Asha and Aditi are partners in a firm sharing profits and losses in the ratio of 3 : 2 They admit Raghav as a partner for 1/4th share in the profits of the firm. Raghav bring RS. 6,00,000 as his capital and his share of goodwill in cash. Goodwill of the firm is to The profits of the firm is to The profit of the firm during the last four years are given below:

The following additional information is given:
(i) To cover management cost an annual charge of RS. 56,250 should be made for the purpose of valuation of goodwill.
(ii) The closing stock for the year ended 31st March, 2017 was overvalued by RS.15,000.
Pass necessary Journal entries on Raghav's admission showing the working notes clearly.

Explanation

1. Calculation of Adjusted Profit and Valuation of Goodwill:
Average Profit `(RS.2,93,750+RS.4,18,750+RS.6,13,750+RS.6,73,750)/(4)=RS.5,00,000`
Value of Firm's Goodwill = Average Profitxx No. of year's purchase
`RS.5,00,000xx2=RS.10,00,000`
2. Raghav's share of goodwill `=RS.10,00,000xx1//4=RS.2,50,000`
3. Unless agreed otherwise, sacrificing ratio of old partners will be the same as their old profit-sharing ratio.