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Journal Entries: (A) When the Amount of Goodwill is Retained in the Business. (B) When the Amount of Goodwill is Fully Withdrawn.

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प्रश्न

Verma and Sharma are partners in a firm sharing profits and losses in the ratio of 5 : 3. They admitted Ghosh as a new partner for 1/5th share of profits. Ghosh is to bring in ₹ 20,000 as capital and ₹ 4,000 as his share of goodwill premium. Give the necessary Journal entries:
(a) When the amount of goodwill is retained in the business.
(b) When the amount of goodwill is fully withdrawn.
(c) When 50% of the amount of goodwill is withdrawn.
(d) When goodwill is paid privately.

रोजनामा प्रविष्टि
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उत्तर

Journal Entries

S.No.

Particulars

L.F.

Debit Amount Rs

Credit Amount Rs

Case (a)

       
 

Cash A/c

Dr.

 

24,000

 
 

To Ghosh's Capital A/c

     

20,000

 

To Premium for Goodwill A/c

     

4,000

 

(Capital and Goodwill his share broughtby Ghosh)

       
           
 

Premium for Godwill A/c

Dr.

 

4,000

 
 

To Verma's Capital A/c

     

2,500

 

To Sharma's Capital A/c

     

1,500

 

(Goodwill brought by Ghosh credited to Old Partnersin Sacrificing ratio)

     
         
Case (b)

Cash A/c

Dr.

 

24,000

 
 

To Ghosh Capital A/c

     

20,000

 

To Premium for Goodwill A/c

     

4,000

 

(Capital and Goodwill brought by Ghosh for (1/5)share of profit)

       
         
 

Premium for Goodwill A/c

Dr.

 

4,000

 
 

To Verma's Capital A/c

     

2,500

 

To Sharma's Capital A/c

     

1,500

 

(Goodwill brought by Ghosh credited in Old Partner in Sacrificing Ratio)

     
         
 

Verma's Capital A/c

Dr.

 

2,500

 
 

Sharma's Capital A/c

Dr.

 

1,500

 
 

To Cash A/c

     

4,000

 

(Amount of Premium for Goodwill withdrawn byOld Partners)

     
         
Case (c)

Cash A/c

Dr.

 

24,000

 
 

To Ghosh's Capital A/c

     

20,000

 

To Premium for Goodwill A/c

     

4,000

  (Capital and Goodwill brought by Ghosh for (1/5)share of profit)        
         
 

Premium for Goodwill A/c

Dr.

 

4,000

 
 

To Verma's Capital A/c

     

2,500

 

To Sharma's Capital A/c

     

1,500

 

(Premium for Goodwill credited to Old Partner's Capital Account in sacrificing ratio)

     
         
 

Verma's Capital A/c

Dr.

 

1,250

 
 

Sharma's Capital A/c

   

750

 
 

To Cash A/c

     

2,000

 

(Half of the amount of premium for goodwill withdrawn by Old partners)

     
         
Case (d) No entry: Goodwill was not brought into firm      
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अध्याय 4: Admission of a Partner - Exercises [पृष्ठ ९१]

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टीएस ग्रेवाल Accountancy Double Entry Book Keeping Volume 1 and 2 [English] Class 12
अध्याय 4 Admission of a Partner
Exercises | Q 47 | पृष्ठ ९१

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संबंधित प्रश्न

Vikas, Vishal and Vaibhav were partners in a firm sharing profits in the ratio of 2:2:1. The firm closes its books 31st March every year. On 31-12-2015 Vaibhav died. On that date his Capital account showed a credit balance of Rs. 3, 80,000 and Goodwill of the firm was valued at 1, 20,000. There was a debit balance of Rs. 50,000 in the profit and loss account. Vaibhav's share of profit in the year of his death was to be calculated on the basis of the average profit of last five years. The average profit of last five years was Rs. 75,000.

Pass necessary journal entries in the books of the firm on Vaibhav's death.


Vivek, Viney and Vijay were partners in a firm sharing profits in the ratio of 2:1:2. The firm closes its books on 31st March every year. On 31-12-2014 Viney died. On that date his capital account showed a debit balance of Rs 10,000 and Goodwill of the firm was valued at Rs 2, 40,000. There was a debit balance of Rs 7,000 in the profit and loss account. Viney's share of profit in the year of his death will be calculated on the basis of average profit of last 5 years which was Rs 90,000.

Pass necessary journal entries in the books of the firm on Viney's death.


How does the market situation affect the value of goodwill of a firm?


How does the nature of business affect the value of goodwill of a firm? 


State 'True' or 'False'
When goodwill is paid privately, no entry in the books of account is required.


State ‘True’ or ‘False’:

If the goodwill account raised up, goodwill account is debited.


State True or False with reason.

When goodwill is written off, goodwill amount is debited.


State 'True' or 'False'
On admission of a partner, the amount of goodwill brought in cash is credited to goodwill account.


Aparna, Manisha and Sonia are partners sharing profits in the ratio of 3:2:1. Manisha retires and goodwill of the firm is valued at Rs 1,80,000. Aparna and Sonia decided to share future in the ratio of 3:2. Pass necessary Journal entries.


Anil and Sunil are partners in a firm with fixed capitals of ₹ 3,20,000 and ₹ 2,40,000 respectively. They admitted Charu as a new partner for 1/4th share in the profits of the firm on 1st April, 2012. Charu brought ₹ 3,20,000 as her share of capital.
Calculate value of goodwill and record necessary Journal entries.


