Question

X and Y are partners with capitals of ₹ 50,000 each. They admit Z as a partner with 1/4th share in the profits of the firm. Z brings in ₹ 80,000 as his share of capital. The Profit and Loss Account showed a credit balance of ₹ 40,000 as on date of admission of Z. Give necessary journal entries to record the goodwill.

Answer 1

Solution:

Total Capital of the firm after Z's admission

= X's Capital + Y's Capital + undistributed Profits + Z's Capital

= 50,000 + 50,000 +40,000 + 80,000 = 2,20,000  

Capitalised value of the firm on the basis of Z's share = 80, 000 x $\frac{4}{1}$

                                                                                        = 320000

Goodwill = Capitalised value of the firm - Goodwill = 3, 20, 000 - 2, 20, 000

Goodwill = 1, 00, 000