$X$ and $Y$ are partners sharing profits in the ratio of $3 : 1$ . Z is admitted as partner for which he pays $R s . 30, 000$ for goodwill in cash. $X, Y$ and $Z$ decided to share the future profits in equal proportion. You are required to pass a single Journal entry to give effect to the above arrangement.

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Solution

JOURNAL
1. Cash a/c.... Dr. 30000
To Premium for goodwill a/c 30000
(Being premium for goodwill brought in by Z)
2. Premium for Goodwill a/c... Dr. 30000
Y's Capital a/c Dr. 7500
To X's Capital a/c 37500
(Being premium for goodwill and Y's gain transferred to X)

Working Note:
1. Calculation of sacrificing ratio:
X's sacrifice= 3/4- 1/3= 5/12
Y's gain= 1/4- 1/3= -1/12

2. Z is admitted for 1/3rd share in profits. Z's share of goodwill= 30000
Hence, total goodwill of the firm= 30000 * 3/1= 90000
Y's share of gain= 90000 * 1/12= 7500

Hence, X gets= 30000+7500
= 37500

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