Question

P and Q were partners in a firm sharing profits in the ratio of 4 : 3. On 1st April, 2021, they admitted R as a new partner for 1/4th share in the profits of the firm. On the date of R’s admission, the Balance Sheet of P and Q showed a General Reserve of ₹ 2,80,000 and an Advertisement Suspense Account of ₹ 1,40,000. The following was agreed upon, on R’s admission: R’s share of goodwill is agreed at ₹ 70,000, of which he is to bring half in cash. New profit-sharing ratio is agreed at 2 : 1 : 1.

On the basis of the above information, you are required to answer the following question:

In respect of goodwill:

Options

• Cr. P’s Capital A/c by ₹ 40,000 and Q’s Capital A/c by ₹ 30,000

• Cr. P’s Capital A/c by ₹ 20,000 and Q’s Capital A/c by ₹ 15,000

• Cr. P’s Capital A/c by ₹ 10,000 and Q’s Capital A/c by ₹ 25,000

• Cr. P’s Capital A/c by ₹ 20,000 and Q’s Capital A/c by ₹ 50,000

Answer 1

Cr. P’s Capital A/c by ₹ 20,000 and Q’s Capital A/c by ₹ 50,000

Explanation:

Calculation of sacrifice ratio:

P’s sacrifice = `4/7 - 2/4`

= `(4 xx 4)/(7 xx 4) - (2 xx 7)/(4 xx 7)`

= `16/28 - 14/28`

= `2/28`

Q’s sacrifice = `3/7 - 1/4`

= `(3 xx 4)/(7 xx 4) - (1 xx 7)/(4 xx 7)`

= `12/28 - 7/28`

= `5/28`

Sacrificing Ratio = `2/28 : 5/28` or 2 : 5

Goodwill Credited to P = `70,000 xx 2/7`

= ₹ 20,000

Goodwill Credited to P = `70,000 xx 5/7`

= ₹ 50,000