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5.6 Double Entry Book Keeping—CBSE XII

Case 2 Cash A/c ...Dr. 40,000
To Z’s Capital A/c 30,000
To Premium for Goodwill A/c (` 50,000 × 1/5) 10,000
(Amount brought in by Z for his share of goodwill and capital)
Premium for Goodwill A/c (` 50,000 × 1/5) ...Dr. 10,000
To X’s Current A/c (` 10,000 × 2/5) 4,000
To Y’s Current A/c (` 10,000 × 3/5) 6,000
(Share of Z in goodwill credited to X and Y in their sacrificing ratio,
i.e., 2 : 3)
X’s Current A/c (` 5,000 × 2/5) ...Dr. 2,000
Y’s Current A/c (` 5,000 × 3/5) ...Dr. 3,000
To Cash A/c (50% of ` 10,000) 5,000
(50% of the amount of goodwill credited to X and Y withdrawn by them)

Illustration 5 (When Incoming Partner does not bring in his Share of Goodwill in Cash and Capitals
are Fixed).
X and Y are partners in a firm, sharing profits and losses in the ratio of 3 : 2. They
admit Z into the firm for 1/5th share. Z acquires his share from X and Y in the ratio of
2 : 3. Goodwill of the firm is valued at ` 30,000. Z brings in ` 1,00,000 through cheque,
as his share of capital but is unable to bring in the amount of his share of goodwill. Pass
necessary Journal entries if capitals are fixed under each of the following alternative cases:

Case 1. When goodwill is not appearing in the books.
Case 2. When goodwill is appearing in the books at ` 15,000.

Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)

Case 1 Bank A/c ...Dr. 1,00,000
To Z’s Capital A/c 1,00,000
(Amount brought in by Z as his capital)
Z’s Current A/c (` 30,000 × 1/5) ...Dr. 6,000
To X’s Current A/c (` 6,000 × 2/5) 2,400
To Y’s Current A/c (` 6,000 × 3/5) 3,600
(Share of Z in goodwill credited to X and Y in their sacrificing ratio,
i.e., 2 : 3)
Case 2 X’s Current A/c (` 15,000 × 3/5) ...Dr. 9,000
Y’s Current A/c (` 15,000 × 2/5) ...Dr. 6,000
To Goodwill A/c 15,000
(Existing goodwill written off in old ratio, i.e., 3 : 2)
Bank A/c ...Dr. 1,00,000
To Z’s Capital A/c 1,00,000
(Amount brought in by Z as his capital)
Z’s Current A/c (` 30,000 × 1/5) ...Dr. 6,000
To X’s Current A/c (` 6,000 × 2/5) 2,400
To Y’s Current A/c (` 6,000 × 3/5) 3,600
(Share of Z in goodwill credited to X and Y in their sacrificing ratio,
i.e., 2 : 3)