Question

Madhu and Neha were partners in a firm sharing profits and losses in the ratio of $3:5$. Their fixed capitals were $Rs.4,00,000$ and $Rs.6,00,000$ respectively. On 1/1/2016, Tina was admitted as a new partner for ${\frac{1}{4}}^{th}$ share in the profits. Tina acquired her share of profit from Neha. Tina brought $Rs.4,00,000$ as her capital which was to be kept fixed like the capitals of Madhu and Neha. Calculate the goodwill of the firm on Tina's admission and the new profit sharing ratio of Madhu, Neha and Tina. Also, pass necessary journal entry for the treatment of goodwill on Tina's admisson considering that Tina did not bring her share of goodwill premium in cash

Answer 1

Working Notes:

Calculation of Tina's Share of Goodwill (Hidden)

Total capital of the firm $=Rs.16,00,000(4,00,000\times \frac{4}{1})$

Net worth $=Rs.14,00,000(4,00,000+6,00,000+4,00,000)$

Hidden goodwill $=Rs.2,00,000(16,00,000-14,00,000)$

Tina's Share of Goodwill $=2,00,000\times \frac{1}{4}=Rs.50,000$

Calculation of New Profit Sharing Ratio:

Madhu's share $=\frac{3}{8}$ (same as old)

Neha $=\frac{5}{8}-\frac{1}{4}=\frac{3}{8}$

Tina $=\frac{1}{4}$

New Ratio $=\frac{3}{8}:\frac{3}{8}\frac{1}{4}=3:3:2$