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Question 24 Chapter 5 of +2-A
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Table of Contents
24. M and J are partners in a firm sharing profits in the ratio of 3 : 2. They admit R as a new partner. The new profit-sharing ratio between M, J and R will be 5 : 3 : 2. R brought in 25,000 for his share of premium for goodwill. Pass necessary Journal entries for the treatment of goodwill.
The solution of Question 24 Chapter 6 of +2-A
| Date | Particulars | L.F. | Debit | Credit | |
| Cash A/c | Dr | 25,000 | |||
| To Premium for Goodwill A/c | 25,000 | ||||
| (Being C brought his share of goodwill) | |||||
| Premium for Goodwill A/c | Dr | 25,000 | |||
| To M’s Capital A/c | 12,500 | ||||
| To J’s Capital A/c | 12,500 | ||||
| (Being goodwill distributed among the old partners’ in their sacrificing ratio) | |||||
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| Old Ratio of M and J | = | 3 : 1 |
| New Ratio of M, J, and R | = | 5 : 3 : 2 |
Sacrificing Share = Old Ratio – New Ratio
| M’s Sacrificing Share | = | 3 | – | 5 |
| 5 | 10 |
| = | 6 – 5 | |
| 10 |
| = | 1 | Sacrifice | |
| 10 |
| J’s Sacrificing Share | = | 2 | – | 3 |
| 5 | 10 |
| = | 4 – 3 | |
| 12 |
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| = | 1 | Sacrifice | |
| 10 |
| Sacrificing Ratio | = | 1 | : | 1 |
| 10 | 10 | |||
| = | 1 | : | 1 |
Distribution of D’s share of Goodwill
D’s share of Goodwill = 25,000
| M & J will get share of Goodwill | = | New Partner’s Share of Goodwill X Sacrificing Ratio |
| = | 25,000 | X | 1 | |
| 2 | ||||
| = | 12,500 each |
T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)
- Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
- Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
- Chapter No. 3 – Goodwill: Nature and Valuation
- Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
- Chapter No. 5 – Admission of a Partner
- Chapter No. 6 – Retirement/Death of a Partner
- Chapter No. 7 – Dissolution of a Partnership Firm
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 8 – Company Accounts – Accounting for Share Capital
- Chapter No. 9 – Company Accounts – Issue of Debentures
- Chapter No. 10 – Redemption of Debentures
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 1 – Financial Statements of a Company
- Chapter No. 2 – Financial Statement Analysis
- Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
- Chapter No. 4 – Accounting Ratios
- Chapter No. 5 – Cash Flow Statement
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