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 $1/5^{th}$ share of profits. Ghosh is to bring in $Rs.20,000$ as capital and $Rs.4,000$ as his share of goodwill premium. Give the necessary Journal entries, when goodwill is paid privately.

• A. Cash A/c Dr. 4000 To Goodwill A/c 4000
• B. Goodwill A/c Dr. 4000 To Cash A/c 4000
• C. Goodwill A/c Dr. 4000 To Verma's Caital A/c 2500 To Sharma's Capital A/c 1500
• D. No entry is required.

Answer 1

Answer: (D)

No entry is required.

When the goodwill brought in by the new partner is paid to the old partners privately, no entry is made in the books of accounts. This is because the money has not been brought into the business and hence no records can be shown.