Page No 5.87:

Question 21:

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.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount `	Credit Amount `

	Cash A/c	Dr.		25,000
	To Premium for Goodwill A/c				25,000
	(C brought his share of goodwill in cash)

	Premium for Goodwill A/c	Dr.		25,000
	To M’s Capital A/c				12,500
	To J’s Capital A/c				12,500
	(C’s share of Goodwill distributed in M and J in their sacrificing Ratio)

Working Notes:

WN1

Calculating of Sacrificing Ratio

Sacrificing Ratio =Old ratio- new ratio

	M’s	=3/5-5/10
		=1/10
	J’s	=2/5-3/10
		=1/10
			M		J
Sacri ficing Ratio =			1/10	:	1/10
			1		1

WN2

Distribution of R’s share of Goodwill-

M and N each will get =25,000×1/2=12,500

Page No 5.87:

Question 22:

A and B are in partnership sharing profits and losses in the ratio of 5 : 3. C is admitted as a partner who pays ` 40,000 as capital and the necessary amount of goodwill which is valued at ` 60,000 for the firm. His share of profits will be 1/5th which he takes 1/10th from A and 1/10th from B.
Give Journal entries and also calculate future profit-sharing ratio of the partners.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount `	Credit Amount `
	Cash A/c	Dr.		52,000
	To C’s Capital A/c				40,000
	To Premium for Goodwill A/c				12,000
	(C brought Capital and his share of goodwill in cash)

	Premium for Goodwill A/c	Dr.		12,000
	To A’s Capital A/c				6,000
	To B’s Capital A/c				6,000
	(C’s share of Goodwill distributed in A and B)

Working Notes-

WN1

	A		B
Sacri ficing Ratio =	1/10	:	1/10
	1		1

WN2

Calculation of new profit sharing Ratio

	A	B
OLD RATION	5 :	3

New ratio= old ratio – sacrificing ratio

	A’s	=5/8-1/10
		=21/40
	B’s	=3/8-1/10
		=11/40
			X		Y		Z
New profit sharing ratio =			21/40	:	11/40	:	1/5
=			21/40	:	11/40	:	8/40

WN3

Distribution of C’s share of Goodwill (in Sacrificing Ratio)

A and B each will get =12,000×1/2=6,000

Page No 5.87:

Question 23:

A and B are partners sharing profits and losses in the ratio of 7 : 5. They admit C, their Manager, into partnership who is to get 1/6th share in the business. C brings in ` 10,000 for his capital and ` 3,600 for the 1/6th share of goodwill which he acquires 1/24th from A and 1/8th from B. Profits for the first year of the new partnership was ` 24,000. Pass necessary Journal entries for C's admission and apportion the profit between the partners.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount `	Credit Amount `

	Cash A/c	Dr.		13,600
	To C’s Capital A/c				10,000
	To Premium for Goodwill A/c				3,600
	(C brought capital and his share of goodwill)

	Premium for Goodwill A/c	Dr.		3,600
	To A’s Capital A/c				900
	To B’s Capital A/c				2,700
	(C’s share of goodwill transferred to A and B in their sacrificing ratio i.e. 3:1)

	Profit and Loss Appropriation A/c	Dr.		24,000
	To A’s Capital A/c				13,000
	To B’s Capital A/c				7,000
	To C’s Capital A/c				4,000
	(Profit after C’s admission distributed)

Working Note:

WN1

	A		B
Sacrificing Ratio =	1/24	:	1/8
	1	:	3

WN2

Distribution of C’s share of Goodwill (in sacrificing ratio)

A will get =3,600×1/4=900

B will get =3,600×3/4=2,700

WN3

Calculation of New Profit Sharing Ratio

New ratio= old ratio – Sacrificing Ratio

	A’s	=7/12-1/24
		=13/24
	B’s	=5/12-1/8
		=7/24
			A		B		C
New profit sharing ratio=			13/24	:	7/24	:	1/6
=			13/24	:	7/24	:	4/24
=			13	:	7	:	4

WN4

Distribution of Profit earned after C’s admission (in new ratio)

A will get =24,000×13/24=13,000

B will get =24,000×7/24=7,000

C will get =24,000×4/24=4,000

Page No 5.88:

Question 24:

X and Y are partners sharing profits in the ratio of 3: 1. Z is admitted as a partner for which he pays ` 30,000 for goodwill in cash. X, Y and Z decide to share the future profits in equal proportion. You are required to pass a single Journal entry to give effect to the above arrangement.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount `	Credit Amount `

	Cash A/c	Dr.		30,000
	To Premium for Goodwill A/c				30,000
	(X brought his share of goodwill)

	Premium for Goodwill A/c	Dr.		30,000
	Y’s Capital A/c	Dr.		7,500
	To X’s Capital A/c				37,500
	(Y and Z share of gain in goodwill transferred to X’s Capital Account)

Working Notes:

WN1

Calculation of Sacrificing Ratio

New ratio= old ratio – Sacrificing Ratio

X’s	=2/4-1/3
	=5/12
Y’s	=1/4-1/3
	=-1/12

WN2

Goodwill of the firm on the basis of Z’s share

Share of Z = 1/3

Premium he broght for his share =30,000

So, firms’s goodwill=30,000×3/1=90,000

X will get as a goodwill = Z’s share of Goodwill + Y’s gain in Goodwill=30,000×3/1

=90,000

B’s share in goodwill =90,000×1/12=7,500

= 30,000 + 7,500

= ` 37,500

Page No 5.88:

Question 25:

Anshul and Parul are partners sharing profits in the ratio of 3 : 2. They admit Payal as partner for 1/4th share in profits on 1st April, 2019. Payal brings ` 5,00,000 as capital and her share of goodwill by cheque. It was agreed to value goodwill at three years' purchase of average profit of last four years.

Profits for the last four years ended 31st March, were	`
2015-16	4,00,000
2016-17	5,00,000
2017-18	6,00,000
2018-19	7,00,000

Additional Information:
1. Closing Stock for the year ended 31st March, 2018 was overvalued by ` 50,000.
2. ` 1,00,000 should be charged annually to cover management cost.
Pass necessary Journal entries on Payal's admission.

Answer:

In the books of the Anshul, Parul and Payal Journal
Date	Particulars		L.F.	Debit Amount `	Credit Amount `
2019
April 01	Bank A/c	Dr.		8,37,500
	To Payal’s Capital A/c				5,00,000
	To Premium for Goodwill A/c				3,37,500
	(Being capital and goodwill paid by the new partner)

2019	Premium for Goodwill A/c	Dr.		3,37,500
April 01	To Anshul’s Capital A/c (3,37,500 × 3/5)				2,02,500
	To Parul’s Capital A/c (3,37,500 × 2/5)				1,35,000
	(Being premium for goodwill adjusted in sacrificing ratio)

Working Notes:

Particulars	Year	31^st March 2016	31^st March 2017	31^st March 2018	31^st March 2019
Profits for the year		4,00,000	5,00,000	6,00,000	7,00,000
Less: Overvaluation of Closing Stock				50,000
Add: Overvaluation of Opening Stock					50,000
Less: Annual Charge for Management Cost		1,00,000	1,00,000	1,00,000	1,00,000
Normal Profits		3,00,000	4,00,000	4,50,000	6,50,000