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A,B and C are partners Sharing profits in the ratio of 5:3:2. C retairs and A and B agree to share future profits in the ratio of 6:4 goodwill is to be taken at last two years which purchase of the average profits of the last 5 years which were rs 10000,rs 25000,rs 15000,36000 and rs 44000 respectively . Pass necessary journal entry?
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A,B and C are partners Sharing profits in the ratio of 5:3:2. C retair...
Journal Entry for Goodwill
The given problem involves the retirement of partner C and the subsequent adjustment of the partnership agreement between partners A and B. In this adjustment, the partners agree to share future profits in a new ratio of 6:4. Additionally, the goodwill of the partnership needs to be calculated based on the average profits of the last 5 years.
To record the necessary journal entry for the calculation and adjustment of goodwill, the following steps need to be taken:
Step 1: Calculation of Average Profits
- Calculate the average profit by summing up the profits of the last 5 years and dividing it by 5.
- Average profit = (10000 + 25000 + 15000 + 36000 + 44000) / 5
- Average profit = 30000
Step 2: Calculation of Goodwill
- Goodwill is calculated by multiplying the average profit by the number of years of purchase.
- In this case, the last two years' profits are considered for the purchase of goodwill.
- Goodwill = Average profit * Number of years
- Goodwill = 30000 * 2
- Goodwill = 60000
Step 3: Journal Entry
- The journal entry is made to record the retirement of partner C and the calculation of goodwill.
- Partner C's capital account is closed by transferring the balance to the remaining partners' capital accounts in their profit sharing ratio.
- The remaining partners' capital accounts are adjusted by adding their share of goodwill to their respective capital balances.
- The journal entry will be as follows:
| Account | Debit | Credit |
|---------------------------|-----------|-----------|
| Partner C's Capital A/c | | |
| - Share of Goodwill | | 60000 |
| - Partner C's Capital A/c | 60000 | |
| Partner A's Capital A/c | | |
| - Partner C's Capital A/c | 40000 | |
| - Share of Goodwill | 10000 | |
| Partner B's Capital A/c | | |
| - Partner C's Capital A/c | 20000 | |
| - Share of Goodwill | 40000 | |
Explanation
- The first line of the journal entry closes partner C's capital account by transferring the balance to the remaining partners' capital accounts.
- The second line adds partner C's share of goodwill (60000) to partner A's capital account.
- The third line adds partner C's share of goodwill (40000) to partner B's capital account.
Summary
In summary, the necessary journal entry for the calculation and adjustment of goodwill involves closing partner C's capital account, transferring the balance to the remaining partners' capital accounts, and adding their respective shares of goodwill. The journal entry ensures that the partnership's financial records accurately reflect the retirement of partner C and the revised profit sharing ratio between partners A and B.
The given problem involves the retirement of partner C and the subsequent adjustment of the partnership agreement between partners A and B. In this adjustment, the partners agree to share future profits in a new ratio of 6:4. Additionally, the goodwill of the partnership needs to be calculated based on the average profits of the last 5 years.
To record the necessary journal entry for the calculation and adjustment of goodwill, the following steps need to be taken:
Step 1: Calculation of Average Profits
- Calculate the average profit by summing up the profits of the last 5 years and dividing it by 5.
- Average profit = (10000 + 25000 + 15000 + 36000 + 44000) / 5
- Average profit = 30000
Step 2: Calculation of Goodwill
- Goodwill is calculated by multiplying the average profit by the number of years of purchase.
- In this case, the last two years' profits are considered for the purchase of goodwill.
- Goodwill = Average profit * Number of years
- Goodwill = 30000 * 2
- Goodwill = 60000
Step 3: Journal Entry
- The journal entry is made to record the retirement of partner C and the calculation of goodwill.
- Partner C's capital account is closed by transferring the balance to the remaining partners' capital accounts in their profit sharing ratio.
- The remaining partners' capital accounts are adjusted by adding their share of goodwill to their respective capital balances.
