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 brings Rs. 6,00,000 as his capital and his share of goodwill in cash. Goodwill of the firm is to be valued at two years’ purchase of average profits of the last four years.
The profits of the firm during the last four years are given below:
Year Profit (Rs. )
2013 – 14 3,50,000
2014 – 15 4,75,000
2015 – 16 6,70,000
2016 – 17 7,45,000
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 31.3.2017 was overvalued by Rs. 15,000.
Pass necessary journal entries on Raghav’s admission showing the working notes clearly.