Question

X and Y are partners in a firm sharing profits and losses in 4:3 ratio. They admitted Z for 1/8 share. Z brought Rs. 20,000 for his capital and Rs. 7,000 for his 1/8 share of goodwill. Subsequently X, Y and Z decided to show goodwill in their books at Rs. 40,000. Show necessary journal entries in the books of X, Y and Z?

Answer 1

Goodwill Rs 40,000 can not be raised.

Explanation:

• Cash A/c

Debit amount of  Dr.  =  27,000  Rs

Credit amount of  Z's Capital A/c  =  20,000  Rs

Credit amount to Premium for Goodwill A/c  =  7,000  Rs

(Amount of Capital and his share of Goodwill  brought by Z)

• Premium for Goodwill A/c

Debit amount of  Dr.  =  7,000  Rs

Credit amount To X's Capital A/c  =  4,000 Rs

Credit amount To Y's Capital A/c  = 3,000  Rs

(Premium for Goodwill credit to Old Partners in Sacrificing Ratio)

Goodwill Rs 40,000 can not be raised.