- The journal entry will be as follows:
| Account | Debit | Credit |
|---------------------------|-----------|-----------|
| Partner C's Capital A/c | | |
| - Share of Goodwill | | 60000 |
| - Partner C's Capital A/c | 60000 | |
| Partner A's Capital A/c | | |
| - Partner C's Capital A/c | 40000 | |
| - Share of Goodwill | 10000 | |
| Partner B's Capital A/c | | |
| - Partner C's Capital A/c | 20000 | |
| - Share of Goodwill | 40000 | |
Explanation
- The first line of the journal entry closes partner C's capital account by transferring the balance to the remaining partners' capital accounts.
- The second line adds partner C's share of goodwill (60000) to partner A's capital account.
- The third line adds partner C's share of goodwill (40000) to partner B's capital account.
Summary
In summary, the necessary journal entry for the calculation and adjustment of goodwill involves closing partner C's capital account, transferring the balance to the remaining partners' capital accounts, and adding their respective shares of goodwill. The journal entry ensures that the partnership's financial records accurately reflect the retirement of partner C and the revised profit sharing ratio between partners A and B.
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A,B and C are partners Sharing profits in the ratio of 5:3:2. C retairs and A and B agree to share future profits in the ratio of 6:4 goodwill is to be taken at last two years which purchase of the average profits of the last 5 years which were rs 10000,rs 25000,rs 15000,36000 and rs 44000 respectively . Pass necessary journal entry?
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A,B and C are partners Sharing profits in the ratio of 5:3:2. C retairs and A and B agree to share future profits in the ratio of 6:4 goodwill is to be taken at last two years which purchase of the average profits of the last 5 years which were rs 10000,rs 25000,rs 15000,36000 and rs 44000 respectively . Pass necessary journal entry? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about A,B and C are partners Sharing profits in the ratio of 5:3:2. C retairs and A and B agree to share future profits in the ratio of 6:4 goodwill is to be taken at last two years which purchase of the average profits of the last 5 years which were rs 10000,rs 25000,rs 15000,36000 and rs 44000 respectively . Pass necessary journal entry? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A,B and C are partners Sharing profits in the ratio of 5:3:2. C retairs and A and B agree to share future profits in the ratio of 6:4 goodwill is to be taken at last two years which purchase of the average profits of the last 5 years which were rs 10000,rs 25000,rs 15000,36000 and rs 44000 respectively . Pass necessary journal entry?.
A,B and C are partners Sharing profits in the ratio of 5:3:2. C retairs and A and B agree to share future profits in the ratio of 6:4 goodwill is to be taken at last two years which purchase of the average profits of the last 5 years which were rs 10000,rs 25000,rs 15000,36000 and rs 44000 respectively . Pass necessary journal entry? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about A,B and C are partners Sharing profits in the ratio of 5:3:2. C retairs and A and B agree to share future profits in the ratio of 6:4 goodwill is to be taken at last two years which purchase of the average profits of the last 5 years which were rs 10000,rs 25000,rs 15000,36000 and rs 44000 respectively . Pass necessary journal entry? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A,B and C are partners Sharing profits in the ratio of 5:3:2. C retairs and A and B agree to share future profits in the ratio of 6:4 goodwill is to be taken at last two years which purchase of the average profits of the last 5 years which were rs 10000,rs 25000,rs 15000,36000 and rs 44000 respectively . Pass necessary journal entry?.
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A,B and C are partners Sharing profits in the ratio of 5:3:2. C retairs and A and B agree to share future profits in the ratio of 6:4 goodwill is to be taken at last two years which purchase of the average profits of the last 5 years which were rs 10000,rs 25000,rs 15000,36000 and rs 44000 respectively . Pass necessary journal entry?, a detailed solution for A,B and C are partners Sharing profits in the ratio of 5:3:2. C retairs and A and B agree to share future profits in the ratio of 6:4 goodwill is to be taken at last two years which purchase of the average profits of the last 5 years which were rs 10000,rs 25000,rs 15000,36000 and rs 44000 respectively . Pass necessary journal entry? has been provided alongside types of A,B and C are partners Sharing profits in the ratio of 5:3:2. C retairs and A and B agree to share future profits in the ratio of 6:4 goodwill is to be taken at last two years which purchase of the average profits of the last 5 years which were rs 10000,rs 25000,rs 15000,36000 and rs 44000 respectively . Pass necessary journal entry? theory, EduRev gives you an
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