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Question
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 | ₹ |
| 2015-16 | 4,00,000 |
| 2016-17 | 5,00,000 |
| 2017-18 | 6,00,000 |
| 2018-19 | 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.
Solution
|
In the books of the Anshul, Parul and Payal Journal |
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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 |
31st Mar., |
31st Mar., |
31st Mar., |
31st Mar., |
| 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
APPEARS IN
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|
Balance Sheet of A and B as on 1.1.2016 |
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|
Liabilites |
Amount Rs |
Assets |
Amount Rs |
|
|
Creditors |
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Land & Building |
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|
Bills Payable |
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|
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|
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|
Stock |
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|
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|
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1,40,000 |
|
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