Question

Manu and Pritam are partners sharing profits in 3 : 1. They admit Sonu on 1st April, 2026 as a new partner for `1/4`th share in the profits and he brought ₹ 2,00,000 as his capital but he could not bring his share of goodwill in cash.

Their Balance Sheet as at 31st March, 2026 was as under:

Liabilities	Amount ₹	Amount ₹	Assets	Amount ₹
Capital Accounts:			Cash at Bank	96,000
Manu	3,40,000		Plant & Machinery	3,00,000
Pritam	1,65,000	5,05,000	Furniture	72,000
General Reserve		80,000	Stock in Trade	86,000
Sundry Creditors		52,000	Sundry Debtors	60,000
Outstanding Electricity Bill		3,000	Goodwill	18,000
			Advertisement Suspense A/c	8,000
		6,40,000		6,40,000

Additional Information:

1. The outstanding electricity bill was paid by Pritam.
2. Furniture is undervalued by 10%.
3. The value of the goodwill of the firm to be calculated on the basis of Sonu’s share in profits and the capital contributed by him.
4. Provision for unforseen liability of 10,000 to be created out of General Reserve.
5. The new profit sharing ratio of the partners will be 9 : 6 : 5

You are required to pass Journal Entries for treatment of Goodwill and prepare Partners’ Capial Accounts.

Answer 1

JOURNAL ENTRIES
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
2026 April 1	Manu’s Capital A/c   .....Dr.		13,500
	Pritam’s Capital A/c    .....Dr.		4,500
	To Goodwill A/c			18,000
	(Goodwill written off in old ratio 3 : 1)
	Manu’s Capital A/c    .....Dr.		6,000
	Pritam’s Capital A/c    .....Dr.		2,000
	To Advertisement Suspense A/c			8,000
	(Advertisement suspense written off in 3 : 1)
	Outstanding Electricity Bill A/c     .....Dr.		3,000
	To Pritam’s Capital A/c			3,000
	(Outstanding electricity bill paid by Pritam)
	Furniture A/c     .....Dr.		8,000
	To Revaluation A/c			8,000
	(Furniture increased due to undervaluation)
	Revaluation A/c     .....Dr.		8,000
	To Manu’s Capital A/c			6,000
	To Pritam’s Capital A/c			2,000
	(Profit on revaluation distributed in 3 : 1)
	General Reserve A/c     .....Dr.		80,000
	To Provision for Unforeseen Liability A/c			10,000
	To Manu’s Capital A/c			52,500
	To Pritam’s Capital A/c			17,500
	(Reserve distributed after creating provision)
	Bank A/c     .....Dr.		2,00,000
	To Sonu’s Capital A/c			2,00,000
	(Capital brought in cash by Sonu)
	Sonu’s Current A/c     .....Dr.		10,000
	Pritam’s Capital A/c     .....Dr.		2,000
	To Manu’s Capital A/c			12,000
	(Adjustment entry passed for hidden goodwill)

Dr.	PARTNERS' CAPITAL ACCOUNTS						Cr.
Particulars	Manu (₹)	Pritam (₹)	Sonu (₹)	Particulars	Manu (₹)	Pritam (₹)	Sonu (₹)
To Goodwill A/c	13,500	4,500	—	By Balance b/d	3,40,000	1,65,000	—
To Adv. Suspense	6,000	2,000	—	By Bank A/c	—	—	2,00,000
To Manu's Cap. A/c	—	2,000	—	By Elect. Bill	—	3,00,000	—
				By Revaluation A/c	6,000	2,000	—
				By General Reserve	52,500	17,500	—
				By Sonu's Cur. & Pritam's Cap.	12,000	—	—
To Balance c/d	3,91,000	1,79,000	2,00,000
Total	4,10,500	1,87,500	2,00,000	Total	4,10,500	1,87,500	2,00,000

Working Note:

(A) Gaining & Sacrificing Ratio

Old Ratio = 3 : 1, New Ratio = 9 : 6 : 5

Manu's Sacrifice = \[\frac{3}{4} - \frac{9}{20} = {\frac{6}{20}}\]

Pritam's Gain = $\frac{1}{4} - \frac{6}{20} = {-\frac{1}{20}}$

(B) Hidden Goodwill Calculation

Total Value of Firm (Sonu's Capital × 4) = ₹8,00,000

Actual Total Capital = 3,40,000 + 1,65,000 + 70,000 + 8,000 + 3,000 - 18,000 - 8,000 + 2,00,000 = ₹7,60,000

Firm's Goodwill = 8,00,000 - 7,60,000 = ₹40,000

(C) Goodwill Share Adjustment

Sonu's Share = $40,000 \times \frac{1}{4}$ = ₹10,000 (Dr.)

Pritam's Share = $40,000 \times \frac{1}{20}$ = ₹2,000 (Dr.)

Manu's Share = $40,000 \times \frac{6}{20}$ = ₹12,000 (Cr.)