Page 91 - DEBKVOL-1

Chapter 5 Admission of a Partner 5.7
.
Illustration 6.
Balance Sheet of X and Y who share profits and losses in the ratio of 3 : 2 as at 31st March,
2018 was:

Liabilities ` Assets `
Sundry Creditors 1,30,000 Cash at Bank 10,000
Bills Payable 35,000 Cash in Hand 5,000
Reserves 35,000 Debtors 20,000
Profit and Loss A/c 20,000 Stock 1,00,000
X’s Capital 48,000 Fixed Assets 1,30,000
Y’s Capital 32,000 80,000 Goodwill 25,000
Advertisement Expenditure 10,000
3,00,000 3,00,000
They agreed to take Z as a partner from 1st April, 2018 for 1/5th share in the profits of the
firm. Z brings in ` 60,000 as his capital. Give Journal entries to record the goodwill.
Solution: JOURNAL

Date Particulars L.F. Dr. (`) Cr. (`)
2018
April 1 X’s Capital A/c (` 25,000 × 3/5) ...Dr. 15,000
Y’s Capital A/c (` 25,000 × 2/5) ...Dr. 10,000
To Goodwill A/c 25,000
(Existing value of goodwill written off by debiting the
old partners in their old ratio)
April 1 Z’s Capital/Current A/c (` 1,40,000 × 1/5) ...Dr. 28,000
To X’s Capital A/c (` 28,000 × 3/5) 16,800
To Y’s Capital A/c (` 28,000 × 2/5) 11,200
(Z’s share of goodwill adjusted through Capital Accounts
by crediting sacrificing partners in their sacrificing ratio) (WN)
Working Note: Calculation of Hidden Goodwill: `
Net worth (or total capital) of the new firm on the basis of
capital brought in by Z (` 60,000 × 5/1) 3,00,000
Less: Net worth of the new firm
(Adjusted Capitals of the Old Partners + Incoming Partner’s Capital)
[(` 48,000 + ` 32,000 + ` 35,000 + ` 20,000 –
` 10,000 – ` 25,000 for existing goodwill) + ` 60,000] 1,60,000
Value of Firm’s Goodwill 1,40,000
Some Typical Cases of Revaluation of Assets and Reassessment of Liabilities with Explanation
Illustration 7.
X and Y are partners sharing profits in the ratio of 3 : 2. Pass Journal entries for the following
on the admission of Z, a new partner.
(i) Value of furniture is to be increased by ` 10,000 (Book value of furniture is ` 50,000).
(ii) Value of furniture is to be increased to ` 50,000 (Book value of furniture is ` 40,000).