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Pass Necessary Journal Entries.

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Question

A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. They admit C into partnership for 1/5th share. C brings ₹ 30,000 as capital and ₹ 10,000 as goodwill. At the time of admission of C, goodwill appeared in the Balance Sheet of A and B at ₹ 3,000. New profit-sharing ratio of the partners will be 5 : 3 : 2. Pass necessary Journal entries.

Journal Entry
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Solution

Journal Entries

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

A’s Capital A/c

Dr.

 

1,800

 

 

B’s Capital A/c

Dr.

 

1,200

 

 

            To Goodwill A/c

 

 

 

3,000

 

(Goodwill written-off)

 

 

 

 

 

 

 

 

 

 

 

Cash A/c

Dr.

 

40,000

 

 

         To C’s Capital A/c

Dr.

 

 

30,000

 

         To Premium for Goodwill A/c

 

 

 

10,000

 

(C brought capital and his share of goodwill in cash)

 

 

 

 

 

 

 

 

 

 

Premium for Goodwill

Dr.

 

10,000

 

 

          To A’s Capital A/c

 

 

 

5,000

 

           To B’s Capital A/c

 

 

 

5,000

 

(Premium for Goodwill distributed)

 

 

 

 

Old Ratio = A : B
                = 3 : 2
New Ratio = A : B : C
                  = 5 : 3 : 2
Sacrificing Ratio = Old Ratio − New Ratio
A's = `3/5 - 5/10 = 1/10`

B's = `2/5 - 3/10 = 1/10`

Sacrificing Ratio = A : B
                           = `1/10 : 1/10` = 1 : 1
Distribution of Premium for Goodwill C’s share of Goodwill)
A and B each will get = 10,000 x `1/2` = Rs. 5,000 each

Goodwill written-off :
 A will be debited by 3,000 x `3/5` = Rs. 1,800.
B will be credited by 3,000 x `2/5` = Rs. 1,200.

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Chapter 4: Admission of a Partner - Exercises [Page 88]

APPEARS IN

TS Grewal Accountancy Double Entry Book Keeping Volume 1 and 2 [English] Class 12
Chapter 4 Admission of a Partner
Exercises | Q 29 | Page 88

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.


Vivek, Viney and Vijay were partners in a firm sharing profits in the ratio of 2:1:2. The firm closes its books on 31st March every year. On 31-12-2014 Viney died. On that date his capital account showed a debit balance of Rs 10,000 and Goodwill of the firm was valued at Rs 2, 40,000. There was a debit balance of Rs 7,000 in the profit and loss account. Viney's share of profit in the year of his death will be calculated on the basis of average profit of last 5 years which was Rs 90,000.

Pass necessary journal entries in the books of the firm on Viney's death.


On1.4.2014 the Balance Sheet of Anant, Sampat and Gunvant was as follows :

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

General Reserve

Capital Reserve

    Anant    30,000

   Sampat   15,000

   Gunvant  15,000

9,000

9,600

 

 

 

60,000

Bank

Bills Receivables

Stock

Tools

Furniture

 

15,600

18,000

18,000

3,000

24,000

 

  78,600   78,600

Gunvant died on 30.9.2014. Under the terms of Partnership Deed, the executors of the deceased partner were entitled to:

(a) The amount standing to the credit of partner's capital account.
(b) Interest on capital @12% per annum.
(c) A share of goodwill on the basis of twice the average of past three years profits.
(d) A share of profit from the closing of last financial year to the date of death on the basis of last year's profit.

The profits of the last three years were as follows:

Year Profit
2011 - 2012 18.000
2012 - 2013 21,000
2013 - 2014 24,000

The firm closes its books on 31st March every year. Partners share profits in the ratio of their capitals.
Prepare Gunvant's Capital Account to be presented to his executors


How does the nature of business affect the value of goodwill of a firm? 


Select the most appropriate answer from the alternative given below and rewrite the sentence.

When goodwill is withdrawn by old partners ________________ a/c is credited.


State 'True' or 'False'
When goodwill is paid privately, no entry in the books of account is required.


State True or False with reason.

When goodwill is written off, goodwill amount is debited.


X and Y are partners with capitals of ₹ 50,000 each. They admit Z as a partner for 1/4th share in the profits of the firm. Z brings in ₹ 80,000 as his share of capital. The Profit and Loss Account showed a credit balance of ₹ 40,000 as on date of admission of Z.
Give necessary journal entries to record the goodwill.


A and B are partners sharing profits in the ratio of 3 : 2. Their books show goodwill at ₹ 2,000. C is admitted as partner for 1/4th share of profits and brings in ₹ 10,000 as his capital but is not able to bring in cash for his share of goodwill ₹ 3,000. Draft Journal entries.


On the admission of Rao, goodwill of Murty and Shah is valued at ₹ 30,000. Rao is to get 1/4th share of profits. Previously Murty and Shah shared profits in the ratio of 3 : 2. Rao is unable to bring amount of goodwill. Give Journal entries in the books of Murty and Shah when:
(a) there is no Goodwill Account and
(b) Goodwill appears in the books at ₹ 10,000.


Anu and Bhagwan were partners in a firm sharing profits in the ratio of 3 : 1. Goodwill appeared in the books at ₹ 4,40,000. Raja was admitted to the partnership. The new profit-sharing ratio among Anu, Bhagwan and Raja was 2 : 2 : 1. Raja brought ₹ 1,00,000 for his capital and necessary cash for his goodwill premium. Goodwill of the firm was valued at ₹ 2,50,000. Record necessary Journal entries in the books of the firm for the above transactions.


