Rajesh and Mukesh are equal partners in a firm. They admit Hari into partnership and the new profit sharing ratio between Rajesh, Mukesh and Hari is 4:3:2. On Hari’s admission goodwill of the firm is valued at Rs 36,000. Hari is unable to bring his share of goodwill premium in cash. Rajesh, Mukesh and Hari decided not to show goodwill in their balance sheet. Record necessary journal entries for the treatment of goodwill on Hari’s admission.
Answers
Given : Rajesh and Mukesh are equal partners in a firm. They admit Hari into partnership and the new profit sharing ratio between Rajesh, Mukesh and Hari is 4:3:2.
On Hari’s admission goodwill of the firm is valued at Rs 36,000. Hari is unable to bring his share of goodwill premium in cash. Rajesh, Mukesh and Hari decided not to show goodwill in their balance sheet.
Solution :
Necessary journal entries for the treatment of goodwill on Hari’s admission is in the attachment below :
Old ratio of old partners : Rajesh : Mukesh = 1 : 1
Rajesh share = ½
Mukesh share = ½
New profit sharing ratio :
Rajesh : Mukesh : Hari = 4 : 3: 2
Rajesh's new share = 4/9
Mukesh's new share = 3/9
Hari's new share = 2/9
Sacrificing ratio = old ratio - new ratio
Rajesh's sacrifice = ½ - 4/9 = (9 - 8)/18 = 1/18
Mukesh's sacrifice = ½ - 3/9 = (9 - 6)/18 = 3/18
Hari's sacrifice = 2/9 = 4/18
Sacrificing ratio between Rajesh and Mukesh = 1/18 : 3/18 = 1 : 3
Present value of goodwill = ₹ 36000
Hari's share of goodwill = 36000 × 2/9 = ₹ 8,000
Hence, Hari's share of goodwill is ₹ 8,000.
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