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Foreign Exchange and Exchange Rate

On the admiss...

Question

On the admission of Rao, it was agreed that the goodwill of Murty and Shah should be valued at $R s . 30, 000$ . Rao is to get $1 / 4^{t h}$ share of profits. Previously Murty and Shah shared profits in the ratio of $3 : 2$ . Rao cannot bring in any cash. Give Journal entries in the books of Murty and Shah when: (a) there is no Goodwill Account and (b) Goodwill appears in the books at $R s . 7, 500$ .

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Solution

Working Note:
1. Calculation of Rao's share of goodwill= 30000 * 1/4= 7500
2. Adjustment of Rao's share of goodwill:
Murty's share= 7500 * 3/5= 4500
Shah's share= 7500 * 2/5= 3000

(a) When there is no Goodwill account:

JOURNAL

1. Rao's Capital a/c.... Dr. 7500
To Murty's Capital a/c 4500
To Shah's Capital a/c 3000
(Being Rao's share of goodwill charged to his capital and distributed among the partners in the ratio of 3:2)

(b) Goodwill in the books appears at 7500:

JOURNAL
1. Murty's Capital a/c.... Dr. 4500
Shah's Capital a/c..... Dr. 3000
To Goodwill a/c 7500
(Being goodwill written off in the ratio of 3:2)
2. Rao's Capital a/c.... Dr. 7500
To Murty's Capital a/c 4500
To Shah's Capital a/c 3000
(Being Rao's share of goodwill charged to his capital and distributed among the partners in the ratio of 3:2)

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