Question

Ishita and Divya are partners in a firm sharing profits and losses in the ratio of 5 : 3.
Their Balance Sheet as at 31st March, 2025, is as follows:

Balance Sheet of Ishita and Divya  As at 31st March 2025
Liabilities	(₹)	Assets	(₹)
Ishita’s Capital	5,10,000	Freehold Premises	2,50,000
Divya’s Capital	2,00,000	Plant	2,80,000
General Reserve	90,000	Debtors	1,50,000
Creditors	80,000	Closing Stock	1,40,000
		Divya’s Current A/c	25,000
		Cash at Bank	35,000
	8,80,000		8,80,000

On 1st April, 2025, they admit Abhinav as a new partner on the following terms:

1. New profit-sharing ratio of Ishita, Divya and Abhinav to be 3 : 4 : 1.
2. Divya’s Current Account to be transferred to her Capital Account.
3. 4% of the Debtors to be maintained as a Provision for doubtful debts.
4. Creditors of ₹ 20,000 are not to be paid, as they are untraceable.
5. Abhinav to contribute ₹ 2,70,000 as his capital and ₹ 40,000 as his share of Goodwill.

You are required to do the following on the date of Abhinav’s admission:

1. Record the necessary journal entries in the books of the reconstituted firm.
2. Calculate the firm’s Goodwill.

Answer 1

(i)

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2025
Apr 1	General Reserve A/c   ...Dr.		90,000	-
	To Ishita’s Capital A/c		-	56,250
	To Divya’s Capital A/c		-	33,750
	(Being General Reserve distributed in the old ratio)
Apr 1	Divya’s Capital A/c   ...Dr.		25,000	-
	To Divya’s Current A/c		-	25,000
	(Being the debit balance of the current account transferred to the capital account)
Apr 1	Creditors A/c   ...Dr.		20,000	-
	To Revaluation A/c		-	20,000
	(Being Creditors written off as they were untraceable)
Apr 1	Revaluation A/c   ...Dr.		6,000	-
	To Provision for Doubtful Debts A/c		-	6,000
	(Being Provision created on debtors 4%)
Apr 1	Revaluation A/c   ...Dr.		14,000	-
	To Ishita’s Capital A/c		-	8,750
	To Divya’s Capital A/c		-	5,250
	(Being Profit on revaluation distributed in the old ratio)
Apr 1	Bank A/c   ...Dr.		3,10,000	-
	To Abhinav’s Capital A/c		-	2,70,000
	To Premium for Goodwill A/c		-	40,000
	(Being Capital and goodwill share brought in by Abhinav)
Apr 1	Premium for Goodwill A/c   ...Dr.		40,000	-
	Divya’s Capital A/c    ...Dr. (Gain share)		40,000	-
	To Ishita’s Capital A/c (Sacrifice share)		-	80,000
	(Being Goodwill adjusted; Divya also gains 1/8 share, hence compensates Ishita)

(ii) Calculation of the Firm’s Goodwill:

Abhinav’s share of goodwill = `40,000 xx 8/1`

= 3,20,000

Calculation of Sacrificing Ratio:

Sacrifice ratio = Old Share − New Share

Ishita’s Sacrifice = `5/8 - 3/8`

= `2/8` (Sacrifice)

Divya’s Sacrifice = `3/8 - 4/8`

= `(-1)/8` (Gain)