Question

A and B are partners, sharing profits in the ratio of 3 : 1. They admit C for 1/4th share in profits of the firm. Goodwill of the firm is valued at Rs 40,000 on the date of admission of C. Pass Journal Entries in the following cases :
(a) C pays for his share of goodwill privately to A and B,
(b) C brings his share of goodwill in cash,
(c) C brings his share of goodwill in cash. A and B withdrawn half of the goodwill,
(d) C brings Rs 6,000 in cash out of his share of goodwill,
(e) C is unable to bring his share of goodwill in cash.

Answer 1

C’s share in profit = \(\frac{1}{4}\)
Remaining profit after C = \(\frac{3}{4}\)

Sacrifice Ratio of A and B = 3:1
New Profit Sharing Ratio of A, B and C = 9:3:4
(a) Goodwill paid to proviately so no entry will be pass in form’s book.
(b) (i) Cash A/c Dr. 10,000
To Goodwill A/c 10,000
(Being amount of goodwill brought in cash)

(ii) Goodwill A/c Dr. 10,000
To A’s Capital A/c 7,500
To B’s Capital A/c 2,500
(Being goodwill transferred to sacrificing partners capital a/c)

(c) (i) Cash A/c Dr. 10,000
To Goodwill A/c 10,000
(Being amount of goodwill brought in cash)

(ii) Goodwill A/c Dr. 10,000
To A’s Capital A/c 7,500
To B’s Capital A/c 2,500
(Being goodwill transferred to sacrificing partners capital A/c)

(iii) A’s Capital A/c Dr. 3,750
B’s Capital A/c Dr. 1,250
To Cash A/c 5,000
(Being \(\frac{1}{2}\) amount of goodwill withdrawn by sacrificing partners)

(d) (i) Cash A/c Dr. 6,000
To Goodwill A/c 6,000
(Being amount of goodwill brought in cash)

(ii) Goodwill A/ c Dr. 6,000
C’s current A/c Dr. 4,000
To A’s Capital A/c 7,500
To B’s Capital A/c 2,500
(Being goodwill transferred to sacrificing partners capital A/c)

(e) C’s current A/c Dr. 10,000
To A’s Capital A/c 7,500
To B’s Capital A/c 2,500
(Being share of goodwill of new partners is adjusted)