Page 170 - DEBKVOL-1

7.12 Double Entry Book Keeping—CBSE XII
Illustration 7. (Admission-cum-Death: Treatment of Goodwill).
A and B are partners in a firm sharing profits in the ratio of 3 : 2. They admitted C as a partner
for 1/5th share of profit on 1st April, 2018. He brings ` 4,500 as a premium out of his share of
` 6,000. On the same date B died. According to his will, the executors should donate his share
to a school for providing scholarships to the students.
Pass Journal entries to give effect to the above.
Solution: JOURNAL

Date Particulars L.F. Dr. (`) Cr. (`)
2018
April 1 Cash A/c ...Dr. 4,500
To Premium for Goodwill A/c 4,500
(A part of share of goodwill brought by C)
April 1 Premium for Goodwill A/c ...Dr. 4,500
C’s Current A/c ...Dr. 1,500
A’s Capital A/c ...Dr. 6,000
To B’s Capital A/c 12,000
(Sacrificing partner (B) compensated with the share of goodwill)
Working Notes:
1. Calculation of Sacrifice/(Gain) Share:
A B C
Old Share 3/5 2/5 ...
New Share 4/5 ... 1/5
–1/5 Gain 2/5 Sacrifice –1/5 Gain
2. Calculation of Share of Goodwill:
For 1/5th Share of C, Goodwill = ` 6,000
Value of Firm’s Goodwill = ` 6,000 × 5/1 = ` 30,000
For 2/5th sacrifice of B, value of Goodwill = ` 30,000 × 2/5 = ` 12,000
For 1/5th Gain of A, value of Goodwill = ` 30,000 × 1/5 = ` 6,000.
Illustration 8. (Death-cum-Admission: Share of Profit to the Deceased Partner).
Ram, Manohar and Joshi were partners in a firm. Joshi died on 30th June, 2018 and
on the same date his daughter Arpita is admitted for 1/5th share in profits. She brings
` 80,000 for her share of capital. Joshi left a will and according to it, his total dues were
to be donated to an Old Age Home in the locality where business was being carried on.
According to the agreement, the share of profits of a deceased partner up to the date of
death is to be calculated on the basis of the average profits for the last five years. The net
profits for the last 5 years ended 31st March, were: 2013–14—` 24,000; 2014–15—` 8,000;
2015–16—` 16,000; 2016–17—` 10,000 (loss) and 2017–18—` 16,000. Ram, Manohar and Arpita
decided to visit old age homes regularly to help the aged people.
Pass Journal entries to give effect to the above.
Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2018
June 30 Profit and Loss Suspense A/c ...Dr. 900
To Joshi’s Capital A/c 900
(Share of profit credited to the deceased partner)
Bank A/c ...Dr. 80,000
To Arpita’s Capital A/c 80,000
(Arpita brings her share of capital in cash)