Question : E and F were partners in a firm sharing profits in the ratio of 3: 1. They admitted G as a new partner on 1-3-2017 for 1/3rd share. It was decided that E, F and G will share future profits equally. G brought Rs.50,000 in cash and machinery worth Rs.70,000 for his share of profit as premium for goodwill.
Which journal entries will be passed for accounting for Goodwill .
Option 1:
|
Cash A/c |
Dr. |
50,000 |
||
|
Machinery A/c |
Dr. |
70,000 |
||
|
To Premium for Goodwill A/c |
1,20,000 |
|||
|
(Cash and Machinery contributed by G on his admission, as his share of goodwill premium) |
||||
|
Premium for Goodwill A/c |
Dr. |
1,20,000 |
||
|
F’s Capital A/c |
Dr. |
30,000 |
||
|
To E’s Capital A/c |
1,50,000 |
|||
|
(Premium for goodwill brought in by G Credited to E along with 1/12 of the goodwill to be contributed by F due to gain in his profit sharing ratio) |
||||
Option 2:
|
Date |
Particulars |
L.F. |
Dr. (Rs.) |
Cr. (Rs.) |
|
|
2017 |
Cash A/c |
Dr. |
50,000 |
||
|
March 1 |
Machinery A/c |
Dr. |
70,000 |
||
|
To Premium for Goodwill A/c |
1,20,000 |
||||
|
(Cash and Machinery contributed by G on his admission, as his share of goodwill premium) |
|||||
|
March 1 |
Premium for Goodwill A/c |
Dr. |
1,50,000 |
||
|
. |
|||||
|
To E’s Capital A/c |
1,50,000 |
||||
Option 3:
|
Cash A/c |
Dr. |
50,000 |
||
|
Machinery A/c |
Dr. |
70,000 |
||
|
To Premium for Goodwill A/c |
1,20,000 |
|||
|
(Cash and Machinery contributed by G on his admission, as his share of goodwill premium) |
||||
|
Premium for Goodwill A/c |
Dr. |
1,20,000 |
||
|
To F’s Capital A/c |
. |
30,000 |
||
|
To E’s Capital A/c |
90,000 |
Option 4: None of the above
Correct Answer:
|
Cash A/c |
Dr. |
50,000 |
||
|
Machinery A/c |
Dr. |
70,000 |
||
|
To Premium for Goodwill A/c |
1,20,000 |
|||
|
(Cash and Machinery contributed by G on his admission, as his share of goodwill premium) |
||||
|
Premium for Goodwill A/c |
Dr. |
1,20,000 |
||
|
F’s Capital A/c |
Dr.
30,000
To E’s Capital A/c
1,50,000
(Premium for goodwill brought in by G Credited to E along with 1/12 of the goodwill to be contributed by F due to gain in his profit sharing ratio)
Solution :
Answer (1)
Working Note:
Old Ratio of E and F= 3: 1
New Ratio of E, F and G=1: 1: 1
Sacrifice or Gain :
E=$\frac{3}{4}-\frac{1}{3} \quad=\frac{9-4}{12}=\frac{5}{12}$(Sacrifice)
F=$\frac{1}{4}-\frac{1}{3} \quad=\frac{3-4}{12}=\frac{1}{12}$(Gain)
Since F is gaining equal to 1/12 in the profits, therefore, he will also have to compensate E proportionately.
Firm's goodwill on the basis of G's Share in profit $=1,20,000 \times 3 / 1=$ Rs.3,60,000. So, F will compensate $=$ Rs. $3,60,000 \times 1 / 12=$ Rs. 30,000.
Hence, the correct option is 1.
