| Year | 2018 | 2019 | 2020 | 2021 | 2022 |
| Profits (Rs.) | 70,000 | 75,000 | 55,000 | 35,000 | 10,000 (Loss) |
You are required to calculate goodwill and pass journal entry.
SOLUTION
X, Y and Z are partners sharing profits and losses in the ratio of 5: 3: 2. From 1st April, 2022, they decided to share profits and losses equally. The Partnership Deed provides that in the event of any change in the profit-sharing ratio, the goodwill should be valued at two years’ purchase of the average profit of the preceding five years. The profits and losses of the preceding years ended 31st March, are: