Topics Discussed
Question 21: (B and C)
Pass Journal entries to record the following arrangements in the books of the firm:
(a) B and C are partners sharing profits in the ratio of 3 : 2. D is admitted paying a premium (goodwill) of 2,000 for 1/4th share of the profits, shares shares of B and C remain as before.
(b) B and C are partners sharing profits in the ratio of 3 : 2. D is admitted paying a premium of 2,100 for 1/4th share of profits which he acquires 1/6th from B and 1/12th from C.
Answer:
(a)
| Journal | |||||
| Date | Particulars | L.F. | Debit` | Credit` | |
| Cash A/c | Dr. | 2,000 | |||
| To Premium for Goodwill A/c | 2,000 | ||||
| (D brought Premium for Goodwill) | |||||
| Premium for Goodwill A/c | Dr. | 2,000 | |||
| To B’s Capital A/c | 1,200 | ||||
| To C’s Capital A/c | 800 | ||||
| (Premium for Goodwill distributedbetween B and C in sacrificing ratio i.e. 3:2) | |||||
Working Note:
Distribution of premium for Goodwill-
B will get =2,000×3/5=1,200
A will get =2,000×2/5=800
(b)
| Journal | |||||
| Date | Particulars | L.F. | Debit` | Credit` | |
| Cash A/c | Dr. | 2,100 | |||
| To Premium for Goodwill A/c | 2,100 | ||||
| (D brought his share of goodwill in cash) | |||||
| Premium for Goodwill A/c | Dr. | 2,100 | |||
| To B’s Capital A/c | 1,400 | ||||
| To C’s Capital A/c | 700 | ||||
| (Premium for Goodwill brought distributedbetween B and C in sacrificing Ratio i.e. 2:1) | |||||
Working Note:
WN1
| B | C | ||
| Sacrificing ratio = | 1/6 | : | 1/12 |
| 2 | : | 1 |
WN2
Distribution of Premium for Goodwill-
B will get =21,00×2/3=1.400
C will get =21,00×1/3=700
Question 22: ( B and C)
B and C are in partnership sharing profits and losses as 3 : 1. They admit D into the firm, D pays premium of 5,000 for 1/3rd share of the profits. As between themselves, B and C agree to share future profits and losses equally. Draft Journal entries showing appropriations of the premium money.
Answer:
| Journal | |||||
| Date | Particulars | L.F. | Debit` | Credit` | |
| Cash A/c | Dr. | 15,000 | |||
| To Premium for Goodwill A/c | 15,000 | ||||
| (D brought his share of goodwill in cash) | |||||
| Premium for Goodwill A/c | Dr. | 15,000 | |||
| To B’s Capital A/c | 15,000 | ||||
| (Premium for goodwill transferred to B’s Capital) | |||||
| C’s Capital A/c | Dr. | 3,750 | |||
| To B’s Capital A/c | 3,750 | ||||
| (Goodwill charged from C’s Capital Account due to his gain in profit sharing) | |||||
WN1
Calculation of Sacrificing Ratio:
Let combined share of all partners after D’s admission be = 1
Combined share of B and C after C’s admission be = 1
=1-1/3
=2/3
B and C each share of profit after D’s admission will be
| =2/3×1/2 |
| =2/6=1/3 each |
Sacrificing Ratio =Old ratio- new ratio
| A’s | =3/4-1/3 |
| =5/12 (Sacrifice) | |
| B’s | =1/4-1/3 |
| =-1/12(gain) |
WN2
C is gaining in new the firm. Hence, C’s gain in goodwill will be debited to his capital and given to B (sacrificing partner).
Goodwill of the firm= premium of Goodwill brought by D × reciprocal of D’s share
=15,000×3/1=45,000
C’s share of gain in goodwill= goodwill of the firm × C’s share of gain
=45,000×1/12=3,750
Question 23: (Geeta and Sunita)
Geeta and Sunita are partners in a firm sharing profits in the ratio of 3 : 2. They admit Anita as a new partner. The new profit-sharing ratio between Geeta, Sunita and Anita will be 5 : 3 : 2. Anita brought in 25,000 for his share of premium for goodwill. Pass necessary Journal entries for the treatment of goodwill.
Answer:
| Journal | |||||
| Date | Particulars | L.F. | Debit` | Credit` | |
| Cash A/c | Dr. | 25,000 | |||
| To Premium for Goodwill A/c | 25,000 | ||||
| (Anita brought his share of goodwill in cash) | |||||
| Premium for Goodwill A/c | Dr. | 25,000 | |||
| To Geeta’s Capital A/c | 12,500 | ||||
| To Sunita’s Capital A/c | 12,500 | ||||
| (Ania’s share of Goodwill distributed in Geeta and Sunita in their sacrificing Ratio) | |||||
Working Notes:
WN1
Calculating of Sacrificing Ratio
Sacrificing Ratio =Old ratio- new ratio
| Geeta’s | =3/5-5/10 | |||||
| =1/10 | ||||||
| Sunita’s | =2/5-3/10 | |||||
| =1/10 | ||||||
| Geeta | Sunita | |||||
| Sacrificing Ratio = | 1/10 | : | 1/10 | |||
| 1 | 1 | |||||
WN2
Distribution of Geeta’s share of Goodwill-
Geeta and Sunita each will get =25,000×1/2=12,500
Question 24: (A and B)
A and B are in partnership sharing profits and losses in the ratio of 5 : 3. C is admitted as a partner who pays 40,000 as capital and the necessary amount of goodwill which is valued at 60,000 for the firm. His share of profits will be 1/5th which he takes 1/10th from A and 1/10th from B.
Pass Journal entries and also calculate future profit-sharing ratio of the partners.
Answer:
| Journal | |||||
| Date | Particulars | L.F. | Debit` | Credit` | |
| Cash A/c | Dr. | 52,000 | |||
| To C’s Capital A/c | 40,000 | ||||
| To Premium for Goodwill A/c | 12,000 | ||||
| (C brought Capital and his share of goodwill in cash) | |||||
| Premium for Goodwill A/c | Dr. | 12,000 | |||
| To A’s Capital A/c | 6,000 | ||||
| To B’s Capital A/c | 6,000 | ||||
| (C’s share of Goodwill distributed in A and B) | |||||
Working Notes-
WN1
| A | B | ||
| Sacrificing Ratio = | 1/10 | : | 1/10 |
| 1 | 1 |
WN2
Calculation of new profit sharing Ratio
| A | B | |
| OLD RATION | 5 : | 3 |
New ratio= old ratio – sacrificing ratio
| A’s | =5/8-1/10 | |||||||
| =21/40 | ||||||||
| B’s | =3/8-1/10 | |||||||
| =11/40 | ||||||||
| X | Y | Z | ||||||
| New profit sharing ratio = | 21/40 | : | 11/40 | : | 1/5 | |||
| = | 21/40 | : | 11/40 | : | 8/40 | |||
WN3
Distribution of C’s share of Goodwill (inSacrificing Ratio)
A and B each will get =12,000×1/2=6,000
Question 25: (Adil and Bhavya)
Adil and Bhavya are partners sharing profits and losses in the ratio of 7 : 5. They admit Cris, their Manager, into partnership who is to get 1/6th share in the business. Cris brings in 1,00,000 for his capital and 36,000 for the 1/6th share of goodwill which he acquires 1/24th from Adil and 1/8th from Bhavya. Profits for the first year of the new partnership was 2,40,000. Pass necessary Journal entries for Cris’s admission and apportion the profit between the partners.
