Question : A and B are partners sharing profits and losses in the ratio of 4:1. They admit C into partnership for $\frac{1}{6}$th share for which he pays Rs.20,000 for goodwill. A, B and C decide to share future profits in the ratio of 3: 2: 1 respectively.
Choose the correct journal entry.
Option 1: Premium for goodwill a/c ........Dr 20,000
To A's capital A/c 15,000
To B"s capital A/c 5,000
Option 2: Premium for goodwill a/c....... Dr 20,000
To A's capital A/c 20,000
Option 3: Premium for goodwill a/c .......Dr 20,000
To B"s capital A/c 20,000
Option 4: Premium for Goodwill A/c.......Dr 20,000
B's Capital A/c.......Dr 16,000
To A's Capital A/c 36,000
Correct Answer:
Premium for Goodwill A/c.......Dr 20,000
B's Capital A/c.......Dr 16,000
To A's Capital A/c 36,000
Solution :
Answer =
Premium for Goodwill A/c.......Dr 20,000
B's Capital A/c.......Dr 16,000
To A's Capital A/c 36,000
| Premium for Goodwill A/c Dr. | 20,000 | |
| B's Capital A/c Dr. | 16,000 | |
| To A’s Capital A/c | 36,000 |
Working Note:
Old Ratio of $A$ and $B=4: 1$
New Ratio of A, B and C = $3: 2: 1$
Sacrifice or Gain:
A=$ \frac{4}{5}-\frac{3}{6}=\frac{24-15}{30}=\frac{9}{30}$ (Sacrifice)
B=$ \frac{1}{5}-\frac{2}{6}=\frac{6-10}{30}=\frac{4}{30}$ (Gain)
C= $\frac{1}{6}$ or $\frac{5}{30}$ (Gain)
Only A sacrifices his share to the benefit of B and C. Consequently, not only the goodwill brought in by C will be credited to A, B must also give $\frac{4}{30}$ th share of goodwill to A. The total value of Firm's.goodwill based on C's share is $20,000 \times \frac{6}{1}$ or Rs. 1,20,000. Hence, the amount of goodwill to be contributed by B will be (Rs. $1,20,000 \times \frac{4}{30}$ ) or Rs. 16,000. This will be adjusted by debiting $\beta$ 's Capital and Crediting A's Capital.
Hence, the correct option is 4.
