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Gulab and Khushbu were partners in a firm sharing profits in the ratio of 3:2. From 1st April, 2014, Kanta joined as a partner for ⅕ share and they decided to share future profits in the ratio 5:3:2. For this purpose, the goodwill of the firm was valued at ₹2,50,000. Pass necessary journal entry for the treatment of goodwill on change in the profit sharing ratio of Gulab, Khushbu and Kanta.?
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Gulab and Khushbu were partners in a firm sharing profits in the ratio...
Journal Entry for the Treatment of Goodwill on Change in Profit Sharing Ratio:
When there is a change in the profit sharing ratio of partners, it is necessary to account for the goodwill of the firm. Goodwill represents the reputation, customer base, and other intangible assets of the firm. In this case, Gulab, Khushbu, and Kanta have decided to change their profit sharing ratio, and therefore, the goodwill needs to be adjusted in the books of accounts. The following journal entry is required for the treatment of goodwill:
Step 1: Valuation of Goodwill:
The goodwill of the firm is valued at ₹2,50,000. This value represents the premium paid by the new partner, Kanta, to acquire a share in the firm's profits. This premium is based on the firm's reputation and the potential for future earnings.
The journal entry for the valuation of goodwill is as follows:
Goodwill A/C Dr. ₹2,50,000
To Gulab's Capital A/C ₹1,50,000
To Khushbu's Capital A/C ₹1,00,000
Explanation: The goodwill account is debited with the valuation amount of ₹2,50,000. To maintain the accounting equation, the capital accounts of Gulab and Khushbu are credited with their respective shares in the goodwill. Gulab's capital account is credited with ₹1,50,000 (₹2,50,000 x 3/5) and Khushbu's capital account is credited with ₹1,00,000 (₹2,50,000 x 2/5).
Step 2: Adjustment of Goodwill:
The next step is to distribute the goodwill among the partners in the new profit sharing ratio. The partners' capital accounts are adjusted based on their new profit sharing ratio.
The journal entry for adjusting the goodwill is as follows:
Gulab's Capital A/C Dr. ₹1,00,000
Khushbu's Capital A/C Dr. ₹1,00,000
Kanta's Capital A/C Dr. ₹50,000
To Goodwill A/C ₹2,50,000
Explanation: Gulab's capital account is debited with ₹1,00,000 (₹2,50,000 x 5/10) and Khushbu's capital account is debited with ₹1,00,000 (₹2,50,000 x 3/10) to adjust their share of the goodwill. Similarly, Kanta's capital account is debited with ₹50,000 (₹2,50,000 x 2/10) to adjust her share of the goodwill. The goodwill account is credited with the total amount of ₹2,50,000.
Conclusion:
By following the above journal entries, the treatment of goodwill on the change in the profit sharing ratio of Gulab, Khushbu, and Kanta is recorded in the books of accounts. This ensures that the goodwill is appropriately valued and distributed among the partners based on their new profit sharing ratio.
When there is a change in the profit sharing ratio of partners, it is necessary to account for the goodwill of the firm. Goodwill represents the reputation, customer base, and other intangible assets of the firm. In this case, Gulab, Khushbu, and Kanta have decided to change their profit sharing ratio, and therefore, the goodwill needs to be adjusted in the books of accounts. The following journal entry is required for the treatment of goodwill:
Step 1: Valuation of Goodwill:
The goodwill of the firm is valued at ₹2,50,000. This value represents the premium paid by the new partner, Kanta, to acquire a share in the firm's profits. This premium is based on the firm's reputation and the potential for future earnings.
The journal entry for the valuation of goodwill is as follows:
Goodwill A/C Dr. ₹2,50,000
To Gulab's Capital A/C ₹1,50,000
To Khushbu's Capital A/C ₹1,00,000
Explanation: The goodwill account is debited with the valuation amount of ₹2,50,000. To maintain the accounting equation, the capital accounts of Gulab and Khushbu are credited with their respective shares in the goodwill. Gulab's capital account is credited with ₹1,50,000 (₹2,50,000 x 3/5) and Khushbu's capital account is credited with ₹1,00,000 (₹2,50,000 x 2/5).
Step 2: Adjustment of Goodwill:
The next step is to distribute the goodwill among the partners in the new profit sharing ratio. The partners' capital accounts are adjusted based on their new profit sharing ratio.
The journal entry for adjusting the goodwill is as follows:
Gulab's Capital A/C Dr. ₹1,00,000
Khushbu's Capital A/C Dr. ₹1,00,000
Kanta's Capital A/C Dr. ₹50,000
To Goodwill A/C ₹2,50,000
Explanation: Gulab's capital account is debited with ₹1,00,000 (₹2,50,000 x 5/10) and Khushbu's capital account is debited with ₹1,00,000 (₹2,50,000 x 3/10) to adjust their share of the goodwill. Similarly, Kanta's capital account is debited with ₹50,000 (₹2,50,000 x 2/10) to adjust her share of the goodwill. The goodwill account is credited with the total amount of ₹2,50,000.
