Question

P, Q and R partiners sharing profits and losses in the ratio 3:2:1. The Balance sheet as on 31^st December 2003 is given below:

On 31^st March 2004, Q decided to retire from the business due to ill-health subject to the following conditions. 

1. That the goodwill should be valued at two year’s. purchase of the average profits of the preceding three years. The profits for the three preceding years were, 2001 – Rs. 9,000, 2000 – Rs. 15,000 and 2003-Rs. 12,000. 

2. The profits for the three months ending 31^st March, 2004 be estimated on the basis of the profits for the year 2003. 

3. That the motor car is to be given to Q, at a value of Rs. 16,000 and the balance due to him is to be paid immediately in cash by bringing the required amount by P and R in their profit sharing ratio which is 3: 1.

Answer 1

Revaluation a/c

Q's Capital a/c

R's Capital a/c

Cash a/c

Calculation of Goodwill

Average profit of 3 years = \(\frac{9,000+15,0000+12,000}{3}\) = 12,000 

Total goodwill = 12,000 × 2 = Rs. 24,000 

Q’s share = 24,000 × 2/6 = Rs. 8,000 

Q’s share of profit = 12,000 × 3/12 × 1/3 = 1,000 

Balance Sheet as on 31^st March 2004