Q.24. Mohan Lal and Sohan Lal were partners in a firm sharing profits and losses in 3:2 ratio.

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Q.24. 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 Rs. 50,000 for 2013, Rs. 60,000 for 2014, Rs. 90,000 for 2015 and Rs. 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 Rs. 2,02,500. 

(b) Goodwill appears in the books at Rs. 2,500.

(c) Goodwill appears in the books at Rs. 2,05,000.

SOLUTION

Calculation of Average profit:

YearProfit
201350,000
201460,000
201590,000
201570,000
Total profit of four years2,70,000

Average profit=Rs 2,70,000/4

=Rs 67,500

Goodwill = Average profit X No.of years purchase

= Rs 67,500 X 3

= Rs 2,02,500

There for the firm’s goodwill is Rs 2,02,500

Ram lal’s share of Goodwill = Firm’s Goodwill X Ram lal’s share of profit in the firm

= Rs 2,02,500 X 1/4

= Rs 50,625

Cash-(I)

Journal Entries

DateParticularsL.F.Amount
(Dr.)		Amount
(Cr.)
 Mohan Lal’s Capital A/cDr.1,21,500 
 Sohan Lal’s Capital A/cDr. 81,000
 To Goodwill A/c   2,02,500
 (Goodwill appeared in the old firm written off)   
 Ramlal’s Capital A/cDr. 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)   

Journal Entries

Cash-(II)

DateParticularsL.FAmount
(Dr.)		Amount
(Cr)
Mohan lal’s capital A/cDr.1,500
Sohan lal’s capital A/cDr.1,000
To Goodwill A/c2,500
(Firm’s Books Goodwill Written off)
Ram lal’s capital A/cDr.50,625
To Mohan lal’s capital A/c30,375
To Sohan lal’s capital A/c20,250
(Ram Lal’s Shares of Goodwill charged  from his)

Journal Entries

Cash-(III)

Date    Particulars  L.F.Amount
(Dr.)		Amount
(Cr.)
 Mohan Lal’s Capital A/cDr. 1,23,000
 Sohan Lal’s Capital A/cDr. 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/cDr. 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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