Question

X and Y are partners. in a firm sharing profits and losses in 4 : 3 ratio. They admitted Z for $\frac{1}{8}$ share. Z brought Rs. 20,000 for his capital and Rs. 7,000 for his $\frac{1}{8}$ share of goodwill. Subsequently X, Y.and Z decided to show goodwill in their books at Rs. 40,000. Show necessary journal entries in the books of X, Y and Z.

Answer 1

According to new accounting system, the goodwill cannot be maintained or raised, but it should be written off, if it is existing in books.

$\text{Journal Entries})\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F}& \text{Amt.(Cr)}& \text{Amt.(Cr)}\\ \left(i\right)& \text{Cash A/c}& Dr& & 27,000& \\ & \text{To Z's Capital A/c}& & & & \text{27,000}\\ & \text{(Rs. 20,000 capital and Rs. 7,000 premium paid by Z in cash for 1/8 share)}& & & & \\ & \underset{–}{}& & & & \\ \left(ii\right)& \text{Z's Capital A/c}& Dr& & 7,000& \\ & \text{To X's Capital A/c}& & & & \text{4,000}\\ & \text{To Y's Capital A/c}& & & & \text{3,000}\\ & \text{(Premium distribution in sacrificing ratio)}& & & & \end{array}$

Note : If no information is provided, then old ratio becomes sacrificing ratio.