Multiple choice

A & B were partners sharing profits & losses in the ratio of $3:1$. C was admitted to the firm on the following terms: C would provide Rs.$1,00,000$ as a capital and pay Rs.$20,000$ as goodwill for his $1/3$rd share in future profits. Goodwill account would not appear in the books. A,B & C would share profits equally. Which of the following journal is correct in relation to premium for goodwill Rs.$20,000$ brought in by new partner? Premium for Goodwill A/c Dr. B Capital A/c Dr. To A Capital A/c $20,000$ $5,000$ $25,000$ Premium for Goodwill A/c Dr. To A Capital A/c To B Capital A/c $20,000$ $15,000$ $5,000$ Premium for Goodwill A/c Dr. To A Capital A/c To B Capital A/c $20,000$ $10,000$ $10,000$ Premium for Goodwill A/c Dr. A Capital A/c Dr. To B Capital A/c $20,000$ $5,000$ $25,000$

  1. A

  2. B

  3. C

  4. D
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A Correct answer
Explanation

Old ratio A:B = 3:1. New ratio A:B:C = 1:1:1. Sacrificing ratio: A = 3/4 - 1/3 = 5/12, B = 1/4 - 1/3 = -1/12. B gains 1/12. A sacrifices 5/12. Total goodwill 20,000. A gets 5/12 * 60,000 = 25,000. B pays 1/12 * 60,000 = 5,000. Journal: Premium Dr (20,000), B Capital Dr (5,000) to A Capital (25,000).

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