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Question
E and F were partners in a firm sharing profits in the ratio of 3 : 1. They admitted G as a new partner on 1st April, 2019 for 1/3rd share. It was decided that E, F and G will share future profits equally. G brought ₹ 50,000 in cash and machinery valued at ₹ 70,000 as premium for goodwill.
Pass necessary Journal entries in the books of the firm.
Solution
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Journal |
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Date |
Particulars |
L.F. |
Debit Amount (₹) |
Credit Amount (₹) |
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2019 |
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Machinery A/c |
Dr. |
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70,000 |
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To Premium for Goodwill A/c |
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1,20,000 |
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(G brought cash Rs 50,000 and Machinery |
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April 1 |
Premium for Goodwill A/c |
Dr. |
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1,20,000 |
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To E’s Capital A/c |
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1,20,000 |
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(G share of goodwill transferred to E’s Capital Account) |
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April 1 |
F’s Capital A/c |
Dr. |
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30,000 |
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To E’s Capital A/c |
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30,000 |
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(F’s share of gain in goodwill charged from his capital and transferred to E’s capital) |
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Working Notes :
WN 1:
Old Ratio = E : F
3 : 1
E : F : G
New Ratio = 9 : 1 : 1
Sacrificing Ratio = Old Ratio - New Ratio
E's = `3/4 - 1/3 = 5/12`
F's = `1/4 - 1/3 = -1/12`
WN2
Calculation of F’s share of gain in goodwill
G’s share of Goodwill = 50,000 + 70,000 = Rs 1, 20,000
Goodwill of the firm on the basis of G’s share = 1,20,000 x `3/1` = Rs. 3,60,000
F’s share of gain in goodwill = 3,60,000 x `1/12` = Rs. 30,000.
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