Verma and Sharma are partners in a firm sharing profits and losses in the ratio of 5:3. They admitted Ghosh as a new partner for 1/5 share of profits. Ghosh is to bring in Rs. 20,000 as capital and Rs. 4,000 as his share of goodwill premium. Give the necessary journal entries: a) When the amount of goodwill is retained in the business. b) When the amount of goodwill is fully withdrawn. c) When 50% of the amount of goodwill is withdrawn. d) When goodwill is paid privately.
Journal Entries when goodwill is retained in business:
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
|---|---|---|---|---|
| Bank A/c Dr. | 24,000 | |||
| To Ghosh's Capital A/c | 20,000 | |||
| To Premium for Goodwill A/c | 4,000 | |||
| (Being capital and goodwill brought by Ghosh) | ||||
| Premium for Goodwill A/c Dr. | 4,000 | |||
| To Verma's Capital A/c | 2,500 | |||
| To Sharma's Capital A/c | 1,500 | |||
| (Being goodwill distributed in sacrificing ratio 5:3) |
Journal Entries when goodwill is fully withdrawn:
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
|---|---|---|---|---|
| Bank A/c Dr. | 24,000 | |||
| To Ghosh's Capital A/c | 20,000 | |||
| To Premium for Goodwill A/c | 4,000 | |||
| Premium for Goodwill A/c Dr. | 4,000 | |||
| To Verma's Capital A/c | 2,500 | |||
| To Sharma's Capital A/c | 1,500 | |||
| Verma's Capital A/c Dr. | 2,500 | |||
| Sharma's Capital A/c Dr. | 1,500 | |||
| To Bank A/c | 4,000 | |||
| (Being goodwill fully withdrawn by partners) |
Journal Entries when 50% goodwill is withdrawn:
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
|---|---|---|---|---|
| Bank A/c Dr. | 24,000 | |||
| To Ghosh's Capital A/c | 20,000 | |||
| To Premium for Goodwill A/c | 4,000 | |||
| Premium for Goodwill A/c Dr. | 4,000 | |||
| To Verma's Capital A/c | 2,500 | |||
| To Sharma's Capital A/c | 1,500 | |||
| Verma's Capital A/c Dr. | 1,250 | |||
| Sharma's Capital A/c Dr. | 750 | |||
| To Bank A/c | 2,000 | |||
| (Being 50% goodwill withdrawn by partners) |
Journal Entry when goodwill is paid privately:
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
|---|---|---|---|---|
| Bank A/c Dr. | 20,000 | |||
| To Ghosh's Capital A/c | 20,000 | |||
| (Being capital brought by Ghosh) |
No entry for goodwill as it is paid privately outside the business.
Explanation
The sacrificing ratio remains 5:3 (same as old ratio) since Ghosh acquires his share from both partners proportionally. Goodwill premium of Rs. 4,000 is distributed accordingly: Verma gets Rs. 2,500 (4,/8) and Sharma gets Rs. 1,500 (4,/8). When retained, it stays in partners' capital accounts. When withdrawn, partners' capital accounts are debited and Bank is credited. When paid privately, no goodwill entry appears in firm's books.