On the admission of Rao, goodwill of Murty and Shah is valued at ₹ 30,000. Rao is to get 1/4th share of profits. Previously Murty and Shah shared profits in the ratio of 3 : 2. Rao is unable to bring amount of goodwill. Give Journal entries in the books of Murty and Shah when:
(a) there is no Goodwill Account and
(b) Goodwill appears in the books at ₹ 10,000.


A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. They admit C into partnership for 1/5th share. C brings ₹ 30,000 as capital and ₹ 10,000 as goodwill. At the time of admission of C, goodwill appeared in the Balance Sheet of A and B at ₹ 3,000. New profit-sharing ratio of the partners will be 5 : 3 : 2. Pass necessary Journal entries.


M and J are partners in a firm sharing profits in the ratio of 3 : 2. They admit R as a new partner. The new profit-sharing ratio between M, J and R will be 5 : 3 : 2. R brought in ₹ 25,000 for his share of premium for goodwill. Pass necessary Journal entries for the treatment of goodwill.


Vinay and Naman are partners sharing profits in the ratio of 4 : 1. Their capitals were ₹ 90,000 and ₹ 70,000 respectively. They admitted Prateek for 1/3 share in the profits. Prateek brought ​₹ 1,00,000 as his capital. Calculate the value of firm's goodwill.


State True or False with reason.

A new partner always bring his share of goodwill in cash.


State True or False with reason.

Cash/ Bank Account is credited when goodwill is withdrawn by the old partners.


State the ratio in which the old partner’s Capital A/c will be credited for goodwill when the new partner does not bring his share of goodwill in cash?


Goodwill given in the old balance sheet will be:


Value of reputation of the firm is:


Amount of old goodwill already appearing in the books will be written off:


The amount of goodwill is paid by the new partner:


Suresh, Ramesh and Tushar were partners of a firm sharing profits in the ratio of 6:5:4. Ramesh retired and his capital after making adjustments on account of reserves, revaluation of assets and reassessment of liabilities stood at ₹ 2,50,400. Suresh and Tushar agreed to pay him ₹ 2,90,000 in full settlement of his claim. Pass necessary journal entry for the treatment of goodwill. Show workings clearly.


What would be the journal entry for revaluation of an increase in the value of an asset?


Excess value of Purchase Consideration over Net Assets at the time of purchase of business is credited to:


Mohit and Govind were partners in a firm with a ratio of 1:2. They admitted Ravi for 1/5th share in profits. He brought ₹2,50,000 for capital but could not bring goodwill. The goodwill of the firm was valued at ₹3,00,000. What Journal Entry will be passed for the treatment of goodwill?


Doremon, Shinchan and Nobita are partners sharing profits and losses in the ratio of 3 : 2 : 1. With effect from 1st April, 2022 they agree to share profits equally. For this purpose, goodwill is to be valued at two year’s purchase of the average profit of the last four years which were as follows:

Year ending on 31st March, 2019 ₹ 50,000 (Profit)
Year ending on 31st March, 2020 ₹ 1,20,000 (Profit)
Year ending on 31st March, 2021 ₹ 1,80,000 (Profit)
Year ending on 31st March, 2022 ₹ 70,000 (Loss)

On 1st April, 2021 a Motor Bike costing ₹ 50,000 was purchased and debited to travelling expenses account, on which depreciation is to be charged @ 20% p.a by Straight Line Method. The firm also paid an annual insurance premium of ₹ 20,000 which had already been charged to Profit and Loss Account for all the years.

Journalise the transaction along with the working notes.


Profit for 2015, 2016 & 2017 is ₹ 10,000, ₹ 15,000 & ₹ 25,000. Calculate average profit.


A and B were partners in a firm sharing profits equally. Their capitals were : A ₹ 1,20,000 and B ₹ 80,000. The annual rate of interest is 20%. The profits of the firm for the last three years were ₹ 34,000; ₹ 38,000 and ₹ 30,000. They admitted C as a new partner. On C's admission the goodwill of the firm was valued at 2 years purchase of the super profits.

Calculate the value of goodwill of the firm on C's admission. 


Aayush and Aarushi are partners sharing profits and losses in the ratio of 3 : 2. They admitted Naveen into partnership for 1/4th share. Goodwill of the firm was to be valued at three years' purchase of super profits. Average net profit of the firm was ₹ 20,000. Capital investment in the business was ₹ 50,000 and Normal Rate of Return was 10%. Calculate the amount of Goodwill premium brought by Naveen. 


G, S and T were partners sharing profits in the ratio 3:2:1. G retired and his dues towards the firm including Capital balance, Accumulated profits and losses share, Revaluation Gain amounted to ₹ 5,80,000. G was being paid ₹ 7,00,000 in full settlement. For giving that additional amount of ₹ 1,20,000, S was debited for ₹ 40,000. Determine goodwill of the firm.


Find out super profit, if capital employed is ₹ 4,00,000, normal rate of return is 12% and average profit is ₹ 60,000.


On 1st April, 2020, Anish started a business with a capital of ₹ 3,00,000.
During the three years ending 31st March, 2023, the results of his business were:

Year   (₹)
2020-21 Loss 20,000
2021-22 Profit 34,000
2022-23 Profit 46,000

From the year 2020-21 to the year 2022-23, Anish withdrew ₹ 30,000 from the firm for his personal use.
On 1st April, 2023, he admitted Danish into partnership on the following terms:

  1. Goodwill of the firm to be valued at two years’ purchase of the average profits of the last three years.
  2. Danish to have a `1/4` share in the future profits.
  3. Danish’s capital is to be equal to `1/4` of Anish’s capital determined on 1st April, 2023, after the goodwill compensation has been taken into account.

You are required to give:

  1. The formula to calculate goodwill by the Average Profit Method.
  2. The value of self-generated goodwill of the firm.
  3. Danish’s capital contribution.

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