Answer:
| Journal | |||||
| Date | Particulars | L.F. | Debit` | Credit` | |
| Cash A/c | Dr. | 1,36,000 | |||
| To Cris’s Capital A/c | 1,00,000 | ||||
| To Premium for Goodwill A/c | 36,000 | ||||
| (Cris brought capital and his share of goodwill) | |||||
| Premium for Goodwill A/c | Dr. | 36,000 | |||
| To Adil’s Capital A/c | 9,000 | ||||
| To Bhavya’s Capital A/c | 27,000 | ||||
| (Cris’s share of goodwill transferred to Adil and Bhavya in theirsacrificing ratio i.e. 3:1) | |||||
| Profit and Loss Appropriation A/c | Dr. | 2,40,000 | |||
| To Adil’s Capital A/c | 1,30,000 | ||||
| To Bhavya’s Capital A/c | 70,000 | ||||
| To Cris’s Capital A/c | 40,000 | ||||
| (Profit after Cris’s admission distributed) | |||||
Working Note:
WN1
| Adil | Bhavya | ||
| Sacrificing Ratio = | 1/24 | : | 1/8 |
| 1 | : | 3 |
WN2
Distribution of Cris’s share of Goodwill (in sacrificing ratio)
Adil will get =3,600×1/4=900
Bhavya will get =3,600×3/4=2,700
WN3
Calculation of New Profit Sharing Ratio
New ratio= old ratio – Sacrificing Ratio
| Adil’s | =7/12-1/24 | |||||||
| =13/24 | ||||||||
| Bhavya’s | =5/12-1/8 | |||||||
| =7/24 | ||||||||
| Adil | Bhavya | Cris | ||||||
| New profit sharing ratio= | 13/24 | : | 7/24 | : | 1/6 | |||
| = | 13/24 | : | 7/24 | : | 4/24 | |||
| = | 13 | : | 7 | : | 4 | |||
WN4
Distribution of Profit earned after Cris’s admission (in new ratio)
Adil will get =2,40,000×13/24=1,30,000
Bhavya will get =2,40,000×7/24=70,000
Cris will get =2,40,000×4/24=40,000
Question 26: (Aayush and Aarushi)
Aayush and Aarushi are partners sharing profits and losses in the ratio of 3: 2. They admitted Naveen into partnership for 1/4th share. Goodwill of the firm was to be valued at three years’ purchase of super profits. Average net profit of the firm was 20,000. Capital investment in the business was 50,000 and Normal Rate of Return was 10%. Calculate the amount of Goodwill premium brought by Naveen. (CBSE 2023)
Answer:
Normal Profit = 50,000×10/100=5,000
Super Profit = 20,000-5,000
Super Profit = 15,000
Goodwill =15,000×3=45,000
Goodwill Premium brought by Naveen = 45,000×1/4 = 11,250
Question 27: (A and B)
A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. They admit C into partnership for 1/5th share. C brings 30,000 as capital and 10,000 as goodwill. At the time of admission of C, goodwill appeared in the Balance Sheet of A and B at 3,000. New profit-sharing ratio of the partners will be 5 : 3 : 2. Pass necessary Journal entries.
Answer:
| Journal Entries | |||||
| Date | Particulars | L.F. | Debit` | Credit` | |
| A’s Capital A/c | Dr. | 1,800 | |||
| B’s Capital A/c | Dr. | 1,200 | |||
| To Goodwill A/c | 3,000 | ||||
| (Goodwill written-off) | |||||
| Cash A/c | Dr. | 40,000 | |||
| To C’s Capital A/c | Dr. | 30,000 | |||
| To Premium for Goodwill A/c | 10,000 | ||||
| (C brought capital and his share of goodwill in cash) | |||||
| Premium for Goodwill | Dr. | 10,000 | |||
| To A’s Capital A/c | 5,000 | ||||
| To B’s Capital A/c | 5,000 | ||||
| (Premium for Goodwill distributed) | |||||
| A | B | C | |
| OLD RATION | 3 : | 2 : | 1 |
| NEW RATIO | 5 : | 3 : | 2 |
Sacrificing Ratio = Old Ratio − New Ratio
| A’s | =3/5-5/10 | |||||
| =1/10 | ||||||
| B’s | =2/5-3/10 | |||||
| =1/10 | ||||||
| X | Y | |||||
| Sacrificing Ratio = | 1/10 | : | 1/10 | |||
| = | 1 | : | 1 | |||
Distribution of Premium for Goodwill C’s share of Goodwill)
A and B each will get =10,000×1/2=5,000
Goodwill written-off
A’s capital will be debited =3,000×3/5=1,800
B’s capital will be credited =3,000×2/5=1,200
Question 28: (X and Y)
X and Y are partners sharing profits in the ratio of 5:3. Z is admitted as a partner for 3/10th share of profit, half of which was gifted by X and remaining share was taken by Z equally from X and Y. The goodwill of the firm is valued at 54,000. Z brings in his requisite share of firm’s goodwill. The profit for the first year of new partnership amounts to 60,000.
Pass the necessary Journal entries to adjust goodwill and to distribute profits.
Answer:
| Date | Particulars | L.F. | (Dr.) ₹ | (Cr.) ₹ | |
| 1. | Bank | Dr. | 8,100 | ||
| (a) | To Premium for Goodwill A/c | 8,100 | |||
| (Being goodwill brought in by Z) | |||||
| (b) | Premium for Goodwill A/c | Dr. | 8,100 | ||
| To X’s Capital A/c | 4,050 | ||||
| To Y’s Capital A/c | 4,050 | ||||
| (Being goodwill credited to X and Y in sacrificing ratio 1:1) | |||||
| 2. | Profit & Loss A/c | Dr. | 60,000 | ||
| To X’s Capital A/c | 24,000 | ||||
| To Y’s Capital A/c | 18,000 | ||||
| To Z’s Capital A/c | 18,000 | ||||
| (Being profit distributed in new profit-sharing ratio) |
Working Notes:
WN 1: Calculation of Share of Goodwill of Z
Old ratio of X and Y = 5:3
Z is admitted for 3/10 share
Half (3/20) is gifted by X
Remaining 3/20 is taken equally from X and Y
Goodwill of firm = ₹54,000
Z’s share of goodwill = 54,000 × 3/20 = ₹8,100
Profit for first year = ₹60,000
New ratio of X:Y:Z = 4:3:3
Sacrificing ratio between X and Y for goodwill adjustment = 1:1
(because the 3/20 sacrificed is equally split by X and Y)
WN 2: Distribute net profit of ₹60,000 in new ratio (4:3:3)
Total profit = ₹60,000
New ratio: X:Y:Z = 4:3:3
X’s share = 60,000 × 4/10 = ₹24,000
Y’s share = 60,000 × 3/10 = ₹18,000
Z’s share = 60,000 × 3/10 = ₹18,000
Question 29: (Ram and Mohan)
Ram and Mohan are partners in a firm sharing profits in the ratio of 3 : 2. On 1st April, 2024, they admit Sohan as a partner for 1/4th share in the profits. Sohan contributed following assets towards his capital and for his share of goodwill:
Stock 60,000; Debtors 80,000; Land 1,00,000, Plant and Machinery 40,000.
On the date of admission of Sohan, the goodwill of the firm was valued at 6,00,000.
Pass necessary Journal entries in the books of the firm on Sohan’s admission.
(1) Partners do not withdraw share of goodwill.
(2) Partners withdraw half of their share of goodwill.
Answer:
(1) Partners do not withdraw share of goodwill.
| Journal | |||||
| Date | Particulars | L.F. | Debit` | Credit` | |
| 2024 | |||||
| April 1 | Stock A/c | Dr. | 60,000 | ||
| Debtors A/c | Dr. | 80,000 | |||
| Land A/c | Dr. | 1,00,000 | |||
| Plant and Machinery A/c | Dr. | 40,000 | |||
| To Sohan’s Capital A/c | 1,30,000 | ||||
| To Premium for Goodwill A/c | 1,50,000 | ||||
| (Z brought assets for his share of goodwill and Capital) | |||||
| April 1 | Premium for Goodwill A/c | Dr. | 1,50,000 | ||
| To Ram’s Capital A/c | 90,000 | ||||
| To Mohan’s Capital A/c | 60,000 | ||||
| (Sohan’s share of Goodwill distributed between Ram and Mohan in sacrificing ratio) | |||||
Working Notes:
WN1
SOHAN’s share of goodwill=6,00,000×1/4=1,50,000
WN2
Distribution of SOHAN’s Goodwill
RAM will get =1,50,000×3/5=90,000
MOHAN will get =1,50,000×2/5=60,000
(2) Partners withdraw half of their share of goodwill.
