Question

Verma and Sharma are partners in a firm sharing, profits and losses in the ratio of 5 : 3. They admitted Ghosh as a new partner for $\frac{1}{5}$ share of profits. Ghosh is to bring in Rs. 20,000 as captial and Rs. 4,000 as his share of goodwill premium. Give the necessary journal entries

(a) When the amount of goodwill is retained in the new business.

(b) When the amount of goodwill is fully withdrawn.

(c) When 50% of the amount of goodwill is withdrawn.

(d) When goodwill is paid privately.

Answer 1

$\text{Journal Entries}$

$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F}& \text{Amt.(Cr)}& \text{Amt.(Cr)}\\ \text{a. (i)}& \text{Cash A/c}& Dr& & 24,000& \\ & \text{To Ghosh's Capital A/c}& & & & \text{24,000}\\ & \text{(Capital Rs. 20,000 and goodwill Rs. 4,000 brought by Ghosh)}& & & & \\ & \underset{–}{}& & & & \\ \text{(ii)}& \text{Ghosh's Capital A/c}& Dr& & 4,000& \\ & \text{To Verma's Capital A/c}& & & & \text{2,500}\\ & \text{To Sharma's A/c}& & & & \text{1,500}\\ & \text{(Premium distributed among old partners in sharing ratio )}& & & & \\ & \underset{–}{}& & & & \\ \text{b.(i)}& \text{Cash A/c}& Dr& & 24,000& \\ & \text{To Ghosh's Capital A/c}& & & & \text{24,000}\\ & \text{(Capital Rs. 20,000 and goodwill Rs. 4,000 brought by Ghosh )}& & & & \\ & \underset{–}{}& & & & \\ \text{(ii)}& \text{Ghosh's Capital A/c}& Dr& & 4,000& \\ & \text{To Verma's Capital A/c}& & & & \text{2,500}\\ & \text{To Sharma's Capital A/c}& & & & \text{1,500}\\ & \text{(Premium distributed among old partners in sharing ratio)}& & & & \\ & \underset{–}{}& & & & \\ \text{(iii)}& \text{Verma's Capital A/c}& Dr& & 2,500& \\ & \text{Sharma's Capital A/c}& Dr& & 1,500& \\ & \text{To Cash A/c}& & & & \text{4,000}\\ & \text{(Share of goodwill withdrawn in full)}& & & & \\ & \underset{–}{}& & & & \\ \text{c(i)}& \text{Cash A/c}& Dr& & 24,000& \\ & \text{To Ghosh's A/c}& & & & \text{20,000}\\ & \text{(Capital Rs. 20,000 and goodwill Rs. 4,000 brought by Ghosh)}& & & & \\ & \underset{–}{}& & & & \\ \text{(ii)}& \text{Ghosh's Capital A/c}& Dr& & 4,000& \\ & \text{To Verma's Capital A/c}& & & & \text{2,500}\\ & \text{To Sharma's Capital A/c}& & & & \text{1,500}\\ & \text{(Premium distributed among old partners in sharing ratio)}& & & & \\ & \underset{–}{}& & & & \\ \text{(iii)}& \text{Verma's Capital A/c}& Dr& & 1,250& \\ & \text{Sharma's's Capital A/c}& Dr& & 750& \\ & \text{To Cash A/c}& & & & \text{2,000}\\ & \text{(50\% of goodwill withdrawn)}& & & & \\ & \underset{–}{}& & & & \end{array}$

Note: No entry, treatment or effect will be shown for goodwill paid privately.