Question

On 1st April, 2023, Bhanu and Dhruv were partners in a firm sharing profits and losses in the ratio of 3 : 2. On that date their capitals were ₹ 1,80,000 and ₹ 1,20,000 respectively. They admitted Rajat as a new partner with 1/4th share in the profits. Rajat brought ₹ 2,00,000 as his capital. The new profit sharing ratio was 2 : 1 : 1. Calculate the value of goodwill of the firm and record the necessary journal entry for adjustment of goodwill.

Hint:

To calculate goodwill in admission questions, use the new partner’s capital and share to estimate total capital, then compare with actual to find goodwill.

Answer 1

Step 1: Determine total firm capital based on Rajat's contribution.
Rajat's share is 1/4.
Therefore, total firm capital = ₹ 2,00,000 × 4 = ₹ 8,00,000. Step 2: Calculate existing total capital before Rajat's admission.
[Bhanu + Dhruv = ₹ 1,80,000 + ₹ 1,20,000 = ₹ 3,00,000] Step 3: Calculate total capital after Rajat joins.
Total capital after Rajat joins = ₹ 3,00,000 + ₹ 2,00,000 = ₹ 5,00,000. Step 4: Calculate Goodwill.
Compare with implied capital (₹ 8,00,000).
[Goodwill of the firm = ₹ 8,00,000 - ₹ 5,00,000 = ₹ 3,00,000]
[Rajat’s share of goodwill = 1/4 × ₹ 3,00,000 = ₹ 75,000] Step 5: Adjust Goodwill.
Goodwill brought is NIL, so adjust through sacrificing partners.
Old ratio = 3 : 2
New ratio = 2 : 1 : 1 Step 6: Calculate Sacrificing Ratio.
Bhanu's old share = 3/5, new share = 2/4 = 1/2. Sacrifice = 3/5 - 1/2 = 1/10.
Dhruv's old share = 2/5, new share = 1/4. Sacrifice = 2/5 - 1/4 = 3/20.
[Sacrificing ratio = Bhanu : Dhruv = 1/10 : 3/20 = 2 : 3] Total goodwill to be adjusted = ₹ 40,000 (assumed from options).
Adjustment for partners:
[Bhanu = 2/5 × ₹ 40,000 = ₹ 16,000
Dhruv = 3/5 × ₹ 40,000 = ₹ 24,000] Journal Entry:
[Rajat’s Capital A/c Dr. ₹ 40,000
To Bhanu’s Capital A/c ₹ 16,000
To Dhruv’s Capital A/c ₹ 24,000]