Conclusion:
By following the above journal entries, the treatment of goodwill on the change in the profit sharing ratio of Gulab, Khushbu, and Kanta is recorded in the books of accounts. This ensures that the goodwill is appropriately valued and distributed among the partners based on their new profit sharing ratio.
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Gulab and Khushbu were partners in a firm sharing profits in the ratio of 3:2. From 1st April, 2014, Kanta joined as a partner for ⅕ share and they decided to share future profits in the ratio 5:3:2. For this purpose, the goodwill of the firm was valued at ₹2,50,000. Pass necessary journal entry for the treatment of goodwill on change in the profit sharing ratio of Gulab, Khushbu and Kanta.?
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Gulab and Khushbu were partners in a firm sharing profits in the ratio of 3:2. From 1st April, 2014, Kanta joined as a partner for ⅕ share and they decided to share future profits in the ratio 5:3:2. For this purpose, the goodwill of the firm was valued at ₹2,50,000. Pass necessary journal entry for the treatment of goodwill on change in the profit sharing ratio of Gulab, Khushbu and Kanta.? for Class 12 2024 is part of Class 12 preparation. The Question and answers have been prepared according to the Class 12 exam syllabus. Information about Gulab and Khushbu were partners in a firm sharing profits in the ratio of 3:2. From 1st April, 2014, Kanta joined as a partner for ⅕ share and they decided to share future profits in the ratio 5:3:2. For this purpose, the goodwill of the firm was valued at ₹2,50,000. Pass necessary journal entry for the treatment of goodwill on change in the profit sharing ratio of Gulab, Khushbu and Kanta.? covers all topics & solutions for Class 12 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Gulab and Khushbu were partners in a firm sharing profits in the ratio of 3:2. From 1st April, 2014, Kanta joined as a partner for ⅕ share and they decided to share future profits in the ratio 5:3:2. For this purpose, the goodwill of the firm was valued at ₹2,50,000. Pass necessary journal entry for the treatment of goodwill on change in the profit sharing ratio of Gulab, Khushbu and Kanta.?.
Gulab and Khushbu were partners in a firm sharing profits in the ratio of 3:2. From 1st April, 2014, Kanta joined as a partner for ⅕ share and they decided to share future profits in the ratio 5:3:2. For this purpose, the goodwill of the firm was valued at ₹2,50,000. Pass necessary journal entry for the treatment of goodwill on change in the profit sharing ratio of Gulab, Khushbu and Kanta.? for Class 12 2024 is part of Class 12 preparation. The Question and answers have been prepared according to the Class 12 exam syllabus. Information about Gulab and Khushbu were partners in a firm sharing profits in the ratio of 3:2. From 1st April, 2014, Kanta joined as a partner for ⅕ share and they decided to share future profits in the ratio 5:3:2. For this purpose, the goodwill of the firm was valued at ₹2,50,000. Pass necessary journal entry for the treatment of goodwill on change in the profit sharing ratio of Gulab, Khushbu and Kanta.? covers all topics & solutions for Class 12 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Gulab and Khushbu were partners in a firm sharing profits in the ratio of 3:2. From 1st April, 2014, Kanta joined as a partner for ⅕ share and they decided to share future profits in the ratio 5:3:2. For this purpose, the goodwill of the firm was valued at ₹2,50,000. Pass necessary journal entry for the treatment of goodwill on change in the profit sharing ratio of Gulab, Khushbu and Kanta.?.
Solutions for Gulab and Khushbu were partners in a firm sharing profits in the ratio of 3:2. From 1st April, 2014, Kanta joined as a partner for ⅕ share and they decided to share future profits in the ratio 5:3:2. For this purpose, the goodwill of the firm was valued at ₹2,50,000. Pass necessary journal entry for the treatment of goodwill on change in the profit sharing ratio of Gulab, Khushbu and Kanta.? in English & in Hindi are available as part of our courses for Class 12.
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Gulab and Khushbu were partners in a firm sharing profits in the ratio of 3:2. From 1st April, 2014, Kanta joined as a partner for ⅕ share and they decided to share future profits in the ratio 5:3:2. For this purpose, the goodwill of the firm was valued at ₹2,50,000. Pass necessary journal entry for the treatment of goodwill on change in the profit sharing ratio of Gulab, Khushbu and Kanta.?, a detailed solution for Gulab and Khushbu were partners in a firm sharing profits in the ratio of 3:2. From 1st April, 2014, Kanta joined as a partner for ⅕ share and they decided to share future profits in the ratio 5:3:2. For this purpose, the goodwill of the firm was valued at ₹2,50,000. Pass necessary journal entry for the treatment of goodwill on change in the profit sharing ratio of Gulab, Khushbu and Kanta.? has been provided alongside types of Gulab and Khushbu were partners in a firm sharing profits in the ratio of 3:2. From 1st April, 2014, Kanta joined as a partner for ⅕ share and they decided to share future profits in the ratio 5:3:2. For this purpose, the goodwill of the firm was valued at ₹2,50,000. Pass necessary journal entry for the treatment of goodwill on change in the profit sharing ratio of Gulab, Khushbu and Kanta.? theory, EduRev gives you an
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