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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 1/4th 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 1/4th share of profits which he acquires 1/6th from B and 1/12th from C.

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Solution

(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

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