Question

Ramesh and Sohan were partners in a firm. Their capitals were Rs. 40,000 and Rs. 60,000 respectively. They agreed to admit Aman as a partner for 1/4th share on the term that he brings Rs. 30,000 as capital and Rs. 40,000 as goodwill. Aman paid his capital money but in respect of goodwill he could bring only Rs. 24,000.

From the above information pass necessary journal entries and prepare Partners' Capital A/c and Aman's Current A/c.

Hint:

Sacrifice ratio = old share − new share; unpaid goodwill goes to the new partner's Current A/c, not Capital A/c.

Answer 1

Note: the question does not give the old profit-sharing ratio, so Ramesh and Sohan are taken to share profits equally.
Step 1: Work out the new and sacrificing ratio:
Old ratio (Ramesh : Sohan) = 1 : 1, i.e. 1/2 each. Aman's share = 1/4, so the remaining 3/4 is shared by Ramesh and Sohan in their old ratio 1:1, i.e. 3/8 each.
New ratio = Ramesh 3/8 : Sohan 3/8 : Aman 2/8 = 3 : 3 : 2.
Sacrifice of each old partner = Old share − New share = 1/2 − 3/8 = 1/8, so Sacrificing ratio (Ramesh : Sohan) = 1 : 1.

Step 2: Journal entry for capital and part of goodwill brought in cash:

Particulars	Dr. (Rs.)	Cr. (Rs.)
Bank A/c Dr. (30,000 + 24,000)	54,000
To Aman's Capital A/c		30,000
To Premium for Goodwill A/c		24,000

(Being capital and part of goodwill premium brought in cash by Aman)

Step 3: Journal entry for the goodwill shortfall:
Aman was to bring Rs. 40,000 as goodwill but paid only Rs. 24,000, leaving Rs. 16,000 unpaid, which is debited to his Current Account:

Particulars	Dr. (Rs.)	Cr. (Rs.)
Aman's Current A/c Dr.	16,000
To Premium for Goodwill A/c		16,000

(Being the goodwill amount not brought in cash, debited to Aman's Current A/c)

Step 4: Journal entry distributing goodwill premium to old partners:
Total premium now standing in Premium for Goodwill A/c = 24,000 + 16,000 = Rs. 40,000, distributed to Ramesh and Sohan in sacrificing ratio 1:1, i.e. Rs. 20,000 each:

Particulars	Dr. (Rs.)	Cr. (Rs.)
Premium for Goodwill A/c Dr.	40,000
To Ramesh's Capital A/c		20,000
To Sohan's Capital A/c		20,000

(Being premium for goodwill credited to old partners in their sacrificing ratio 1:1)

Step 5: Partners' Capital Accounts:

Particulars	Ramesh	Sohan	Aman	Particulars	Ramesh	Sohan	Aman
Balance c/d	60,000	80,000	30,000	Balance b/d	40,000	60,000	–
				Bank (capital)	–	–	30,000
				Premium for Goodwill	20,000	20,000	–
Total	60,000	80,000	30,000	Total	60,000	80,000	30,000

Final Answer:
Closing Capitals: Ramesh = Rs. 60,000, Sohan = Rs. 80,000, Aman = Rs. 30,000. Aman's Current A/c shows a debit balance of \[ \boxed{Rs.\ 16{,}000} \] (the unpaid goodwill), to be recovered from him later.