Question 39 Chapter 5 of +2-A
39. Mohan and Sohan were partners in a firm sharing profits and losses in the ratio of 3 : 2. They admitted Ram for 1/4th share on 1st April, 2019. It was agreed that goodwill of the firm will be valued at 3 years’ purchase of the average profit of last 4 years ended 31st March, were 50,000 for 2015-16, 60,000 for 2016-17, 90,000 for 2017-18 and 70,000 for 2018-19. Ram did not bring his share of goodwill premium in cash. Record the necessary Journal entries in the books of the firm on Ram’s admission when:
(a) Goodwill appears in the books at 2,02,500.
(b) Goodwill appears in the books at 2,500.
(c) Goodwill appears in the books at 2,05,000.
The solution of Question 39 Chapter 5 of +2-A: –
(a) Goodwill appears in the books at 2,02,500.
| Date | Particulars |
L.F. | Debit | Credit | |
| Mohan’s Capital A/c | Dr | 1,21,500 | |||
| Sohan’s Capital A/c | Dr | 81,000 | |||
| To Goodwill A/c | 2,02,500 | ||||
| (Being goodwill written off which is already in the books) | |||||
| Ram’s Capital A/c | Dr | 50,625 | |||
| To Mohan’s Capital A/c | 30,375 | ||||
| To Sohan’s Capital A/c | 20,250 | ||||
| (Being Ram’s share of goodwill adjusted with his capital account) | |||||
(b) Goodwill appears in the books at 2,500.
| Date | Particulars |
L.F. | Debit | Credit | |
| Mohan’s Capital A/c | Dr | 1,500 | |||
| Sohan’s Capital A/c | Dr | 1,000 | |||
| To Goodwill A/c | 2,500 | ||||
| (Being goodwill written off which is already in the books) | |||||
| Ram’s Capital A/c | Dr | 50,625 | |||
| To Mohan’s Capital A/c | 30,375 | ||||
| To Sohan’s Capital A/c | 20,250 | ||||
| (Being Ram’s share of goodwill adjusted with his capital account) | |||||
(c) Goodwill appears in the books at 2,05,000.
| Date | Particulars |
L.F. | Debit | Credit | |
| Mohan’s Capital A/c | Dr | 1,23,000 | |||
| Sohan’s Capital A/c | Dr | 82,000 | |||
| To Goodwill A/c | 2,05,000 | ||||
| (Being goodwill written off which is already in the books) | |||||
| Ram’s Capital A/c | Dr | 50,625 | |||
| To Mohan’s Capital A/c | 30,375 | ||||
| To Sohan’s Capital A/c | 20,250 | ||||
| (Being Ram’s share of goodwill adjusted with his capital account) | |||||
Working Note: –
| Average Profit | = | Total Profit for past given years |
| Number of years |
| = | 50,000 + 60,000 + 90,000 + 70,000 | |
| 4 |
| = | 2,70,000 | |
| 4 | ||
| = | 67,500 |
Number of years’ purchase = 3
| Goodwill | = | Average Profit X | Number of years’ purchase |
| = | 67,500 X | 3 | |
| = | 2,02,500 |
| Ram’s Share of Goodwill | = | Firm’s Goodwill X | Share of E’s |
| = | 2,02,500 | X | 1 | |
| 4 | ||||
| = | 50,625 |
Sacrificing Ratio of Mohan and Sohan = 3 : 2
| Mohan will get Share of Goodwill | = | Ram’s Goodwill X | Sacrifice share of A |
| = | 50,625 | X | 1 | |
| 12 | ||||
| = | 45,000 |
| A will get Share of Goodwill | = | C’s, D’s & E’s Goodwill X | Sacrifice share of A |
| = | 50,625 | X | 3 | |
| 5 | ||||
| = | 30,375 |
| Sohan will get Share of Goodwill | = | Ram’s Goodwill X | Sacrifice share of A |
| = | 1,71,000 | X | 2 | |
| 5 | ||||
| = | 20,250 |
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
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
