Question

Abhay and Beena are partners in a firm. They admit Chetan as a partner with 1/4^th shares in the profits of the firm. Chetan brings Rs 2,00,000 as his share of capital. The value of the total assets of the firm is Rs. 5,40,000 and outside liabilities are valued at Rs. 1,00,000 on that date. Give the necessary entry to record goodwill at the time of Chetan's admission. Also, show your working notes.

Answer 1

Combined Capital of Abhay and Beena will be equal to the net worth of the business.

Net Worth = Sundry Assets - Outside Liabilities

= Rs 5,40,000 - Rs 1,00,000

= Rs 4,40,000

Hence, combined capital of Abhay and Beena is Rs 4,40,000.

Calculation of Hidden Goodwill:

	Amt (₹)	Amt (₹)
Based on Chetan's share, total capital of the new firm ought to be: Rs. 2,00,000 × `4/1`	=	8,00,000
Less: Net worth or Combined Capital of Abhay and Beena	4,40,000
Capital of Chetan	2,00,000	6,40,000
Value of Firm's Goodwill		160,000

Chetan's Share of Goodwill = Rs. 1,60,000 × 14 = Rs. 40,000.

Journal Entries
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
1.	Bank A/c                                                           Dr.		2,00,000
	To Chetan's Capital A/c			2,00,000
	(Being Chetan brought his share of capital)
2.	Chetan's Capital A/c                                       Dr.		40,000
	To Abhay's Capital A/c			20,000
	To Beena's Capital A/c			20,000
	(Being Chetan's Share of Goodwill distributed among old partners in their sacrificing ratio 1:1)