P and Q are in partnership sharing profits and losses in the ratio of 4 : 1. They admit R into the firm, R paying a premium of 60,000 for an equal share. Draft journal entries to record the transactions without opening goodwill account.
pl explain in detail
Answers
Explanation:
. Cash a/c.... Dr. 15000
To Premium for Goodwill a/c 15000
(Being premium for goodwill brought in by D)
2. Premium for Goodwill a/c... Dr. 15000
To B's Capital a/c 15000
(Being premium brought in by D transferred to B's capital)
3. C's Capital a/c... Dr. 3750
To B's Capital a/c 3750
(Being goodwill charged from C due to his gain in profit sharing)
Working Note:
1. Calculation of sacrificing ratio:
D is admitted for 1/3rd share
Remaining share= 1-[1/3]
= 2/3
B and C agree to share profits equally in future.
Hence, B's new share= 2/3 * 1/2 = 1/3
C's new share= 2/3 * 1/2 = 1/3
B's sacrifice= 3/4- 1/3
= 5/12
C's gain= 1/4- 1/3
= -1/12
2. D brings in 15000 as goodwill for 1/3rd share in profit.
Therefore total goodwill of the firm= 15000 * 3/1
= 45000
C's share of goodwill= 45000 * 1/12
= 3750