Charu and Dinesh have been sharing profits in the ratio of 3 : 1. The net profits for the past four years have been ₹ 60,000; ₹ 50,000; ₹ 90,000 and ₹ 1,20,000 respectively

Charu and Dinesh have been sharing profits in the ratio of 3 : 1. The net profits for the past four years have been ₹ 60,000; ₹ 50,000; ₹ 90,000 and ₹ 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 and 1/2 year’s purchase of average profits of the past four years. Give journal entry for the treatment of goodwill.

[Ans. Debit Dinesh by ₹ 30,000 and Credit Charu by ₹ 30,000.]