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Question -

Mohan Lal and Sohan Lal were partners in a firm sharing profits and losses in 3:2 ratio. They admitted Ram Lal for 1/4 share on 1.1.2013. It was agreed that goodwill of the firm will be valued at 3 years purchase of the average profits of last 4 years which were ₹. 50,000 for 2013, ₹. 60,000 for 2014, ₹. 90,000 for 2015 and ₹. 70,000 for 2016. Ram Lal did not bring his share of goodwill premium in cash. Record the necessary journal entries in the books of the firm on Ram Lal’s admission when:
a) Goodwill already appears in the books at ₹. 2, 02,500.
b) Goodwill appears in the books at ₹. 2,500.
c) Goodwill appears in the books at ₹. 2, 05,000.



Answer -


Year

Profit

2013

50,000

2014

60,000

2015

90,000

2016

70,000

Sum of 4 years profit

2,70,000

Goodwill = Average Profit × No. of Years Purchases = 67,500 × 3 = 2, 02,500
 
Ram Lal entered into the firm for 1/4 share of Profit.
Ram Lal’s share of goodwill = 2, 02, 500 × (1/4) = ₹ 50,625
 
Here sacrificing ratio of Mohan Lal and Sohan Lal will be equal to old ratio because new and sacrificing ratio is not given.
 
Mohan Lal will get = Ram Lal’s Share of Goodwill × (3/5) = 50,625 × (3/5) = 10,125 × 3 = ₹ 30,375
 
Sohan Lal will = Ramlal Share of Goodwill × (1/5) = 50,625 × (1/5) = ₹ 10,125 × 2 = ₹ 20,250
  
Case (a)

Journal Entries

Date

 

Particulars

L.F.

Debit Amount ₹

Credit Amount ₹

 

Mohan Lal’s Capital A/c

Dr.

 

1,21,500

 

 

Sohan Lal’s Capital A/c

Dr.

 

81,000

 

 

 

To Goodwill A/c

 

 

 

2,02,500

 

(Goodwill appeared in the old firm written off)

 

 

 

 

 

 

 

 

 

 

Ramlal’s Capital A/c

Dr.

 

50,625

 

 

 

To Mohan Lal’s Capital A/c

 

 

30,375

 

 

To Sohan Lal’s Capital A/c

 

 

20,250

 

(Ram Lal’s Shares of Goodwill charged  from his account

and Distrbuted between  in Mohan Lal and Sohan Lal in

Sacrificing Ratio)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case (b)

Journal Entries

Date

Particulars

L.F.

Debit Amount

₹

Credit Amount ₹

 

Mohan Lal’s Capital A/c

Dr.

 

1,500

 

 

Sohan Lal’s Capital A/c

Dr.

 

1,000

 

 

 

To Goodwill A/c

 

 

 

2,500

 

(Goodwill already appeared in the books of firm

written off in old ratio)

 

 

 

 

 

 

 

 

 

Ramlal’s Capital A/c

Dr.

 

50,625

 

 

To Mohan Lal’s Capital A/c

 

 

30,375

 

To Sohan Lal’s Capital A/c

 

 

20,250

 

(Ram Lal’s Shares of Goodwill charged  from his

capital by Mohan Lal and Sohan Lal in sacrificing ratio)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case (c)

Journal Entries

Date

 

Particulars

L.F.

Debit Amount

₹

Credit Amount ₹

 

Mohan Lal’s Capital A/c

Dr.

 

1,23,000

 

 

Sohan Lal’s Capital A/c

Dr.

 

82,000

 

 

To Ram Lal’s Capital A/c

 

 

 

2,05,000

 

(Goodwill already appeared in the books of firm written off in Old Ratio)

 

 

 

 

 

 

 

 

 

 

Ramlal’s Capital A/c

Dr.

 

50,625

 

 

To Mohan Lal’s Capital A/c

 

 

30,375

 

To Sohan Lal’s Capital A/c

 

 

20,250

 

(Ram Lal’s Shares of Goodwill charged  from his capital

by Mohan Lal and Sohan Lal in sacrificing ratio)

 

 

 

 

 

 

 

 

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