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Question
X and Y are partners in a firm sharing profits and losses in 4:3 ratio. They admitted Z for 1/8 share. Z brought Rs. 20,000 for his capital and Rs. 7,000 for his 1/8 share of goodwill. Subsequently X, Y and Z decided to show goodwill in their books at Rs. 40,000. Show necessary journal entries in the books of X, Y and Z?
Solution
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Journal Entries |
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Date |
Particulars |
L.F. |
Debit Amount Rs |
Credit Amount Rs |
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Cash A/c |
Dr. |
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27,000 |
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To Z's Capital A/c |
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20,000 |
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To Premium for Goodwill A/c |
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7,000 |
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(Amount of Capital and his share of Goodwill brought by Z) |
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Premium for Goodwill A/c |
Dr. |
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7,000 |
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To X's Capital A/c |
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4,000 |
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To Y's Capital A/c |
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3,000 |
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(Premium for Goodwill credit to Old Partners in Sacrificing Ratio) |
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Goodwill Rs 40,000 can not be raised. According to AS-10 Goodwill can be shown in the book if money and money value is paid for it. Here no money or money value has been paid for Goodwill. |
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Liabilites |
Amount (Rs) |
Assets |
Amount (Rs) |
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Bills Payable |
|
10,000 |
Cash in Hand |
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Creditors |
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Outstanding |
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Expenses |
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Capitals: |
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Plant |
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A |
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Buildings |
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4,00,000 |
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