26. Different Cases of Goodwill) A and B shared profits in the proportion of 3 and 2 had capitals of 20,000 and 15.000 respectively. They agree to admit C into partnership as from 1st January, 2015 on the follwing terms in return for a third share in the future profits: (a) That C should bring in 20,000 as capital: (b) That as C is unable to bring his share of goodwill in cash the goodwill of the firm be valued at 15,000. Set out the journal entries required, the capital accounts of the partners. State the future profit sharing proportion of the partners.
Answers
Answer:
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Explanation:
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Answer:
Calculation of new profit sharing ratio:
A's old share= 3/5
B's old share= 2/5
C is admitted for 1/8th share.
Remaining share= 1-[1/8]
= 7/8
A's new share= 3/5 * 7/8 = 21/40
B's new share= 2/5 * 7/8 = 14/40
C's share= 1/8 * 5/5= 5/40
New profit sharing ratio= 21:14:5
(ii) JOURNAL
1. Cash a/c... Dr. 20880
To C's Capital a/c 15000
To Premium for Goodwill a/c 5880
(Being capital and premium for goodwill brought in by C)
2. Premium for Goodwill a/c... Dr. 5880
To A's Capital a/c 3528
To B's Capital a/c 2352
(Being premium for goodwill distributed among the partners in the ratio of 3:2)
PARTNER'S CAPITAL A/C
Dr. Cr.
Particulars ABCParticularsABC By Balance b/d51450 36750 Nil By Cash a/c Nil Nil15000 To Balance c/d549783910215000 By Premium for Goodwill a/c 35282352Nil Total 549783910215000 Total549783910215000(iii) BALANCE SHEET
( after admission of C)
Liabilities Amount
(in Rs.) Assets Amount
(in Rs.) Cash (1500+20880) 22380 Capital
- A
- B
- C
54978
39102
15000 Debtors 19500 Creditors 11800 Stock 28000
Furniture 2500 Machinery 48500 Total 120880 Total120880
Working Note:
1. Calculation of goodwill:
Average profit= [21000+24000+25560]/3
= 23520
Goodwill= 23520 * 2
= 47040
2. C's share of Goodwill= 47040 * 1/8
= 5880
Distribution among partners:
A's share= 5880 * 3/5= 3528
B's share= 5880 * 2/5= 2352
Explanation:
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