1. Calculation the new profit sharing ratio and sacrificing ratio

3. Revaluation of assets and reassessment of liabilities;

4. Accounting treatment of undistributed profits and reserves;

7. Adjustment of Deferred revenue Expenditure

9. Prepare Partners’ Capital Accounts and balance sheet of the reconstituted firm.

10. Adjustment of Capital on the basis of new partner capital or New profit-sharing Ratio.

11. Calculation of New partner’s capital on the basis of old partner’s adjusted capital.

2.Accounting treatment of goodwill:

Question 1.

Ram and Shyam are partners in a firm sharing profits in the ratio of 3 : 2. They admit Sohan as a new partner for 1/5 share in profit. Sohan paid his share of goodwill ₹ 50,000 privately to Ram and Shyam. The new profit sharing ratio will be 12: 8: 5. Pass Journal entries in the books of firm.

Solution:

When goodwill (premium for goodwill) is paid privately  (i.e. Outside of business) by a new/ incoming partner to the sacrificing partner,No journal entry is passed in the book of account.

Question 2.

Rakesh and Brajesh are partners in a firm sharing profit in the ratio 5 : 3. They admitted Mahesh as a new partner for 1/4th share in the profit. Mahesh brings ₹ 80,000 for his share of goodwill and ₹ 1,50,000 for capital.  The new profit sharing ratio will be 2 : 1 : 1. Make journal entries in the books of the firm after the admission of Mahesh.

Solution:

Sacrificing Ratio = Existing Or Old  Ratio – New Ratio

Rakesh :  5/8 – 2/4 = 1/8

Brajesh: 3/8-1/4= 1/8

Sacrificing Ratio = 1:1

JOURNAL ENTRIES IN THE BOOKS OF FIRM

Bank A/c       Dr.         2,30,000
To Premium for Goodwill  A/c          80,000
To Mahesh’s Capital A/c                 1,50,000
(cash brought by Mahesh for his share of goodwill and capital)

Premium for Goodwill  A/c   Dr.   80,000
To Rakesh’s Capital A/c               40,000
To Brajesh’s Capital A/c                40,000
(Goodwill transferred to existing partners capital account in their sacrificing ratio 1:1)

Question 3.

Rakesh and Brajesh are partners in a firm sharing profit in the ratio 5 : 3. They admitted Mahesh as a new partner for 1/4th share in the profit. Mahesh brings ₹ 80,000 for his share of goodwill and ₹ 1,50,000 for capital.  The new profit sharing ratio will be 2 : 1 : 1. Half Amount of goodwill withdrawn by Rakesh and Brajesh. Make journal entries in the books of the firm after the admission of Mahesh.

Solution:

Sacrificing Ratio = Existing Or Old  Ratio – New Ratio

Rakesh :  5/8 – 2/4 = 1/8

Brajesh: 3/8-1/4= 1/8

Sacrificing Ratio = 1:1

JOURNAL ENTRIES IN THE BOOKS OF FIRM

Bank A/c       Dr.         2,30,000
To Premium for Goodwill  A/c                80,000
To Mahesh’s Capital A/c                 1,50,000
(cash brought by Mahesh for his share of goodwill and capital)

Premium for Goodwill  A/c  Dr.   80,000
To Rakesh’s Capital A/c                       40,000
To Brajesh’s Capital A/c                       40,000
(Goodwill transferred to existing partner’s capital account in their sacrificing ratio 1:1)

Rakesh’s Capital A/c Dr.       20,000
Brajesh’s Capital A/c Dr.       20,000
To Bank A/c                                   40,000
(Half Amount of Goodwill is withdrawn by Rakesh and Brajesh)

Question 4.

Jay and Vijay are partners in a firm sharing profits in the ratio of 3 : 2. They admit Sanjay as a new partner for 1/4 share in profit. Sanjay brings furniture ₹ 80,000 for his share of goodwill and  cash₹ 2,00,000 for capital. Calculate the new profit sharing ratio and sacrificing ratio. pass Journal Entries in the books of the firm.

Solution:

Calculation of New Ratio:

Let total Profit = 1

Sanjay admitted as a new partner for  1/4 share of the profit

The remaining share of Jay and Vijay = 1 – 1/4 = 3/4

Jay’s new share = 3/5 of 3/4 i.e. 9/20

Vijay’s new share = 2/5 of 3/4 i.e. 6/20

Sanjay’s Share = 1/4  Or 5/20

The new profit-sharing ratio of Jay, Vijay, and Sanjay are:

= 9/20 : 6/20 : 5/20

= 9 : 6 : 5

Calculation of Sacrifice Ratio:

Sacrificing ratio =Old Ratio – New Ratio

Jay Sacrificed   = 3/5 – 9/20

= 12 – 9/20

= 3/20

Vijay Sacrificed = 2/5 – 6/20

= 8 – 6/20

= 2/20

Sacrificing Ratio of Jay and Vijay = 3 : 2

JOURNAL ENTRIES IN THE BOOKS OF FIRM

Furniture A/c       Dr.         80,000
To Premium for Goodwill  A/c                80,000
(Furniture brought by Sanjay for his share of goodwill )

Cash A/c       Dr.         2,00,000
To Sanjay’s Capital A/c                 2,00,000
(Capital brought in cash )

Premium for Goodwill  A/c  Dr.   80,000
To Jay’s Capital A/c                       48,000
To Vijay’s Capital A/c                      32,000
(Goodwill transferred to existing partner’s capital account in their sacrificing ratio 3:2)

Question 5.

