Question

Mohan Lal and Sohan Lal were partners in a firm sharing profits and losses in 3:2 ratio. They admitted Ram Lal for 1/4 share on 1.1.2013. It was agreed that goodwill of the firm will be valued at 3 years purchase of the average profits of last 4 years which were Rs. 50,000 for 2013, Rs. 60,000 for 2014, Rs. 90,000 for 2015 and

Rs. 70,000 for 2016. Ram Lal did not bring his share of goodwill premium in cash. Record the necessary journal entries in the books of the firm on Ram Lal’s admission when:

a) Goodwill already appears in the books at Rs. 2,02,500.

b) Goodwill appears in the books at Rs. 2,500.

c) Goodwill appears in the books at Rs. 2,05,000.

Answer 1

Year	Profit
2013	50,000
2014	60,000
2015	90,000
2016	70,000
Sum of 4 years profit	2,70,000

Average Profit = = Rs 67,500

Goodwill = Average Profit × No. of Years Purchases = 67,500 × 3 = 2,02,500

Ram Lal entered into the firm for 1/4 share of Profit.

Ram Lal’s share of goodwill = 2,02, 500 × (1/4) = Rs 50,625

Here sacrificing ratio of Mohan Lal and Sohan Lal will be equal to old ratio because new and sacrificing ratio is not given.

Mohan Lal will get = Ram Lal’s Share of Goodwill × (3/5) = 50,625 × (3/5) = 10,125 × 3 = Rs 30,375

Sohan Lal will = Ramlal Share of Goodwill × (1/5) = 50,625 × (1/5) = Rs 10,125 × 2 = Rs 20,250

Case (a)

Journal Entries
Date	Particulars			L.F.	Debit Amount Rs	Credit Amount Rs
	Mohan Lal's Capital A/c		Dr.		1,21,500
	Sohan Lal's Capital A/c		Dr.		81,000
		To Goodwill A/c				2,02,500
	(Goodwill appeared in the old firm written off)
	Ramlal's Capital A/c		Dr.		50,625
		To Mohan Lal's Capital A/c				30,375
		To Sohan Lal's Capital A/c				20,250
	(Ram Lal's Shares of Goodwill charged from his account and Distrbuted between in Mohan Lal and Sohan Lal in Sacrificing Ratio)

Case (b)

Journal Entries
Date	Particulars			L.F.	Debit Amount Rs	Credit Amount Rs
	Mohan Lal's Capital A/c		Dr.		1,500
	Sohan Lal's Capital A/c		Dr.		1,000
		To Goodwill A/c				2,500
	(Goodwill already appeared in the books of firm written off in old ratio)
	Ramlal's Capital A/c		Dr.		50,625
	To Mohan Lal's Capital A/c					30,375
	To Sohan Lal's Capital A/c					20,250
	(Ram Lal's Shares of Goodwill charged from his capital by Mohan Lal and Sohan Lal in sacrificing ratio)

Case (c)

Journal Entries
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
	Mohan Lal's Capital A/c	Dr.		1,23,000
	Sohan Lal's Capital A/c	Dr.		82,000
	To Ram Lal’s Capital A/c				2,05,000
	(Goodwill already appeared in the books of firm written off in Old Ratio)
	Ramlal's Capital A/c	Dr.		50,625
	To Mohan Lal's Capital A/c				30,375
	To Sohan Lal's Capital A/c				20,250
	(Ram Lal's Shares of Goodwill charged from his capital by Mohan Lal and Sohan Lal in sacrificing ratio)