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 profitsharing 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 










Working Notes:
WN1
Calculating of Sacrificing Ratio
Sacrificing
Ratio =Old ratio new ratio

M’s 
=3/55/10 




=1/10 



J’s 
=2/53/10 




=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 profitsharing 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 
=5/81/10 




=21/40 



B’s 
=3/81/10 




=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 
=7/121/24 




=13/24 



B’s 
=5/121/8 




=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 










Working Notes:
WN1
Calculation of Sacrificing Ratio
New
ratio= old ratio – Sacrificing Ratio
X’s 
=2/41/3 

=5/12 
Y’s 
=1/41/3 

=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 
` 
201516 
4,00,000 
201617 
5,00,000 
201718 
6,00,000 
201819 
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 ` 
Credit ` 
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 
31^{st}
March 
31^{st}
March 
31^{st}
March 
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 






Average Profits = `4,50,000
Goodwill = Average Profits × No. of years of Purchase = ` (4,50,000 ×3) = ` 13,50,000