Question

X and Y are partners sharing profits in the ratio of 3 : 2. Goodwill appears in their balance sheet at ₹ 60,000. Z is admitted as a partner for `1/4`th share in the profits. The total goodwill of the firm is valued at ₹ 2,00,000.

Pass journal entries if:

1. Z cannot bring in cash his share of goodwill.
2. Z brings in cash his share of goodwill.

Hint: In both cases, goodwill appearing in the balance sheet at ₹ 60,000 will be written off between old partners in old ratio.

Answer 1

1.

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	X’s Capital A/c   ...Dr.		36,000
	Y’s Capital A/c   ...Dr.		24,000
	To Goodwill A/c			60,000
	(Goodwill already existing in the books, now written off in old ratio)
	Z’s Current A/c   ...Dr.		50,000
	To X’s Capital A/c			30,000
	To Y’s Capital A/c			20,000
	(Z’s share of goodwill credited to X and Y in sacrificing ratio)

2.

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	X’s Capital A/c   ...Dr.		36,000
	Y’s Capital A/c   ...Dr.		24,000
	To Goodwill A/c			60,000
	(Goodwill already existing in the books, now written off in old ratio)
	Bank A/c   ...Dr.		50,000
	To Premium for Goodwill A/c			50,000
	(Premium for goodwill brought in cash by new partner)
	Premium for Goodwill A/c   ...Dr.		50,000
	To X’s Capital A/c			30,000
	To Y’s Capital A/c			20,000
	(Premium for goodwill transferred to old partners in sacrificing ratio)

When new profit-sharing ratios are not given, the old ratios are assumed to be the sacrificing ratio.

Working Note:

The goodwill appearing in the balance sheet is written off in the old profit-sharing ratio of X and Y 3 : 2.

X’s share of goodwill = `60,000 xx 3/5`

= 36,000

Y’s share of goodwill = `60,000 xx 2/5`

= 24,000

The firm’s new goodwill is valued at ₹ 2,00,000.

Z’s share of goodwill = `2,00,000 xx 1/4`

= 50,000