M and J are partners in a firm sharing profits in the ratio of 3 : 2. They admit R as a new partner. The new profit-sharing ratio between M, J and R will be 5 : 3 : 2. R brought in ₹ 25,000 for his share of premium for goodwill. Pass necessary Journal entries for the treatment of goodwill.


A and B are partners sharing profits and losses in the ratio of 2 : 1. They take C as a partner for 1/5th share. Goodwill Account appears in the books at ₹ 15,000. For the purpose of C's admission, goodwill of the firm is valued at ₹ 15,000. C is to pay proportionate amount as premium for goodwill which he pays to A and B privately. Pass necessary entries.


Write a word/phrase/term which can substitute the following statement.

Name the method of the treatment of goodwill where new partner will bring his share of goodwill in cash.


State True or False with reason.

Cash/ Bank Account is credited when goodwill is withdrawn by the old partners.


What is the super profit method of calculation of goodwill?


Goodwill given in the old balance sheet will be:


Amount brought by a new partner for his share in goodwill is known as _____________.


____________ profit is excess of actual profits over normal profits.


Amount of old goodwill already appearing in the books will be written off:


Gini, Bini and Mini were in partnership sharing profits and losses in the ratio of 5:2:2. Their Balance Sheet as at 31st March, 2021 was as follows:

Balance Sheet as at 31st March,2021
Liabilities Amount (₹) Assets Amount (₹)
Sundry Creditors   56,500 Cash   1,17,300
Bank Overdraft   61,500 Debtors 38,000  
Workmen’s Compensation Reserve   32,000 Less: Provision For Doubtful Debts (2,300) 35,700
Capitals:     Inventories   1,34,000
Gini 4,60,000   Machinery   1,00,000
Bini 3,00,000   Furniture   1,80,000
Mini 2,90,000 10,50,000 Building   5,70,000
      Goodwill   63,000
    12,00,000     12,00,000

On 31st March, 2021, Gini retired from the firm. All the partners agreed to revalue the assets and liabilities on the following basis:

  1. Bad debts amounted to ₹ 5,000. A provision for doubtful debts was to be maintained at 10% on debtors.
  2. Partners have decided to write off existing goodwill.
  3. Goodwill of the firm was valued at ₹ 54,000 and be adjusted into the Capital Accounts of Bini and Mini, who will share profits in future in the ratio of 5:4.
  4. The assets and liabilities valued as: Inventories ₹1,30,000; Machinery ₹ 82,000; Furniture ₹1,95,000 and Building ₹ 6,00,000.
  5. Liability of ₹23,000 is to be created on account of Claim for Workmen Compensation.
  6. There was an unrecorded investment in shares of ₹ 25,000. It was decided to pay off Gini by giving her unrecorded investment in full settlement of her part payment of ₹ 28,000 and remaining amount after two months.

Prepare Revaluation Account and Partners’ Capital Accounts as on 31st March, 2021.


Which method is followed when the new partner does not bring in his share of goodwill in cash.


Hem and Nern are partners in firm sharing profits in the ratio of 3:2. Their capitals were Rs. 80,000 and Rs. 50,000 respectively. They admitted Sam on Jan. 1 2019 as a new partner for 1/5 share in the future profits. Sam brought Rs. 60,000 as his capital. Calculate the value of goodwill of the firm.


What would be the journal entry for revaluation of an increase in the value of an asset?


What would be the journal entry for revaluation of an increase in the value of a liability?


What would be the journal entry for if goodwill is raised at full value and retained in books?


Analyse the case given below and answer the question that follow:

Alia, Karan and Shilpa were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Goodwill appeared in their books at the value of ₹ 60,000. Karan decided to retire from the firm. On the date of his retirement, goodwill of the firm was valued at ₹ 2,40,000. The new profit sharing ratio decided among Alia and Shilpa was 2 : 3. Give the answer to the question given below:

How much will be transferred to Karan's Capital Account of the existing goodwill?


Analyse the case given below and answer the question that follow:

Alia, Karan and Shilpa were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Goodwill appeared in their books at the value of ₹ 60,000. Karan decided to retire from the firm. On the date of his retirement, goodwill of the firm was valued at ₹ 2,40,000. The new profit sharing ratio decided among Alia and Shilpa was 2 : 3. Give the answer to the question given below:

What amount of goodwill will be transferred to Karan's Capital account?


When the value of goodwill is not specified at the time of admission of a partner is called ______.


How is Goodwill of the firm created?


Profit for 2015, 2016 & 2017 is ₹ 10,000, ₹ 15,000 & ₹ 25,000. Calculate average profit.


Fill in the blank.

______  =  `("Total Profit")/("Number of Years")`


G, S and T were partners sharing profits in the ratio 3:2:1. G retired and his dues towards the firm including Capital balance, Accumulated profits and losses share, Revaluation Gain amounted to ₹ 5,80,000. G was being paid ₹ 7,00,000 in full settlement. For giving that additional amount of ₹ 1,20,000, S was debited for ₹ 40,000. Determine goodwill of the firm.


Complete the following Table:

? = `"Total Profit"/"Number of Years"`

______ means profit which is earned over and above the normal profit.


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:

  1. Goodwill of the firm to be valued at two years’ purchase of the average profits of the last three years.
  2. Danish to have a `1/4` share in the future profits.
  3. 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:

  1. The formula to calculate goodwill by the Average Profit Method.
  2. The value of self-generated goodwill of the firm.
  3. Danish’s capital contribution.

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