Bhuwan and Shivam were partners in a firm sharing profits in the ratio of 3 : 2. Their capitals were ₹ 50,000 and ₹ 75,000 respectively. They admitted Atul on 1st April, 2018 as a new partner for 1/4th share in the future profits. Atul brought ₹ 75,000 as his capital. Calculate the value of goodwill of the firm and record necessary journal entries for the above transactions on Atul’s admission.
Answers
Answer:
Profit sharing refers to various incentive plans introduced by businesses that provide direct or indirect payments to employees that depend on company's profitability in addition to employees' regular salary and bonuses. In publicly traded companies these plans typically amount to allocation of shares to employees.
Solution:
Journal
Particulars Debit Rs. Credit Rs.
Bank/ Cash A/c Dr. 75,000
To Atul's Capital A/c 75,000
(Being capital brought in)
Atul's Capital A/c Dr. 25,000
To Bhuwan's Capital A/c 15,000
To Shivam's Capital A/c 10,000
(Being goodwill distributed in sacrificing ratio of 3:2)
Atul's share in profits: 1/4th share in future profits.
Capital contribution 75,000
Fixing Atul's capital as the base;
Firm's Capital = New Partner's Capital x Reciprocal of his share
i.e.= 75,000 x 4 = 3,00,000
However, the total capital as at that date is 2,00,000
(i.e. 50,000+75,000+75,000) Difference (Hidden Goodwill) :1,00,000.
Atul's share in goodwill: 1/4th of 1,00,000 = 25,000