Asin and Shreyas are partners in a firm. They admit Ajay as a new partner with $1 / 5^{t h}$ share in the profits of the firm. Ajay bring $R s . 5, 00, 000$ as his share capital. The value of the total assets of the firm was $R s . 15, 00, 000$ and outside liabilities were valued at $R s . 5, 00, 000$ in that date. Give necessary Journal entry to record goodwill at the time of Ajay's admission. Also show your workings.

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Solution

Working Note:
Calculation of value of hidden goodwill:
Total value of the firm after admission= [1500000-500000]+500000
= 1500000
Total value of the firm based on Ajay's Capital= 500000 * 5/1
= 2500000
Hidden Goodwill of the firm= 2500000-1500000= 1000000
Ajay's share of goodwill= 1000000 * 1/5= 200000

JOURNAL
1. Ajay's Capital a/c..... Dr. 200000
To Asin's Capital a/c 100000
To Shreyas's Capital a/c 100000
(Being Ajay's share of goodwill distributed among the partners in the ratio of 1:1)

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