Multiple choice

A & B are partners sharing profits and losses in the ratio of $3:2$. C joins the firm for $1/3$rd share, and is to pay Rs.$40,000$ as premium for goodwill but cannot pay anything. As netween A and B, they decided to share profits and losses equally. Goodwill already appearing in balance sheet is $1,00,000$ Required journal entry A Capital A/c Dr. B Capital A/c Dr. To Goodwill A/c $72,000$ $48,000$ $1,20,000$ Goodwill A/c Dr. To A Capital A/c To B Capital A/c $1,20,000$ $72,000$ $48,000$ Goodwill A/c Dr. To A Capital A/c To B Capital A/c $20,000$ $12,000$ $8,000$ Premium for Goodwill A/c Dr. To A Capital A/c To B Capital A/c $20,000$ $8,000$ $12,000$

  1. A

  2. B

  3. C

  4. D
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Since C's share is 1/3 and the premium for goodwill is Rs. 40,000, the total valued goodwill of the firm is Rs. 1,20,000. Since goodwill already appears in the books at Rs. 1,00,000, it needs to be increased by Rs. 20,000. This increase of Rs. 20,000 is credited to the old partners A and B in their old profit-sharing ratio of 3:2, resulting in Rs. 12,000 for A and Rs. 8,000 for B.

AI explanation

The existing goodwill of Rs. 1,00,000 must be written off by debiting the partners in their old ratio of 3:2, which means A is debited by Rs. 60,000 and B is debited by Rs. 40,000. The new profit sharing ratio between A and B is equal, making their sacrificing ratio for the Rs. 40,000 premium also equal at 1:1. After netting the Rs. 20,000 premium credit against the Rs. 60,000 and Rs. 40,000 debits, the final entry is to write off the total goodwill of Rs. 1,20,000 by debiting A for Rs. 72,000 and B for Rs. 48,000.

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