Question

Give Journal entries to record the following arrangements in the books of the firm:
(a) $B$ and $C$ are partners sharing profits in the ratio of $3:2$. $D$ is admitted paying a premium (goodwill) of $Rs.2,000$ for $1/4^{th}$ share of the profits, shares of $B$ and $C$ remain as before.
(b) $B$ and $C$ are partners sharing profits in the ratio of $3:2$. $D$ is admitted paying a premium of $Rs.2,100$ for $1/4^{th}$ share of profits which he acquires $1/6^{th}$ from $B$ and $1/{12}^{th}$ from $C$.

Answer 1

(a) JOURNAL

1. Cash a/c.... Dr. 2000

To Premium for Goodwill a/c 2000

(Being premium for goodwill brought in by D)

2. Premium for Goodwill a/c..... Dr. 2000

To B's Capital a/c 1200

To C's Capital a/c 800

(Being premium brought in by D distributed among the partners in the ratio of 3:2)

Working note:

Distribution of goodwill:

B's share= 3/5 * 2000 = 1200

C's share= 2/5 * 2000= 800

(b) JOURNAL

1. Cash a/c........ Dr. 2100

To Premium for Goodwill a/c 2100

(Being premium for goodwill brought in by D)

2. Premium for Goodwill a/c..... Dr. 2100

To B's Capital a/c 1400

To C's Capital a/c 700

(Being premium brought in by D distributed among the partners in the ratio of 2:1)

Working note:

1. Sacrificing ratio:

B's sacrifice= 1/6

C's sacrifice= 1/12

Ratio= 2:1

2. Distribution of goodwill:

B's share= 2/3 * 2100 = 1400

C's share= 1/3 * 2100 = 700