Question

$A$ and $B$ are partners sharing profits in the ratio of $2:1$. They admit $C$ for $1/4^{th}$ share in profits. $C$ brings in $Rs.30,000$ for his capital and $Rs.8,000$ out of his share of $Rs.10,000$ for goodwill. Before admission, goodwill appeared in books at $Rs.18,000$. Give Journal entries to give effect to the above arrangement.

Answer 1

JOURNAL

1. A's Capital a/c.... Dr. 12000

B's Capital a/c.... Dr. 6000

To Goodwill a/c 18000

(Being goodwill written off in the ratio of 2:1)

2. Cash a/c.... Dr. 38000

To C's Capital a/c 30000

To Premium for Goodwill a/c 8000

(Being capital and part premium for goodwill brought in by C)

3. Premium for Goodwill a/c... Dr. 8000

C's Capital a/c.... Dr. 2000

To A's Capital a/c 6667

To B's Capital a/c 3333

(Being premium for goodwill distributed among the partners in the ratio of 2:1)

Working Note:

Distribution of premium for goodwill:

A's share= 10000 * 2/3= 6667

B's share= 10000 * 1/3= 3333