Question

Anu and Binu were partners sharing profits and losses in the ratio of 4 : 1. Their Balance sheet as at 31^st March, 2025 was as follows:

Balance sheet of Anu and Binu As at 31st March 2025.
Liabilities	₹	₹	Assets	₹
Capital Accounts:			Bank	26,000
Anu	25,000	35,000
Binu	10,000
General Reserve		10,000	Building	49,000
Bills Payable		40,000	Goodwill	1,000
			Debtors	9,000
		85,000		85,000

On 1^st April 2025, Tinu is admitted as a new partner on the following terms:

1. New profit-sharing ratio of the partners to be 2 : 1 : 1.
2. Tinu shall bring in ₹ 16,000 as his capital and the required amount of goodwill in cash.
3. Bills payable was overvalued by ₹ 2,000.
4. The value of goodwill of the firm to be calculated on the basis of Tinu’s share in profit and the capital contributed by him.
5. Provision for bad and doubtful debts ₹ 1,000 to be created out of General Reserve.

Pass the journal entries for treatment of goodwill and prepare Capital accounts of all the partners.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Bank A/c   ...Dr.		750	-
	To Premium for Goodwill A/c		-	750
	(Being amount of goodwill contributed)
2.	Premium for Goodwill A/c   ...Dr.		750	-
	To Anu’s Capital A/c		-	750
	(Being distributed premium for goodwill)
3.	Binu’s Capital A/c   ...Dr.		150	-
	To Anu’s Capital A/c		-	150
	(Being adjustment for goodwill)

 

Dr.	Partner’s Capital Account						Cr.
Particulars	Anu (₹)	Binu (₹)	Tinu (₹)	Particulars	Anu (₹)	Binu (₹)	Tinu (₹)
To Goodwill A/c	800	200		By Balance b/d	25,000	10,000
To Anu’s Capital A/c		150		By Bank A/c			16,000
				By Rev. A/c	1,600	400
				By General reserve	7,200	1,800
				By Premium for Goodwill	750
To Balance c/d	33,900	11,850	16,000	By Binu’s Capital A/c	150
	34,700	12,200	16,000		34,700	12,200	16,000

Working Note:

i. Calculate Sacrificing Ratios:

The old profit-sharing ratio of Anu and Binu is 4 : 1 (i.e., `4/5 : 1/5`)

The new profit-sharing ratio of Anu, Binu, and Tinu is 2 : 1 : 1 (i.e., `2/4 : 1/4 : 1/4`)

Sacrificing Ratios = Old Ratio − New Ratio

Anu’s Sacrifice = `4/5 - 2/4`

= `(16 - 10)/20`

= `6/20`

Binu’s Sacrifice = `1/5 - 1/4`

= `(4 - 5)/20`

= `- 1/20`

Tinu’s Share = `1/4 = 5/20`

Only Anu is a sacrificing partner.

ii. Calculation of Hidden Goodwill:

Total Capital of the firm based on Tinu’s capital = 16,000 × `1/4`

= ₹ 64,00,000

Hidden Goodwill = Total Capital – Capital of all partners after adjustments

= 64,000 – 61,000

= ₹ 3,000

Tinu’s share = 3,000 × `1/4`

= ₹ 750 (Sacrificed by Anu)

Tinu’s share = 3,000 × `- 1/20`

= ₹ 150 (Gaining ratio)