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Question

Mr. A commenced business with a capital of ₹ 2,50,000 on 1st April, 2013. During the five years ended 31st March, 2018, the following profits and losses were made:
31st March, 2014−Loss ₹ 5,000
31st March, 2015−Profit ​₹ 13,000
31st March, 2016−Profit ₹ 17,000
31st March, 2017−Profit ​₹ 20,000
31st March, 2018−Profit ₹ 25,000
During this period he had drawn ₹ 40,000 for his personal use. On 1st April, 2018, he admitted B into partnership on the following terms:
B to bring for his half share in the business, capital equal to A's Capital on 31st March, 2018 and to pay for the one-half share of goodwill of the business, on the basis of three times the average profit of the last five years. Prepare the statement showing what amount B should invest to become a partner and pass entries to record the transactions relating to admission.

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Solution

Capital as on April 01, 2013

2, 50,000

Less: Loss in 2014

(5,000)

Add: Profit in 2015

13,000

Add: Profit in 2016

17,000

Add: Profit in 2017

20,000

Add: Profit in 2018

25,000

3,20,000

Less: Drawings

(40,000)

A’ Capital as on March 31, 2018

2,80,000


Calculation of Goodwill

B’s Capital = A’s Capital as on March 31, 2016 = Rs 2,80,000

Journal

Date
2018

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

April 1

Cash A/c

Dr.

3,01,000

To B’s Capital A/c

2,80,000

To Premium for Goodwill A/c

21,000

(B brought capital and goodwill)

April 1

Premium for Goodwill A/c

Dr.

21,000

To A’s Capital A/c

21,000

(B’s share of goodwill transferred to
A’s Capital Account)


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