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P, R and S are in partnership sharing profits 4/8, 3/8 and 1/8 respectively. It is provided in the Partnership Deed that on the death of any partner his share of goodwill is to be valued at one-half of the net profit credited to his account during the last four completed years. R died on 1st January, 2012. The firm’s profits for the last four years were as: 2008 – Rs.1,20,000; 2009 – Rs.80,000; 2010 – Rs.40,000; 2011 – Rs.80,000. a. Determine the amount that should be credited to R in respect of his share of Goodwill. b. Pass Journal entry without raising Goodwill Account for its adjustment.

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Best answer

a. Calculation of R's share of goodwill

(b)

This share of goodwill is to be distributed p and s in their gaining ratio (i.e. 4:1)

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