| Journal | |||||
| Date | Particulars | L.F. | Debit` | Credit` | |
| 2024 | |||||
| April 1 | Stock A/c | Dr. | 60,000 | ||
| Debtors A/c | Dr. | 80,000 | |||
| Land A/c | Dr. | 1,00,000 | |||
| Plant and Machinery A/c | Dr. | 40,000 | |||
| To Sohan’s Capital A/c | 1,30,000 | ||||
| To Premium for Goodwill A/c | 1,50,000 | ||||
| (Z brought assets for his share of goodwill and Capital) | |||||
| April 1 | Premium for Goodwill A/c | Dr. | 1,50,000 | ||
| To Ram’s Capital A/c | 90,000 | ||||
| To Mohan’s Capital A/c | 60,000 | ||||
| (Sohan’s share of Goodwill distributed between Ram and Mohan in sacrificing ratio) | |||||
| Ram’s Capital A/c Dr. | 75,000 | ||||
| Mohan’s Capital A/c Dr. | 45,000 | ||||
| To Bank A/c | 30,000 | ||||
| (Partners withdraw half of their share of goodwill) | |||||
Working Notes:
WN1
SOHAN’s share of goodwill=6,00,000×1/4=1,50,000
WN2
Distribution of SOHAN’s Goodwill
RAM will get =1,50,000×3/5=90,000
MOHAN will get =1,50,000×2/5=60,000
WN3
Both the partners have withdrawn half of share of goodwill as follow:
RAM will get =90,000×1/2=45,000
MOHAN will get =60,000×1/2=30,000
Admission of a Partner Class 12 Notes
Question 30: (A and B)
A and B are partners in a business sharing profits and losses in the ratio of 1/3rd and 2/3rd. On 1st April, 2025, their capitals were 8,000 and 10,000 respectively. On that date, they admit C in partnership and give him 1/4th share in the future profits. C brings 8,000 as his capital and 6,000 as goodwill. The amount of goodwill is withdrawn by the old partners in cash. Pass the journal entries and show the Capital Accounts of all the Partners. Calculate proportion in which partners would share profits and losses in future.
Answer:
| Journal | |||||
| Date | Particulars | L.F. | Debit` | Credit` | |
| 2022 | |||||
| April 1 | Cash A/c | Dr. | 14,000 | ||
| To C’s Capital A/c | 8,000 | ||||
| To Premium for Goodwill A/c | 6,000 | ||||
| (C brought capital and his share of goodwill) | |||||
| April 1 | Premium for Goodwill A/c | Dr. | 6,000 | ||
| To A’s Capital A/c | 2,000 | ||||
| To B’s Capital A/c | 4,000 | ||||
| (C’s share of goodwill distributed between A and B in sacrificing ratio i.e. 1:2) | |||||
| A’s Capital A/c | Dr. | 2,000 | |||
| B’s Capital A/c | Dr. | 4,000 | |||
| To Cash A/c | 6,000 | ||||
| (Amount of goodwill withdrawn by A and B) | |||||
| Partners’ Capital Accounts | |||||||
| Dr. | Cr. | ||||||
| Particulars | A | B | C | Particulars | A | B | C |
| Cash | 2,000 | 4,000 | – | Balance b/d | 8,000 | 10,000 | – |
| Cash | – | – | 8,000 | ||||
| Premium for Goodwill | 2,000 | 4,000 | |||||
| Balance c/d | 8,000 | 10,000 | 8,000 | ||||
| 10,000 | 14,000 | 8,000 | 10,000 | 14,000 | 8,000 | ||
Calculation of New (Future) Ratio:
| A | B | |
| OLD RATION | 1 : | 2 : |
C is admitted for ¼ share of profit
Let combined share of all partners after C’s admission be = 1
Combined share of A and B after C’s admission = 1 − C’s share
=1-1/4
=3/4
New ratio= old ratio × Combined share of A and B in the new firm
| A’s | =1/3×3/4 |
| =3/12 | |
| B’s | =2/3×3/4 |
| =6/12 |
| A | B | C | |||
| New profit sharing ratio= | 3/12 | : | 6/12 | : | 1/4 |
| = | 3/12 | : | 6/12 | : | 3/12 |
| = | 1 | : | 2 | : | 1 |
Distribution of Premium for Goodwill
A will get =6,000×1/3=2,000
B will get =6,000×2/3=4,000