Giri and shanta are partners in a firm sharing profits equally. They admit kachroo into partnership who, in addition to capital, brings rs. 20,000 as goodwill for 1/5th share of profits in the firm. What shall be journal entries if: (a) no goodwill appears in the books of the firm. (b) goodwill appears in the books of the firm at rs. 40,000.
Answers
Answer:
Explanation:
(a)When no Goodwill appears in books
Cash A/c Dr. 20,000
To Premium for Goodwill A/c 20,000
(Goodwill brought in by Kishore)
Premium for Goodwill A/c Dr. 20,000
To Giri’s Capital A/c 10,000
To Santa’s Capital A/c 10,000
(Goodwill brought in by Kishore distributed among Giri and Santa for their sacrifice)
(b)When Goodwill of Rs 40,000 appears in the books of the firm
Giri’s Capital A/c Dr. 20,000
Santa’s Capital A/c DR 20,000
To Goodwill A/c 40,000
(Old Goodwill distributed among old partners in old ratio i.e. 1 : 1)
Cash A/c Dr. 20,000
To Premium for Goodwill A/c 20,000
(Goodwill brought in by Kishore)
Premium for Goodwill A/c Dr. 20,000
To Giri’s Capital A/c 10,000
To Santa’s Capital A/c 10,000
(Goodwill brought in by Kishore distributed among Giri and Santa for their sacrifice)
Note: In the absence of any information regarding the sacrifice made by the old partners, sacrificing ratio is same as the old ratio, therefore sacrificing ratio of Giri and Santa is 1:1.
Explanation:
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