Question 55 of 64intermediate🔧 ApplyNumerical4 marks

Amar and Akbar are equal partners in a firm. They admitted Anthony as a new partner and the new profit sharing ratio is 4:3:2. Anthony could not bring this share of goodwill Rs. 45,000 in cash. It is decided to do adjustment for goodwill without opening goodwill account. Pass the necessary journal entry for the treatment of goodwill?

Correct Answer

Journal Entry

DateParticularsL.F.Debit (Rs.)Credit (Rs.)
Anthony's Capital A/c Dr.45,000
To Amar's Capital A/c11,250
To Akbar's Capital A/c33,750
(Being Anthony's share of goodwill adjusted through Capital Accounts of sacrificing partners in their sacrificing ratio)

Working Notes:

  1. Calculation of Sacrificing Ratio:

    • Old Ratio (Amar : Akbar) = 1 : 1
    • New Ratio (Amar : Akbar : Anthony) = 4 : 3 : 2
    • Amar's Sacrifice = Old Share - New Share = 1/2 - 4/9 = (9-8)/18 = 1/18
    • Akbar's Sacrifice = Old Share - New Share = 1/2 - 3/9 = (9-6)/18 = 3/18
    • Sacrificing Ratio = 1/18 : 3/18 = 1 : 3

  2. Distribution of Goodwill:

    • Anthony's share of goodwill is Rs. 45,000.
    • Amar's Share = 45,000 × (1/4) = Rs. 11,250
    • Akbar's Share = 45,000 × (3/4) = Rs. 33,750
Exercise: Questions for Practice | Q: 26 | (Page 55)
For More Understanding

Explanation

The question specifies that Anthony could not bring his share of goodwill in cash and that the adjustment should be done without opening a Goodwill Account. Based on the provided context, specifically the example illustrating the treatment when a partner cannot bring cash, the new partner's account is debited (Anthony's Capital A/c) and the sacrificing partners' accounts are credited. The credit is distributed in the sacrificing ratio. Since Amar and Akbar were equal partners (1:1) and the new ratio is 4:3:2, Amar sacrifices 1/18th share and Akbar sacrifices 3/18th share, resulting in a sacrificing ratio of 1:3. Therefore, the Rs. 45,000 goodwill amount is credited to Amar and Akbar in the ratio of 1:3.

Solution Steps

  1. Step 1: Determine the Sacrificing Ratio. Old Ratio is 1:1. New Ratio is 4:3:2. Sacrificing Ratio = Old Share - New Share. Amar's sacrifice = 1/2 - 4/9 = 1/18. Akbar's sacrifice = 1/2 - 3/9 = 3/18. Sacrificing Ratio is 1:3.

  2. Step 2: Calculate the amount to be credited to each partner. Total Goodwill = Rs. 45,000. Amar's Share = 45,000×1000 \times 1/4 = Rs. 11,250. Akbar's Share = 45,000×3000 \times 3/4 = Rs. 33,750.

  3. Step 3: Pass the journal entry debiting Anthony's Capital A/c and crediting Amar's and Akbar's Capital A/c with the calculated amounts.

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