Question

$E$ and $F$ were partners in firm sharing profits in the ratio of $3:1$. They admitted $G$ and will share future profits equally. $G$ brought $Rs.50,000$ in cash and machinery worth $Rs.70,000$ fir his share of profit as premium of goodwill.
pass necessary Journal entries in the books of the firm.

Answer 1

JOURNAL

1. Cash a/c..... Dr. 50000

Machinery a/c... Dr. 70000

To Premium for goodwill a/c 120000

(Being cash and machinery brought in by G for his share of profit as premium for goodwill)

2. Premium for Goodwill a/c... Dr. 120000

F's Capital a/c... Dr. 30000

To E's Capital a/c 150000

(Being premium for goodwill and F's gain transferred to E)

Working Note:

1. Calculation of sacrificing ratio:

E's old ratio= 3/4

F's old ratio= 1/4

New ratio of firm after admission= 1:1:1

Sacrificing ratio = Old ratio - New ratio

E's sacrifice = 3/4- 1/3= 5/12

F's gain = 1/4- 1/3= -1/12

2. Total goodwill of the firm= 120000*3/1= 360000

F's gain= 360000 * 1/12= 30000