RATIOS?

AngelDust

Hi all,

Can someone clearly explain how to calculate ratios?

I have an example:

Riva and Sam have been owners of a partnership business for many years, sharing profits and losses in the ratio 3:2, with Riva receiving the larger share.

On 1 Jan 20X7, the partnership agreement was changed so that Riva and Sam will share profits and losses in the ration 2:1, with Riva receiving the larger share.

Goodwill was valued at £72,000 at this date. No entries for goodwill have yet been made in the partnership accounting records.

What is the ratio split to show in the accounts?

Thanks in advance!

crispy

Hello,

I would first create goodwill in the old profit ratio:

Dr Goodwill 72,000
Cr Riva Capital 43,200 (3/5 72,000)
Cr Sam Capital 28,800 (2/5 72,000)

And then eliminate the goodwill in the new profit sharing ratio:

Dr Riva Capital 48,000 (72,000 2/3)
Dr Sam Capital 24,000 (72,000 1/3)
Cr Goodwill 72,000

Hope this is ok