T.S. Grewal Class 12 Chapter 4 Q.35 - Admission of a Partner

Question 35

On the admission of Rao, goodwill of Murty and Shah is valued at ₹30,000. Rao is to get a 1/4th share of profits. Previously Murty and Shah shared profits in the ratio of 3 : 2. Rao is unable to bring the amount of goodwill. Give the Journal entries when: (a) goodwill does not exist in the books; (b) goodwill exists in the books at ₹10,000.

Solution

Rao’s share of goodwill = ₹30,000 × 1/4 = ₹7,500, credited to Murty and Shah in the sacrificing ratio 3 : 2 (Murty ₹4,500; Shah ₹3,000).

Case (a) – no goodwill in books:

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
	Rao’s Capital A/c    Dr.		7,500
	To Murty’s Capital A/c			4,500
	To Shah’s Capital A/c			3,000
	(Rao’s share of goodwill charged to his capital and credited in 3 : 2)

Case (b) – goodwill exists at ₹10,000: first write it off in the old ratio, then adjust Rao’s share:

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
	Murty’s Capital A/c    Dr.		6,000
	Shah’s Capital A/c    Dr.		4,000
	To Goodwill A/c			10,000
	(Existing goodwill written off in the old ratio 3 : 2)
	Rao’s Capital A/c    Dr.		7,500
	To Murty’s Capital A/c			4,500
	To Shah’s Capital A/c			3,000
	(Rao’s share of goodwill adjusted through capital accounts)