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Question
A and B are partners sharing profits in the ratio of 2 : 1. They admit C for a `1/4`th share in profits. C brings in ₹ 30,000 for his capital and ₹ 8,000 out of his share of ₹ 10,000 for goodwill. Before admission, goodwill appeared in books at ₹ 18,000. Give Journal entries to give effect to the above arrangement.
Hints:
- Goodwill of ₹ 18,000 written off by A and B in 2 : 1.
- Goodwill of ₹ 8,000 brought in cash by C will be credited to the Premium for Goodwill A/c.
- Premium for Goodwill A/c will be debited by ₹ 8,000 and C’s Current A/c will be debited by ₹ 2,000 and the Capital Accounts of A and B will be credited in 2 : 1.
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Solution
| Journal Entries | ||||
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| A’s Capital A/c ...Dr. | 12,000 | |||
| B’s Capital A/c ...Dr. | 6,000 | |||
| To Goodwill A/c | 18,000 | |||
| (Existing goodwill written off among old partners in their old ratio) | ||||
| Bank A/c ...Dr. | 38,000 | |||
| To C’s Capital A/c | 30,000 | |||
| To Premium for Goodwill A/c | 8,000 | |||
| (Capital and premium for goodwill brought in by C) | ||||
| Premium for Goodwill A/c ...Dr. | 8,000 | |||
| C’s Capital A/c ...Dr. | 2,000 | |||
| To A’s Capital A/c | 6,667 | |||
| To B’s Capital A/c | 3,333 | |||
| (C’s share of goodwill distributed between A and B in Sacrificing Ratio) |
||||
Working Notes:
Write off existing goodwill:
A’s share = `18,000 xx 2/3`
= 12,000
B’s share = `18,000 xx 1/3`
= 6,000
Distribution of C’s share of Goodwill:
A’s share = `10,000 xx 2/3`
= 6,667
B’s share = `10,000 xx 1/3`
= 3,333
RELATED QUESTIONS
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.
Joshi, Pandey and Agarwal were partners in a firm sharing profits in the ratio of 2:2:1. On 31.3.2014, their Balance Sheet was as follows:
| Liabilities |
Amount Rs |
Assets |
Amount Rs |
|
Creditors Bills Payable Agarwal's Loan Capitals Joshi 2,10,000 Pandey 2,04,000 |
51,000 36,000 84,000
4,14,000 |
Cash Debtors Bills payable Furniture Machinery Agarwal’s Capital |
24,000 39,000 27,000 81,000 3,75,000 39,000 |
| 5,85,000 | 5,85,000 |
On 31.12.2014, Agarwal died. The partnership deed provided for the following to the executors of the deceased partner:
(a) His share in the goodwill of the firm, calculated on the basis of three year's purchase of the average profits of the last four years. The profits of the last four years were Rs 2,70,000; Rs 3,00,000; Rs 5,40,000 and Rs 8,10,000 respectively.
(b) His share in the profits of the firm till the date of his death, calculated on the basis of the average profits of the last four years.
(c) Interest @12% per annum on the credit balance, if any, in his Capital account.
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Prepare Agarwal's Capital Account to be presented to his executors.
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State 'True' or 'False'
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State ‘True’ or ‘False’:
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State True or False with reason.
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State 'True' or 'False'
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|
Balance Sheet of Keith, Bina, and Veena as on 31-3-2019 |
||||
| Liabilities |
Amount (₹) |
Amount (₹) |
Assets | Amount (₹) |
| Capitals: |
|
3,25,000 |
Plant and Machinery | 2,40,000 |
| Keith | 1,50,000 | Stock | 60,000 | |
| Bina | 1,00,000 | Sundry debtors | 35,000 | |
| Veena |
75,000 |
Cash at bank | 50,000 | |
| General Reserve |
|
30,000 |
||
| Sundry creditors |
|
30,000 |
||
| 3,85,000 | 3,85,000 | |||
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