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Question
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.
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Solution
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Journal |
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Date |
Particulars |
L.F. |
Debit Amount (Rs) |
Credit Amount (Rs) |
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Anu’s Capital A/c |
Dr. |
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3,30,000 |
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Bhagwan’s Capital A/c |
Dr. |
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1,10,000 |
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To Goodwill A/c |
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4,40,000 |
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(Old goodwill written off in old ratio) |
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Cash A/c |
Dr. |
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1,50,000 |
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To Raja’s Capital A/c |
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1,00,000 |
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To Premium for Goodwill A/c |
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50,000 |
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(Capital and goodwill brought in by Raju) |
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Premium for Goodwill A/c |
Dr. |
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50,000 |
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Bhagwan’s Capital A/c |
Dr. |
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37,500 |
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To Anu’s Capital A/c |
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87,500 |
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(Premium for goodwill adjusted) |
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Working Notes:
WN1 Calculation of Share in Old Goodwill
Anu's share = 4,40,000 x `3/4` = 3,30,000
Bhagwan's share = 4,40,000 x `1/4` = 1,10,000
WN2 Calculation of Raja's Share of Goodwill
Raja's Share of Goodwill = Firm's Goodwill x Raja's Profit Share
= 2,50,000 x `1/5` = 50,000
WN3 Calculation of Sacrificing Ratio
Sacrificing Ratio = Old Share - New Share
Anu's = `3/4 - 2/5 = 7/20` (Sacrifice)
Bhagwan's = `1/4 - 2/5 = - 3/20` (gain)
APPEARS IN
RELATED QUESTIONS
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P: The normal profits of a similar firm in the industry.
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R: The number of years purchase.
S: The actual capital employed in the business.
