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Question
Verma and Sharma are partners in a firm sharing profits and losses in the ratio of 5 : 3. They admitted Ghosh as a new partner for 1/5th share of profits. Ghosh is to bring in ₹ 20,000 as capital and ₹ 4,000 as his share of goodwill premium. Give the necessary Journal entries:
(a) When the amount of goodwill is retained in the business.
(b) When the amount of goodwill is fully withdrawn.
(c) When 50% of the amount of goodwill is withdrawn.
(d) When goodwill is paid privately.
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Solution
|
Journal Entries |
|||||
|
S.No. |
Particulars |
L.F. |
Debit Amount Rs |
Credit Amount Rs |
|
|
Case (a) |
|||||
|
Cash A/c |
Dr. |
24,000 |
|||
|
To Ghosh's Capital A/c |
20,000 |
||||
|
To Premium for Goodwill A/c |
4,000 |
||||
|
(Capital and Goodwill his share broughtby Ghosh) |
|||||
|
Premium for Godwill A/c |
Dr. |
4,000 |
|||
|
To Verma's Capital A/c |
2,500 |
||||
|
To Sharma's Capital A/c |
1,500 |
||||
|
(Goodwill brought by Ghosh credited to Old Partnersin Sacrificing ratio) |
|||||
| Case (b) |
Cash A/c |
Dr. |
24,000 |
||
|
To Ghosh Capital A/c |
20,000 |
||||
|
To Premium for Goodwill A/c |
4,000 |
||||
|
(Capital and Goodwill brought by Ghosh for (1/5)share of profit) |
|||||
|
Premium for Goodwill A/c |
Dr. |
4,000 |
|||
|
To Verma's Capital A/c |
2,500 |
||||
|
To Sharma's Capital A/c |
1,500 |
||||
|
(Goodwill brought by Ghosh credited in Old Partner in Sacrificing Ratio) |
|||||
|
Verma's Capital A/c |
Dr. |
2,500 |
|||
|
Sharma's Capital A/c |
Dr. |
1,500 |
|||
|
To Cash A/c |
4,000 |
||||
|
(Amount of Premium for Goodwill withdrawn byOld Partners) |
|||||
| Case (c) |
Cash A/c |
Dr. |
24,000 |
||
|
To Ghosh's Capital A/c |
20,000 |
||||
|
To Premium for Goodwill A/c |
4,000 |
||||
| (Capital and Goodwill brought by Ghosh for (1/5)share of profit) | |||||
|
Premium for Goodwill A/c |
Dr. |
4,000 |
|||
|
To Verma's Capital A/c |
2,500 |
||||
|
To Sharma's Capital A/c |
1,500 |
||||
|
(Premium for Goodwill credited to Old Partner's Capital Account in sacrificing ratio) |
|||||
|
Verma's Capital A/c |
Dr. |
1,250 |
|||
|
Sharma's Capital A/c |
750 |
||||
|
To Cash A/c |
2,000 |
||||
|
(Half of the amount of premium for goodwill withdrawn by Old partners) |
|||||
| Case (d) | No entry: Goodwill was not brought into firm | ||||
APPEARS IN
RELATED QUESTIONS
State any three circumstances other than (i) admission of a new partner; (ii) retirement of a partner and (iii) death of a partner, when need for valuation of goodwill of a firm may arise.
Vikas, Vishal and Vaibhav were partners in a firm sharing profits in the ratio of 2:2:1. The firm closes its books 31st March every year. On 31-12-2015 Vaibhav died. On that date his Capital account showed a credit balance of Rs. 3, 80,000 and Goodwill of the firm was valued at 1, 20,000. There was a debit balance of Rs. 50,000 in the profit and loss account. Vaibhav's share of profit in the year of his death was to be calculated on the basis of the average profit of last five years. The average profit of last five years was Rs. 75,000.
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| 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:
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State 'True' or 'False'
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When the new partner is admitted goodwill can be treated in how many ways?
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Fill in the blank.
______ = `("Total Profit")/("Number of Years")`
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Nita and Samar are partners in a firm sharing profits in the ratio of 3 : 2. Their fixed capitals were ₹ 90,000 and ₹ 2,10,000 respectively. They admitted Mitali on April 1, 2022 as a new partner for 1/5th share in future profits. Mitali brought ₹ 1,50,000 as her capital. The value of goodwill of the firm of Mitali's admission was ______.
Complete the following Table:
| ? | = | `"Total Profit"/"Number of Years"` |
On 1st April, 2020, Anish started a business with a capital of ₹ 3,00,000.
During the three years ending 31st March, 2023, the results of his business were:
| Year | (₹) | |
| 2020-21 | Loss | 20,000 |
| 2021-22 | Profit | 34,000 |
| 2022-23 | Profit | 46,000 |
From the year 2020-21 to the year 2022-23, Anish withdrew ₹ 30,000 from the firm for his personal use.
On 1st April, 2023, he admitted Danish into partnership on the following terms:
- Goodwill of the firm to be valued at two years’ purchase of the average profits of the last three years.
- Danish to have a `1/4` share in the future profits.
- Danish’s capital is to be equal to `1/4` of Anish’s capital determined on 1st April, 2023, after the goodwill compensation has been taken into account.
You are required to give:
- The formula to calculate goodwill by the Average Profit Method.
- The value of self-generated goodwill of the firm.
- Danish’s capital contribution.
