Kabir and Farid are partners in a firm sharing profits in the ratio of 3:1 on 1-4-2019 they admitted Manik into partnership for 1/4th share in the profits of the firm. Manik brought his share of goodwill premium in cash.
Goodwill of the firm was valued on the basis of 2 years purchase of last three years average profits. The profits of last three years were:
2016-17 Rs. 90,000
2017-18 Rs. 1,30,000
2018-19 Rs. 86,000
During the year 2018-19 there was a loss of Rs. 20,000 due to fire which was not accounted for while calculating the profit.
Calculate the value of goodwill and pass the necessary journal entries for the treatment of goodwill.