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Pass Necessary Journal Entries. - Accountancy

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Question

A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. They admit C into partnership for 1/5th share. C brings ₹ 30,000 as capital and ₹ 10,000 as goodwill. At the time of admission of C, goodwill appeared in the Balance Sheet of A and B at ₹ 3,000. New profit-sharing ratio of the partners will be 5 : 3 : 2. Pass necessary Journal entries.

Journal Entry

Solution

Journal Entries

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

A’s Capital A/c

Dr.

 

1,800

 

 

B’s Capital A/c

Dr.

 

1,200

 

 

            To Goodwill A/c

 

 

 

3,000

 

(Goodwill written-off)

 

 

 

 

 

 

 

 

 

 

 

Cash A/c

Dr.

 

40,000

 

 

         To C’s Capital A/c

Dr.

 

 

30,000

 

         To Premium for Goodwill A/c

 

 

 

10,000

 

(C brought capital and his share of goodwill in cash)

 

 

 

 

 

 

 

 

 

 

Premium for Goodwill

Dr.

 

10,000

 

 

          To A’s Capital A/c

 

 

 

5,000

 

           To B’s Capital A/c

 

 

 

5,000

 

(Premium for Goodwill distributed)

 

 

 

 

Old Ratio = A : B
                = 3 : 2
New Ratio = A : B : C
                  = 5 : 3 : 2
Sacrificing Ratio = Old Ratio − New Ratio
A's = `3/5 - 5/10 = 1/10`

B's = `2/5 - 3/10 = 1/10`

Sacrificing Ratio = A : B
                           = `1/10 : 1/10` = 1 : 1
Distribution of Premium for Goodwill C’s share of Goodwill)
A and B each will get = 10,000 x `1/2` = Rs. 5,000 each

Goodwill written-off :
 A will be debited by 3,000 x `3/5` = Rs. 1,800.
B will be credited by 3,000 x `2/5` = Rs. 1,200.

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Chapter 5: Admission of a Partner - Exercises [Page 88]

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TS Grewal Accountancy - Double Entry Book Keeping Volume 1 [English] Class 12
Chapter 5 Admission of a Partner
Exercises | Q 29 | Page 88

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State 'True' or 'False'
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State 'True' or 'False'
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Explain how will you deal with goodwill when new partner is not in a position to bring his share of goodwill in cash ?


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Madan and Gopal are partners sharing profits in the ratio of 3 : 2. They admit Sooraj for 1/3rd share in profits on 1st April, 2019. They also decide to share future profits equally. Goodwill of the firm was valued at ₹ 5,50,000. Goodwill existed in the books of account at ₹ 1,00,000,  which the partners decide to carry forward.
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A and B are partners sharing profits and losses in the ratio of 2 : 1. They take C as a partner for 1/5th share. Goodwill Account appears in the books at ₹ 15,000. For the purpose of C's admission, goodwill of the firm is valued at ₹ 15,000. C is to pay proportionate amount as premium for goodwill which he pays to A and B privately.
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Balance Sheet of Keith, Bina, and Veena as on 31-3-2019 

Liabilities

Amount(₹)

Assets Amount(₹)
Capitals :

 

Plant and Machinery 2,40,000
Keith - 1,50,000   Stock  60,000
Bina - 1,00,000   Sundry debtors 35,000
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3,25,000

Cash at bank  50,000
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30,000

   
Sundry creditors

30,000

   
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Veena died on 30th June 2019. According to the partnership deed, the executors of the deceased partner were entitled to :
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(b) Salary till the date of death @ ₹ 25,000 per annum.
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(d) Share of profit from the closure of the last accounting year till the date of death on the basis of the average of three completed years profits before death.
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Veena withdrew ₹ 15,000 on 1st June 2019 for paying her daughter's school fees.
Prepare Veena's capital account to be rendered to her executors.


Write a word/phrase/term which can substitute the following statement.

Reputation of business measured in terms of money.


Write a word/phrase/term which can substitute the following statement.

Name the method of the treatment of goodwill where new partner will bring his share of goodwill in cash.


State True or False with reason.

When goodwill is paid privately to the partners, it is not recorded in the books.


State True or False with reason.

A new partner always bring his share of goodwill in cash.


State True or False with reason.

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Find the Odd one.


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What is the super profit method of calculation of goodwill?


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____________ profit is excess of actual profits over normal profits.


Amount of old goodwill already appearing in the books will be written off:


The amount of goodwill is paid by the new partner:


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Balance Sheet as at 31st March,2021
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Bank Overdraft   61,500 Debtors 38,000  
Workmen’s Compensation Reserve   32,000 Less: Provision For Doubtful Debts (2,300) 35,700
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Gini 4,60,000   Machinery   1,00,000
Bini 3,00,000   Furniture   1,80,000
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    12,00,000     12,00,000

On 31st March, 2021, Gini retired from the firm. All the partners agreed to revalue the assets and liabilities on the following basis:

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  2. Partners have decided to write off existing goodwill.
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Identify the formula for calculating goodwill with the help of capitalised method of super profit.


Doremon, Shinchan and Nobita are partners sharing profits and losses in the ratio of 3 : 2 : 1. With effect from 1st April, 2022 they agree to share profits equally. For this purpose, goodwill is to be valued at two year’s purchase of the average profit of the last four years which were as follows:

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Year ending on 31st March, 2020 ₹ 1,20,000 (Profit)
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Year ending on 31st March, 2022 ₹ 70,000 (Loss)

On 1st April, 2021 a Motor Bike costing ₹ 50,000 was purchased and debited to travelling expenses account, on which depreciation is to be charged @ 20% p.a by Straight Line Method. The firm also paid an annual insurance premium of ₹ 20,000 which had already been charged to Profit and Loss Account for all the years.

Journalise the transaction along with the working notes.


A and B were partners in a firm sharing profits equally. Their capitals were : A ₹ 1,20,000 and B ₹ 80,000. The annual rate of interest is 20%. The profits of the firm for the last three years were ₹ 34,000; ₹ 38,000 and ₹ 30,000. They admitted C as a new partner. On C's admission the goodwill of the firm was valued at 2 years purchase of the super profits.

Calculate the value of goodwill of the firm on C's admission. 


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Nita and Samar are partners in a firm sharing profits in the ratio of 3 : 2. Their fixed capitals were ₹ 90,000 and ₹ 2,10,000 respectively. They admitted Mitali on April 1, 2022 as a new partner for 1/5th share in future profits. Mitali brought ₹ 1,50,000 as her capital. The value of goodwill of the firm of Mitali's admission was ______.


Calculate goodwill of a firm on the basis of three years purchases of the Weighted Average Profits of the last four years. The profits of the last four years were: 

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Complete the following Table:

? = `"Total Profit"/"Number of Years"`

Find out super profit, if capital employed is ₹ 4,00,000, normal rate of return is 12% and average profit is ₹ 60,000.


______ = Average profit x No. of years of purchase


Choose the components required to calculate goodwill of a firm by Capitalisation of Average Profits Method.

P: The normal profits of a similar firm in the industry

Q: The average profits of the firm

R: The number of years purchase

S: The actual capital employed in the business


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