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.
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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
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
A will get Share of Goodwill
=
C’s, D’s & E’s Goodwill X
Sacrifice share of A
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)
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
Cha pter 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
Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms