Question

Aditi and Parul are partners in a firm with capitals of ₹ 35,000 each. They shared profits and losses in the ratio of 3 : 1.

On 1st April, 2017, they admit Chanda into their partnership with a `1/5`th share in the profits.

Chanda brings in ₹ 40,000 as her capital and also brings her share of goodwill in cash.

Her share of goodwill is calculated on the basis of her capital contribution and her share of profits in the firm.

At the time of Chanda’s admission:

1. The firm had a Workmen’s Compensation Reserve of ₹ 60,000 against which there was a claim of ₹ 20,000.
2. Creditors of ₹ 8,000 were paid by Aditi privately, for which she is not to be reimbursed.
3. There was no change in the value of other assets and liabilities.

You are required to, on the date of Chanda’s admission:

1. Calculate the goodwill of the firm. (Show the workings clearly).
2. Pass the necessary journal entries to record the above transactions.

Answer 1

i.

Total Capital of the firm based on Chanda’s Capital = 5 × 40,000

= 2,00,000

Capitals of all the partners = Capital + Workmen Compensation Reserve + Creditors

Aditi = 35,000 + 30,000 + 6,000

= 71,000

Parul =  35,000 + 10,000 + 2,000

= 47,000

Chanda = 40,000

Total = 71,000 + 47,000 + 40,000

= 1,58,000

Hidden Goodwill = 2,00,000 − 1,58,000

= 42,000

Chanda’s share of Goodwill = `42,000 xx 1/5`

= ₹ 8,400

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2017
April 1	Workmen’s Compensation Reserve A/c   ...Dr.		60,000
	To Workmen’s Compensation Claim A/c			20,000
	To Aditi’s Capital A/c			30,000
	To Parul’s Capital A/c			10,000
	(Excess of Workmen’s Compensation Reserve credited in old ratio)
April 1	Creditors A/c   ...Dr.		8,000
	To Revaluation A/c			8,000
	(Gain on creditors being paid by a partner and not to be reimbursed)
April 1	Revaluation A/c   ...Dr.		8,000
	To Aditi’s Capital A/c			6,000
	To Parul’s Capital A/c			2,000
	(Gain on revaluation transferred in old ratio)
April 1	Bank A/c   ...Dr.		48,400
	To Chanda’s Capital A/c			40,000
	To Premium for Goodwill A/c			8,400
	(Capital and premium for goodwill contributed by Chanda)
April 1	Premium for Goodwill A/c   ...Dr.		8,400
	To Aditi’s Capital A/c			6,300
	To Parul’s Capital A/c			2,100
	(Premium for goodwill credited to old partners in sacrificing ratio of 3 : 1)