Question 54 of 64intermediate🔧 ApplyNumerical4 marks

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.

Correct Answer

Journal Entries in the books of the firm:

DateParticularsL.F.Debit (Rs.)Credit (Rs.)
Hari's Capital A/c Dr.8,000
To Rajesh's Capital A/c2,000
To Mukesh's Capital A/c6,000
(Being goodwill adjusted through capital accounts in sacrificing ratio)

Working Notes:

1. Calculation of Hari's Share of Goodwill:

  • Total Goodwill of the firm = Rs. 36,000
  • Hari's Share = 2/9 × Rs. 36,000 = Rs. 8,000

2. Calculation of Sacrificing Ratio:

  • Old Ratio of Rajesh and Mukesh = 1:1
  • New Ratio of Rajesh, Mukesh and Hari = 4:3:2
  • Rajesh's Sacrifice = 1/2 - 4/9 = 9/18 - 8/18 = 1/18
  • Mukesh's Sacrifice = 1/2 - 3/9 = 9/18 - 6/18 = 3/18
  • Sacrificing Ratio = 1:3

3. Distribution of Goodwill:

  • Rajesh's Share = 8,000×1000 \times 1/4 = Rs. 2,000
  • Mukesh's Share = 8,000×3000 \times 3/4 = Rs. 6,000
Exercise: Questions for Practice | Q: 25 | (Page 55)
For More Understanding

Explanation

When a new partner is unable to bring his share of goodwill premium in cash and the partners decide not to show goodwill in the balance sheet, the adjustment is made through the capital accounts. The new partner's capital account is debited with his share of goodwill, and the sacrificing partners' capital accounts are credited in their sacrificing ratio. The sacrificing ratio is calculated as the difference between the old ratio and new ratio of the existing partners.

Solution Steps

  1. Step 1: Calculate Hari's share of goodwill: 2/9×369 \times 36,000 = Rs. 8,000

  2. Step 2: Calculate sacrificing ratio: Rajesh's sacrifice = 1/2 - 4/9 = 1/18; Mukesh's sacrifice = 1/2 - 3/9 = 3/18; Sacrificing ratio = 1:3

  3. Step 3: Distribute goodwill in sacrificing ratio: Rajesh = 8,000×1000 \times 1/4 = Rs. 2,000; Mukesh = 8,000×3000 \times 3/4 = Rs. 6,000

  4. Step 4: Pass journal entry debiting Hari's Capital A/c and crediting sacrificing partners' capital accounts

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