Question

Mohan and Sohan were partners in a firm sharing profits and losses in the ratio of $3:2$. they admitted Ram for $1/4^{th}$ share on $1^{st}$ April,2018. It was agreed that goodwill of the firm will be valued at $3$ years purchase of the average profit of last $4$ years which were $Rs.50,000$ for 2014-15, $Rs.60,000$ for 2015-16, $Rs.90,000$ for 2016-17 and $Rs.70,000$ for 2017-18. 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 $Rs.2,02,500$
(b) Goodwill appears in the books at $Rs.2,05,500$.

Answer 1

Calculation of amount of goodwill:

Average profit= [50000+60000+90000+70000]/4

= 67500

Goodwill of the firm= 67500 * 3

= 202500

Ram's share of goodwill= 1/4 * 202500

= 50625

(a) Goodwill appears in the books at 202500

Since the difference between goodwill that already appears in the books and goodwill calculated is zero, no entry is passed.

(b) Goodwill appears in the books at 205500

Difference= 205500- 202500

= 3000

JOURNAL

Mohan's Capital a/c.... Dr. 1800

Sohan's Capital a/c..... Dr. 1200

To Goodwill a/c 3000

(Being goodwill brought down to its agreed value)