Ankit and Samkit are partners sharing profit in the ratio of 3: 2. They agree to admit Pulkit for 1/5 share in future profit. Pulkit brings ₹2,50,000 as capital and unable to bring his share of goodwill in cash, the goodwill of the firm is valued at ₹ 5,00,000. Make necessary journal entries in the books of the firm. Sacrificing Ratio is 3:2.

Solution:

Value of Goodwill of the firm = ₹ 5,00,000

Pulkit ’s share in the Profit = 1/5

Pulkit’s share of Goodwill = Rs. 5,00,000 × 1/5 = Rs. 1,00,000

JOURNAL ENTRIES IN THE BOOKS OF FIRM

Bank A/c Dr.  2,50,000

To Pulkit’s Capital A/c   2,50,000

[Cash brought by Pulkit for his capital]

Pulkit’s Current  A/c Dr. 1,00,000

To Ankit’s Capital A/c             60,000

To Samkit’s Capital A/c          40,000

[Existing partners capital a/c credited for goodwill on Pulkit ’s admission in sacrificing ratio]

Question 6.

Rakesh and Brajesh are partners in a firm sharing profit in the ratio 5 : 3. They admitted Mahesh as a new partner for 1/4th share in the profit. Mahesh brings ₹ 80,000 for his share of goodwill and ₹ 1,50,000 for capital.  The new profit sharing ratio will be 2: 1: 1. Goodwill Account appears in the books of the firm at ₹ 30,000. Make journal entries in the books of the firm after the admission of Mahesh.

JOURNAL ENTRIES IN THE BOOKS OF FIRM

Rakesh’s Capital A/c  Dr.             25,000
Brajesh’s Capital A/c  Dr.           15,000
To Goodwill A/c                                           40,000
(Goodwill Written off in old Ratio )

Bank A/c       Dr.         2,30,000
To Premium for Goodwill  A/c          80,000
To Mahesh’s Capital A/c                 1,50,000
(cash brought by Mahesh for his share of goodwill and capital)

Premium for Goodwill  A/c  Dr.   80,000
To Rakesh’s Capital A/c               40,000
To Brajesh’s Capital A/c                40,000
(Goodwill transferred to the existing partner’s capital account in their sacrificing ratio 1:1)

Question 7.

A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. C is admitted as a new partner. A surrenders 1/5th of his share and B 2/5th of his share in favour of C. Goodwill of the firm is valued at ₹ 1,25,000. C brings his share of goodwill in cash.
Journalise the above transaction when–
(i) Goodwill is retained in the firm
(ii) Goodwill is withdrawn by old partners

Question 8.

A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. C is admitted as a new partner for 3/13th share in the profits. C contributed the following assets towards his capital and for his share of goodwill. Land ₹85,000; Machinery ₹95,000; Stock ₹ 50,000; Debtors ₹70,000, Furniture ₹20,000. On the date of admission, the Goodwill of the firm is valued at ₹ 6,50,000. Pass journal entries in the books of the firm.

Question 9.

A and B are partners in a firm sharing profits and losses in the ratio of 2 : 1. C is admitted as a new partner for 1/4th share in the profits. C pays ₹ 1,50,000 as capital but does not bring any amount for goodwill. Goodwill of the firm is valued at ₹72,000.  Pass journal entries in the books of the firm.

Question 10.

X and Y are partners in a firm sharing profits and losses equally.
Z is admitted as a new partner. Z pays ₹ 10,000 for premium out of her share of goodwill of ₹ 25,000 for 1/4th share of profit. Goodwill Account appears in the books at ₹ 8,000. Pass journal entries in the books of the firm.

Important questions of fundamentals of partnership-3

Profit and loss Appropriation Account

Format of Profit and loss Appropriation Account

Hidden Goodwill at the time of Admission of A New Partner

Important questions of fundamentals of partnership

Important questions of fundamentals of partnership-2

Goodwill questions for practice Class 12 ISC & CBSE

Important questions of fundamentals of partnership-5

ACCOUNTING TREATMENT OF GOODWILL AT THE TIME OF ADMISSION OF A NEW PARTNER