A, B and C are partner sharing profits and losses in the ratio of 5 : 4 : 1. It was decided that with effect from 1st April, 2016 the profit sharing ratio will be 9 : 6 : 5. Goodwill is to be valued at 2 year's purchase of average of 3 year's profits. The profits of 2013-14, 2014-15 and 2015 -16 were Rs. 48,000, Rs. 42,000 and Rs. 60,000 respectively.
Pass the necessary journal entry for the treatment of goodwill.

Explanation

Average Profits = Rs. `(48,000 + 42,000 + 60,000)/(3)=` Rs. 50,000
Value of Goodwill at 2 year's purchase = Rs. 50,000 `xx` 2 = Rs. 1,00,000
Old Ratio A, B and C = 5 : 4 : 1
New Ratio of A, B and C = 9 : 6 : 5
Sacrifice or Gain :
`A=(5)/(10)-(9)/(20)=(10-9)/(20)=(1)/(20)`(Sacrifice)
`B=(4)/(10)-(6)/(20)=(8-6)/(20)=(2)/(20)`(Sacrifice)
`C=(1)/(10)-(5)/(20)=(2-5)/(20)=(3)/(20)`(Gain)
Since A has sacrificed, he will be credited by `(1)/(20)` of Rs. 1,00,000 = Rs. 5,000
Since B has sacrificed, he will be credited by `(2)/(20)` of Rs. 1,00,000 = Rs. 10,000
Since C has gained, he will be debited by `(3)/(20)` of Rs. 1,00,000 = Rs. 15,000