Question

A and B are partners sharing profits in the ratio of 5 : 3. They admit C as a partner for a `1/3`rd share. His share of Goodwill is ₹ 32,000. Give journal entries in the following cases:

1. When the amount of goodwill is paid privately.
2. When the goodwill is received in cash and retained in the business.
3. When the goodwill is received in cash and withdrawn by old partners.
4. When C is unable to bring the goodwill in cash.

Hint:

In case (a) there will be no entry for goodwill.
In case (b) and (c), Premium A/c will be debited by ₹ 32,000 and the Capital A/cs of A and B will be credited in 5 : 3.
In case (d) Current A/c of C will be debited by ₹ 32,000, and the capital A/cs of A and B will be credited in 5 : 3.

Answer 1

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
a.	No Entry
b.1.	Bank A/c   ...Dr.		32,000
	To Premium for Goodwill A/c			32,000
	(The amount of premium for goodwill brought in by C)
2.	Premium for Goodwill A/c   ...Dr.		32,000
	To A’s Capital A/c			20,000
	To B’s Capital A/c			12,000
	(Premium for goodwill distributed to old partners in their sacrificing ratio of 5 : 3)
c.1.	Bank A/c   ...Dr.		32,000
	To Premium for Goodwill A/c			32,000
	(The amount of premium for goodwill brought in by C)
2.	Premium for Goodwill A/c   ...Dr.		32,000
	To A’s Capital A/c			20,000
	To B’s Capital A/c			12,000
	(Premium for goodwill distributed to old partners in their sacrificing ratio of 5 : 3)
3.	A’s Capital A/c   ...Dr.		20,000
	B’s Capital A/c   ...Dr.		12,000
	To Bank A/c			32,000
	(Goodwill withdrawn by the old partners)
d.	C’s Current A/c   ...Dr.		32,000
	To A’s Capital A/c			20,000
	To B’s Capital A/c			12,000
	(C’s share of goodwill credited to old partners in their sacrificing ratio)