X and Y are partners with capital of Rs. 6,00,000 and Rs.5,00,000 respectively. They admit Z as a partner with 1/4 the share in the profit of the firm with capital of Rs. 7,00,000. What will be the amount of Z’s share in the firm’s goodwill? (Answer showing all the necessary working)
Answers
Example
Working Note:
Calculation of hidden goodwill:
Total Capital of the firm after admission= 50000+50000+80000+40000
= 220000
Total capital of the firm based on Z's capital= 80000 * 4/1
= 320000
Hidden goodwill= 320000-220000= 100000
Z's share of Goodwill= 100000 * 1/4= 25000
JOURNAL
1. Cash a/c..... Dr. 80000
To Z's Capital a/c 80000
(Being capital brought in by Z)
2. Z's Capital a/c... Dr. 25000
To X's Capital a/c 12500
To Y's Capital a/c 12500
(Being Z's share of goodwill distributed among the partners in the ratio of 1:1)
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