Question

21) L & M are partners in a firm sharing profit in the ratio of 3:1. They admitted O as a new partner for 1/4th share in profit M
would retain his original share in the future. O brought the following assets towards his share of capital and goodwill Stock
Rs.40,000; Debtors Rs.60,000; Land Rs.1,00,000; Plant Rs.60,000. The goodwill of the firm was valued Rs.4,80,000. Rece
the necessary journal entries assuming goodwill already appeared in the books with Rs.80,000. [3]​

Answer 1

Answer:

Cash a/c.....                                                     Dr.            50000

  Machinery a/c...                                               Dr.            70000

             To Premium for goodwill a/c                                          120000

(Being cash and machinery brought in by O for his share of profit as premium for goodwill)

2. Premium for Goodwill a/c...                         Dr.              120000

    M's Capital a/c...                                            Dr.               30000

              To L's Capital a/c                                                              150000

(Being premium for goodwill and M's gain transferred to L)

Working Note:

1. Calculation of sacrificing ratio:

L's old ratio= 3/4

M's old ratio= 1/4

New ratio of firm after admission= 1:1:1

Sacrificing ratio = Old ratio - New ratio

L's sacrifice = 3/4- 1/3= 5/12

M's gain = 1/4- 1/3= -1/12

2. Total goodwill of the firm= 120000*3/1= 360000

M's gain= 360000 * 1/12= 30000