A and B are partners sharing profits and losses in the ratio of 3:2 They agree to take C into - Accountancy - Reconstitution- Change in Existing Profit Sharing Ratio

Question

A and B are partners sharing profits and losses in the ratio of 3:2
They agree to take C into partnership for 1/3rd share For this
purpose goodwill is to be valued at 2 years purchase of average
profit of last 4 years Profit for year 2008 = 50000, 2009 = 120000,
2010 = 180000, 2011 = 70000 In this question what will be the value
C will have to pay to A and B (for their sacrifice) to become a
partner?

Monika Sharma · Accepted Answer

Tanya, here firstly we are required to ascertain the goodwill
amount and then multiply that goodwill amount with C's Share
Let's first of all calculate the goodwill amount
Goodwill = Average Profits × 2 Years' PurchaseAverage Profits = 50,000 + 1,20,000 + 1,80,000 + 70,0004 = Rs 1,05,000Goodwill =1,05,000 × 2 = Rs 2,10,000C's needs to bring 1/3 share of goodwillAccordingly he will bring Rs 70,000 as a premium for goodwill that A and B will share in their sacrificing ratio, i
e  3 : 2