.03.06.

On the above date Anil decided to retire from the firm as agreed upon. Fixed assets to be revalued at Rs. 86,000. Average profit calculated based on the past 5 year was Rs 15,000. Ascertain the amount due to the retiring partner.

Answer 1

Profit and Loss Appropriation A/c

Anil’s Capital A/c

Working Note 

Here, Goodwill is caculated on the basis of capitalization of Average profit method. 

∴ Goodwill = Total value of business – Net tangible Asset. 

Total value = \(Average\, profit \times \frac{100}{Normal \, rate\,of\, return/cost\,of capital}\)

= \(15,000 \times \frac{100}{10} = 1,50,000\)

Net tangible asset = fixed asset + current asset

 = 86,000 + 24,000 = 1,10,000

Goodwill = 1,50,000 - 1,10,000 = 40,000

Anil’s share of goodwill = 40,000 × 2/10 = 8,000 

Anil’s share of goodwill adjusted through capital accounts in the gaining ratio. 

Old ratio = 5:3:2 

New ratio = 5:3 

Gaining ration = 5 : 3 

Abey’s share = 8,000 × 5/8 = 5,000 

Neha’s share = 8,000 × 3/8 = 3,000 

Journal entry: