Question

$M$ and $J$ are partners in a firm sharing profits in the ratio of $3:2$. They admit $R$ s a new partner. The new profit sharing ratio between $M,J$ and $R$ will be $5:3:2$. $R$ brought in $Rs.25,000$ for his share of premium for goodwill. Pass necessary Journal entries for the treatment of goodwill.

Answer 1

JOURNAL

1. Cash a/c...... Dr. 25000

To Premium for Goodwill a/c 25000

(Being premium for goodwill brought in by R)

2. Premium for Goodwill a/c... Dr. 25000

To M's Capital a/c 12500

To J's Capital a/c 12500

(Being premium for goodwill brought in by R distributed in the ratio of 1:1)

Working Note:

1. Calculation of sacrificing ratio:

M's sacrifice= 3/5- 5/10 = 1/10

J's sacrifice= 2/5- 3/10 = 1/10

Sacrificing ratio= 1:1

2. Distribution of goodwill:

M's share= 1/2 * 15000= 12500

J's share= 1/2 * 15000= 12500