Question

Mohan and Sohan were partners in a firm sharing profits and losses in the ratio of 3 : 2. They admitted Ram for 1/4th share on 1st April, 2019. It was agreed that goodwill of the firm will be valued at 3 years' purchase of the average profit of last 4 years ended 31st March, were ₹ 50,000 for 2015-16, ₹ 60,000 for 2016-17, ₹ 90,000 for 2017-18 and ₹ 70,000 for 2018-19. Ram did not bring his share of goodwill premium in cash. Record the necessary Journal entries in the books of the firm on Ram's admission when:
(a) Goodwill appears in the books at ₹ 2,02,500.
(b) Goodwill appears in the books at ₹ 2,500.
(c) Goodwill appears in the books at ₹ 2,05,000.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 Apr.1	Mohan’s Capital A/c	Dr.		1,21,500
	Sohan’s Capital A/c	Dr.		81,000
	To Goodwill A/c				2,02,500
	(Old goodwill written-off in old ratio)
	Ram’s Capital A/c	Dr.		50,625
	To Mohan’s Capital A/c				30,375
	To Sohan’s Capital A/c				20,250
	(Premium not brought debited to Ram and credited to sacrificing partners)
	Mohan’s Capital A/c	Dr.		1,500
	Sohan’s Capital A/c	Dr.		1,000
	To Goodwill A/c				2,500
	(Old goodwill written-off in old ratio)
	Ram’s Capital A/c	Dr.		50,625
	To Mohan’s Capital A/c				30,375
	To Sohan’s Capital A/c				20,250
	(Premium not brought debited to Ram and credited to sacrificing partners)
	Mohan’s Capital A/c	Dr.		1,23,000
	Sohan’s Capital A/c	Dr.		82,000
	To Goodwill A/c				2,05,00
	(Old goodwill written-off in old ratio)
	Ram’s Capital A/c	Dr.		50,625
	To Mohan’s Capital A/c				30,375
	To Sohan’s Capital A/c				20,250
	(Premium not brought debited to Ram and credited to sacrificing partners)

Working Notes:

WN1: Calculation of Goodwill

$$\begin{gathered} \mathrm{Goodwill}=\mathrm{Average}\mathrm{Profits}\times \mathrm{Number}\mathrm{of}\mathrm{Years}\text{'}\mathrm{Purchase} \\ \begin{array}{c}\begin{array}{rcl}\mathrm{Average}\mathrm{Profits}& =& \frac{\mathrm{Total}\mathrm{Profits}}{\mathrm{Number}\mathrm{of}\mathrm{Years}}\\ & =& \frac{50,000+60,000+90,000+70,000}{4}\\ & =& \frac{2,70,000}{4}=\mathrm{Rs}67,500\end{array}\end{array} \\ \mathrm{Goodwill}=67\mathrm{,500}\times 3=\mathrm{Rs}2,02,500 \\ \mathrm{Ram}\text{'}s\mathrm{share}=\mathrm{2,02,500}\times \frac{1}{4}=50,625 \end{gathered}$$
Note: Since no information is given about the share of sacrifice, it is assumed that the old partners are sacrificing in their old profit sharing ratio.