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Question
Mohan and Sohan were partners in a firm sharing profits and losses in the ratio of 3 : 2. They admitted Ram for 1/4th share on 1st April, 2019. It was agreed that goodwill of the firm will be valued at 3 years' purchase of the average profit of last 4 years ended 31st March, were ₹ 50,000 for 2015-16, ₹ 60,000 for 2016-17, ₹ 90,000 for 2017-18 and ₹ 70,000 for 2018-19. Ram did not bring his share of goodwill premium in cash. Record the necessary Journal entries in the books of the firm on Ram's admission when:
(a) Goodwill appears in the books at ₹ 2,02,500.
(b) Goodwill appears in the books at ₹ 2,500.
(c) Goodwill appears in the books at ₹ 2,05,000.
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Solution
|
Journal |
|||||
|
Date |
Particulars |
L.F. |
Debit Amount (₹) |
Credit Amount (₹) |
|
|
2019 |
Mohan’s Capital A/c |
|
|
|
|
|
|
Sohan’s Capital A/c |
Dr. |
81,000 |
|
|
|
|
To Goodwill A/c |
|
|
2,02,500 |
|
|
|
(Old goodwill written-off in old ratio) |
|
|
|
|
|
|
|
|
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||
|
|
Ram’s Capital A/c |
Dr. |
50,625 |
|
|
|
|
To Mohan’s Capital A/c |
|
|
30,375 |
|
|
|
To Sohan’s Capital A/c |
|
|
20,250 |
|
|
|
(Premium not brought debited to Ram and credited to sacrificing partners) |
|
|
|
|
|
|
|
|
|
||
|
|
Mohan’s Capital A/c |
Dr. |
1,500 |
|
|
|
|
Sohan’s Capital A/c |
Dr. |
1,000 |
|
|
|
|
To Goodwill A/c |
|
|
2,500 |
|
|
|
(Old goodwill written-off in old ratio) |
|
|
|
|
|
|
|
|
|
||
|
|
Ram’s Capital A/c |
Dr. |
50,625 |
|
|
|
|
To Mohan’s Capital A/c |
|
|
30,375 |
|
|
|
To Sohan’s Capital A/c |
|
|
20,250 |
|
|
|
(Premium not brought debited to Ram and credited to sacrificing partners) |
|
|
|
|
|
|
|
|
|
||
|
|
Mohan’s Capital A/c |
Dr. |
1,23,000 |
|
|
|
|
Sohan’s Capital A/c |
Dr. |
82,000 |
|
|
|
|
To Goodwill A/c |
|
|
2,05,00 |
|
|
|
(Old goodwill written-off in old ratio) |
|
|
|
|
|
|
|
|
|
||
|
|
Ram’s Capital A/c |
Dr. |
50,625 |
|
|
|
|
To Mohan’s Capital A/c |
|
|
30,375 |
|
|
|
To Sohan’s Capital A/c |
|
|
20,250 |
|
|
|
(Premium not brought debited to Ram and credited to sacrificing partners) |
|
|
|
|
Working Notes:
WN1: Calculation of Goodwill
Note: Since no information is given about the share of sacrifice, it is assumed that the old partners are sacrificing in their old profit sharing ratio.
APPEARS IN
RELATED QUESTIONS
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
Joshi, Pandey and Agarwal were partners in a firm sharing profits in the ratio of 2:2:1. On 31.3.2014, their Balance Sheet was as follows:
| 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:
(a) His share in the goodwill of the firm, calculated on the basis of three year's purchase of the average profits of the last four years. The profits of the last four years were Rs 2,70,000; Rs 3,00,000; Rs 5,40,000 and Rs 8,10,000 respectively.
(b) His share in the profits of the firm till the date of his death, calculated on the basis of the average profits of the last four years.
(c) Interest @12% per annum on the credit balance, if any, in his Capital account.
(d) Interest on his loan @12% per annum.
Prepare Agarwal's Capital Account to be presented to his executors.
For which share of Goodwill a partner is entitled at the time of his retirement?
How does the market situation affect the value of goodwill of a firm?
State 'True' or 'False'
The new partner must pay his share of goodwill in cash only.
State ‘True’ or ‘False’:
If the goodwill account raised up, goodwill account is debited.
Explain the treatment of goodwill at the time of retirement or on the event of death of a partner?
Explain how will you deal with goodwill when new partner is not in a position to bring his share of goodwill in cash ?
A and B are partners sharing profits in the ratio of 2 : 1. They admit C for a `1/4`th share in profits. C brings in ₹ 30,000 for his capital and ₹ 8,000 out of his share of ₹ 10,000 for goodwill. Before admission, goodwill appeared in books at ₹ 18,000. Give Journal entries to give effect to the above arrangement.
Hints:
- Goodwill of ₹ 18,000 written off by A and B in 2 : 1.
- Goodwill of ₹ 8,000 brought in cash by C will be credited to the Premium for Goodwill A/c.
- Premium for Goodwill A/c will be debited by ₹ 8,000 and C’s Current A/c will be debited by ₹ 2,000 and the Capital Accounts of A and B will be credited in 2 : 1.
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.
Vinay and Naman are partners sharing profits in the ratio of 4 : 1. Their capitals were ₹ 90,000 and ₹ 70,000 respectively. They admitted Prateek for 1/3 share in the profits. Prateek brought ₹ 1,00,000 as his capital. Calculate the value of firm's goodwill.
Write a word/phrase/term which can substitute the following statement.
Reputation of business measured in terms of money.
State the ratio in which the old partner’s Capital A/c will be credited for goodwill when the new partner does not bring his share of goodwill in cash?
____________ profit is excess of actual profits over normal profits.
Old partnership will dissolve if:
The amount of goodwill is paid by the new partner:
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:
- Bad debts amounted to ₹ 5,000. A provision for doubtful debts was to be maintained at 10% on debtors.
- Partners have decided to write off existing goodwill.
- 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.
- The assets and liabilities valued as: Inventories ₹1,30,000; Machinery ₹ 82,000; Furniture ₹1,95,000 and Building ₹ 6,00,000.
- Liability of ₹23,000 is to be created on account of Claim for Workmen Compensation.
- 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.
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?
If goodwill is not brought in cash by the new partner, it should be debited to his ______ Account.
Excess value of Purchase Consideration over Net Assets at the time of purchase of business is credited to:
Govind, Hari and Pratap are partners. On the retirement of Govind, the goodwill already appears on the Balance Sheet at ₹24,000. The goodwill will be written off ______
Mohit and Govind were partners in a firm with a ratio of 1:2. They admitted Ravi for 1/5th share in profits. He brought ₹2,50,000 for capital but could not bring goodwill. The goodwill of the firm was valued at ₹3,00,000. What Journal Entry will be passed for the treatment of goodwill?
How is Goodwill of the firm created?
Fill in the blank.
______ = `("Total Profit")/("Number of Years")`
A and B were partners in a firm sharing profits equally. Their capitals were : A ₹ 1,20,000 and B ₹ 80,000. The annual rate of interest is 20%. The profits of the firm for the last three years were ₹ 34,000; ₹ 38,000 and ₹ 30,000. They admitted C as a new partner. On C's admission the goodwill of the firm was valued at 2 years purchase of the super profits.
Calculate the value of goodwill of the firm on C's admission.
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 ______.
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"` |
Find out super profit, if capital employed is ₹ 4,00,000, normal rate of return is 12% and average profit is ₹ 60,000.
______ means profit which is earned over and above the normal profit.
