Rahul and Modi are two partners into a firm sharing profits equally. On 1st January, 2020, they
decided to admit Vikas as a new partner into the firm for 1/5th share. Vikas brings Rs.
10,00,000 for his share of capital and premium of goodwill in cash. Half goodwill is withdrew
by the old partners. Goodwill of the firm is valued on the basis of one year purchase of profits
or losses of preceding last 3 years. Profits of last four years are: Rs. 6,00,000 in 2016, Rs.
7,00,000 in 2017, Rs. 8,00,000 in 2018 and Rs. 15,00,000 in 2019.
Complete the following journal entries for these activities at the time of admission of Vi
Answers
Explanation:
Rahul and Modi are two partners into a firm sharing profits equally. On 1st January, 2020, they
decided to admit Vikas as a new partner into the firm for 1/5th share. Vikas brings Rs.
10,00,000 for his share of capital and premium of goodwill in cash. Half goodwill is withdrew
by the old partners. Goodwill of the firm is valued on the basis of one year purchase of profits
or losses of preceding last 3 years. Profits of last four years are: Rs. 6,00,000 in 2016, Rs.
7,00,000 in 2017, Rs. 8,00,000 in 2018 and Rs. 15,00,000 in 2019.
Complete the following journal entries for these activities at the time of admission of Vi
Journal Entries at the time of admission will be-
Cash A/C DR 10,00,000
To Vikas Capital A/C 8,00,000
To Premium for Goodwill A/C 2,00,000
(Being capital and goodwill brought in by Vikas)
Premium For Goodwill A/C DR 2,00,000
To Rahul A/C 1,00,000
To Modi A/C 1,00,000
(Being goodwill distributed among the sacrificing partners)
Rahul A/C DR 50,000
Modi A/C DR 50,000
To Cash A/C 1,00,000
(Being half of the goodwill withdrawn by the partners)
CALCULATION OF GOODWILL-
Average Profit=
= 10,00,000
Goodwill = Average Profit × Number of year purchase
= 10,00,000 × 1
= 10,00,000
Vikas Share of Goodwill = 10,00,000 ×
2,00,000
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