Question

A and B are partners sharing profits and losses in the ratio of 2 : 1 . They take C as a partner for 1/5th share. The Goodwill Account appears in the books at its full value ₹ 15,000. C is to pay proportionate amount as premium for goodwill which he pays to A and B privately. Pass necessary entries.

Answer 1

Necessary entries are shown below.

Explanation:

Full Value of Goodwill Account Papers = Rs. 15,000

Ratio of profit sharing for A and B is given as 2:1.

Calculating capital amount for each:

A’s capital

$= 15,000 \times \frac {2}{3}= Rs. 10,000$

B’s capital

$= 15,000 \times \frac{1}{3}= Rs. 5,000$

The amount brought in by C as Goodwill will not be recorded in the books of the firm as he paid to A and B privately in the old ratio.

Whatever amount C brings as goodwill, would not be recorded in the books of the firm because C pays A and B privately in the old ratio.