Question

Bhuwan and Shivam were partners in a firm sharing profits in the ratio of $3:2$. Their capitals were $Rs.50,000$ and $Rs.75,000$ respectively. They admitted Atul on $1^{st}$April, 2018 as new partner for $1/4^{th}$ share in the future profits. Atul brought $Rs.75,000$ as his capital. Calculate the value of goodwill of the firm and record necessary Journal entries for the above transactions on Atul's admission.

Answer 1

(i) Calculation of goodwill of the firm:

Total capital of the firm after admission= 50000+75000+75000

= 200000

Total capital of the firm based on Atul's capital= 75000 * 4/1

= 300000

Hidden Goodwill= 300000- 200000= 100000

Atul's share of goodwill= 100000 * 1/4= 25000

(ii) JOURNAL

1. Cash a/c..... Dr. 75000

To Atul's Capital a/c 75000

(Being capital brought in by Atul)

2. Atul's Current a/c.... Dr. 25000

To Bhuwan's Capital a/c 15000

To Shivam's Capital a/c 10000

(Being goodwill distributed among the partners in the ratio of 3:2)