Question

R and M were partners in a firm, sharing profits and losses in the ratio of 5 : 3. L was admitted as a new partner for 1/5th share in the profits of the firm. The new profit ratio was 2 : 2 : 1. L brought ₹ 1,54,000 for his capital and did not bring his share of goodwill premium. Goodwill of the firm on L’s admission was estimated at ₹ 4,50,000. It was decided not to raise a goodwill account on L’s admission.

Out of the following, what will be the correct treatment of goodwill on L’s admission?

विकल्प

• Debit L’s current A/c by ₹ 90,000 and credit R’s and M’s capital A/cs by ₹ 45,000 each.

• Debit L’s current A/c by ₹ 90,000, Debit M’s capital A/c by ₹ 11,250, Credit R’s capital A/c by ₹ 1,01,250.

• Debit L’s current A/c by ₹ 90,000 and credit R’s capital A/c by ₹ 56,250 and credit M’s capital A/c ₹ 33,750.

• Debit L’s current A/c by ₹ 4,50,000 and credit R’s and M’s capital A/c by ₹ 2,25,000 each.

Answer 1

Debit L’s current A/c by ₹ 90,000, Debit M’s capital A/c by ₹ 11,250, Credit R’s capital A/c by ₹ 1,01,250.

Explanation:

Old Ratio = 5 : 3

New Ratio = 2 : 2 : 1

R’s change in share = `5/8 - 2/5`

= `25/40 - 16/40`

= `9/40`

M’s change in share = `3/8 - 2/5`

= `15/40 - 16/40`

= `-1/40`

L’s share in Goodwill = `1/5 xx 4,50,000`

= ₹ 90,000

M must be the amount of goodwill as he is a gaining partner.

Debit L’s current A/c by ₹ 90,000, Debit M’s capital A/c by ₹ 11,250, Credit R’s capital A/c by ₹ 1,01,250.