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Question
Abhay and Beena are partners in a firm. They admit Chetan as a partner with 1/4th shares in the profits of the firm. Chetan brings Rs 2,00,000 as his share of capital. The value of the total assets of the firm is Rs. 5,40,000 and outside liabilities are valued at Rs. 1,00,000 on that date. Give the necessary entry to record goodwill at the time of Chetan's admission. Also, show your working notes.
Solution
Combined Capital of Abhay and Beena will be equal to the net worth of the business.
Net Worth = Sundry Assets - Outside Liabilities
= Rs 5,40,000 - Rs 1,00,000
= Rs 4,40,000
Hence, combined capital of Abhay and Beena is Rs 4,40,000.
Calculation of Hidden Goodwill:
| Amt (₹) | Amt (₹) | |
|
Based on Chetan's share, total capital of the new firm ought to be: Rs. 2,00,000 × `4/1` |
= | 8,00,000 |
| Less: Net worth or Combined Capital of Abhay and Beena | 4,40,000 | |
| Capital of Chetan | 2,00,000 | 6,40,000 |
| Value of Firm's Goodwill | 160,000 |
Chetan's Share of Goodwill = Rs. 1,60,000 × 14 = Rs. 40,000.
| Journal Entries | ||||
| Date | Particulars | L.F. |
Dr. (₹) |
Cr. (₹) |
| 1. | Bank A/c Dr. |
2,00,000 |
|
|
| To Chetan's Capital A/c |
|
2,00,000 |
||
| (Being Chetan brought his share of capital) |
|
|
||
|
|
|
|||
| 2. | Chetan's Capital A/c Dr. |
40,000 |
|
|
| To Abhay's Capital A/c |
|
20,000 |
||
| To Beena's Capital A/c |
|
20,000 |
||
| (Being Chetan's Share of Goodwill distributed among old partners in their sacrificing ratio 1:1) |
|
|
||
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Answer in one sentence only.
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Write the word/term or phrase which can substitute the following statement.
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