Charu and Disnesh have been sharing profits in the ratio of 3 : 1. The net profits for the past four years have been Rs. 60,000, Rs. 50,000, Rs. 90,000 and Rs. 1,20,000 respectively. It is now agreed that in future Dinesh is to have 2/5th share in profits and for that purpose goodwill is to be valued on the basis of `2 (1)/(2)` year's purchase of average profits of the past four years. Give journal entry for the treatment of goodwill.

Explanation

Debit Dinesh by Rs. 30,000 and Credit Charu by Rs. 30,000.