Page No 5.89:

Question 31:

A and B are partners sharing profits in the ratio of 2 : 1. They admit C for 1/4th 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.

Answer:

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

	A’s Capital A/c	Dr.		12,000
	B’s Capital A/c	Dr.		6,000
	To Goodwill A/c				18,000
	(Goodwill written-off)

	Cash A/c	Dr.		38,000
	To C’s Capital A/c				30,000
	To Premium for Goodwill				8,000
	(C brought Capital and goodwill)

	Premium for Goodwill A/c	Dr.		8,000
	C’s Capital A/c	Dr.		2,000
	To A’s Capital A/c				6,667
	To B’s Capital				3,333
	(C’s share of goodwill distributed between A and B in Sacrificing Ratio)

Working Notes:

WN1 Writing-off of Goodwill

A’s Capital Account will be debited by =18,000×2/3=12,000

B’s Capital Account will be debited by =18,000×1/3=6,000

WN2 Distribution of C’s share of Goodwill

A will get =10,000×2/3=6,667

B will get =10,000×1/3=3.333

Page No 5.89:

Question 32:

A and B are partners sharing profits and losses in the ratio of 3 : 2. They admit C as partner in the firm for 1/4th share in profits which he takes 1/6th from A and 1/12th from B. C brings in only 60% of his share of firm's goodwill. Goodwill of the firm has been valued at ` 1,00,000. Pass necessary journal entries to record this arrangement.

Answer:

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

	Bank A/c	Dr.		15,000
	To Premium for Goodwill A/c				15,000
	(Goodwill brought in cash)

	Premium for Goodwill A/c	Dr.		15,000
	To A’s Capital A/c				10,000
	To B’s Capital A/c				5,000
	(Goodwill distributed between A & B in sacrificing ratio)

	C’s Capital A/c	Dr		10,000
	To A’s Capital A/c				6,667
	To B’s Capital A/c				3,333
	(Goodwill adjusted)

Working Notes:

WN1: Calculation of Sacrificing Ratio

A's sacrifice =16×22=212

B's sacrifice =112

∴ Sacrificing Ratio between A and B = 2:1

WN2: Calculation of share in goodwill of new partner

C's share in goodwill=1,00,000×14= ` 25,000

Goodwill brought in cash ` 15,000(25,000×60%)

Remaining goodwill of ` 10,000 will be adjusted through C's Capital A/c

Page No 5.89:

Question 33:

On the admission of Rao, goodwill of Murty and Shah is valued at ` 30,000. Rao is to get 1/4th share of profits. Previously Murty and Shah shared profits in the ratio of 3 : 2. Rao is unable to bring amount of goodwill. Give Journal entries in the books of Murty and Shah when:
(a) there is no Goodwill Account and
(b) Goodwill appears in the books at ` 10,000.

Answer:

WN1: Calculation of Rao’s share of Goodwill

Rao’s share of goodwill=30,000×1/4=7,500

WN2: Adjustment of Rao’s share of Goodwill

Murty will get =7,500×3/5=4,500

Shah will get =7,500×2/5=3,000

(a) Where there is no Goodwill Account

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

	Rao’s Capital A/c	Dr.		7,500
	To Murty’s Capital A/c				4,500
	To Shah’s Capital A/c				3,000
	(Rao’s share of goodwill charged from his capital account and distributed between Murty and Shah in sacrificing ratio i.ech 3:2)

(b) Goodwill appears at ` 10,000

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

	Murty’s Capital A/c	Dr.		6,000
	Shah’s Capital A/c	Dr.		4,000
	To Goodwill A/c				10,000
	(Goodwill written-off at the time of Rao’s admission in old ratio)

	Rao’s Capital A/c	Dr.		7,500
	To Murty’s Capital A/c				4,500
	To Shah’s Capital A/c				3,000
	(Rao’s share of goodwill charged from his Capital Account and distributed between Murty and Shah in sacrificing ratio i.ech 3:2)

Page No 5.89:

Question 34:

A, B and C are in partnership sharing profits and losses in the ratio of 5 : 4 : 1 respectively. Two new partners D and E are admitted. The profits are now to be shared in the ratio of 3 : 4 : 2 : 2 : 1 respectively. D is to pay ` 90,000 for his share of Goodwill but E has insufficient cash to pay for Goodwill. Both the new partners introduced ` 1,20,000 each as their capital. You are required to pass necessary Journal entries.

Answer:

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

	Bank A/c	Dr		3,30,000
	To D’s Capital A/c				1,20,000
	To E’s Capital A/c				1,20,000
	To Premium for Goodwill A/c				90,000
	(Capital and Goodwill brought in cash)

	C’s Capital A/c	Dr.		36,000
	E’s Capital A/c	Dr.		45,000
	Premium for Goodwill A/c	Dr.		90,000
	To A’s Capital A/c				1,35,000
	To B’s Capital A/c				36,000
	(Goodwill adjusted)

Working Notes:

WN1: Calculation of Sacrificing Ratio

A :B :C=5:4:1 (Old Ratio)

A :B :C :D :E=3:4:2:2:1 (New Ratio)

Sacrificing (or Gaining) Ratio = Old Ratio - New share

=510−312=30−1560=1560 (Share of sacrifice)

B's share =410−412=24−2060=460 (Share of sacrifice)

C's share =110−212=6−1060=−460 (Share of gain)

WN2: Adjustment of Goodwill
D's share in goodwill for 212 th share=90,000

∴Total goodwill of the firm = 90,000×122= ` 5,40,000

E's share in goodwill = 5,40,000×112= ` 45,000

C's share in goodwill = 5,40,000×460= ` 36,000

Page No 5.89:

Question 35:

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.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount `	Credit Amount `
2019 Apr.1	Mohan’s Capital A/c	Dr.		1,21,500
	Sohan’s Capital A/c	Dr.		81,000
	To Goodwill A/c				2,02,500
	(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.		1,500
	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

Goodwill=Average Profits×Number of Years' Purchase

Average Profits=Total ProfitsNumber of Years

=50,000+60,000+90,000+70,000/4=2,70,000/4= ` 67,500

Goodwill=67,500×3= ` 2,02,500

Ram's share=2,02,500×14=50,625
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.