Question

X and Y are partners sharing profits and losses in the ratio of 2 : 1. They agree to admit Z into partnership who gets `1/3`rd share in the profits. Z brings in ₹ 50,000 for his capital and the necessary amount for goodwill in cash. Goodwill of the firm is valued at ₹ 36,000. X, Y and Z agree to share future profits equally. The amount of goodwill is withdrawn from the business. Pass entries.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Bank A/c   ...Dr.		62,000
	To Z’s Capital A/c			50,000
	To Premium for Goodwill A/c			12,000
	(Being cash brought in by Z for capital and goodwill)
	Premium for Goodwill A/c   ...Dr.		12,000
	To X’s Capital A/c			12,000
	(Goodwill premium distributed to X, the sacrificing partner)
	X’s Capital A/c   ...Dr.		12,000
	To Bank A/c			12,000
	(Being the amount of goodwill withdrawn by X)

Working Note:

Calculation of Z’s share of goodwill:

Z’s share of goodwill = `36,000 xx 1/3`

= 12,000

Calculation of sacrificing ratio:

X’s Sacrifice = `2/3 - 1/3`

= `1/3`

Y’s Sacrifice = `1/3 - 1/3`

= 0

Since only X has made a sacrifice in his share of profit, the entire goodwill amount will be credited to his capital account.