Given below are two solution of the same question. Answers are same. One of the method is adopted by me while the other is the one I copied from the key of the book. Please guide if both methods are correct........
Question:
A and B are partners sharing profits in the ratio of 3:2. C is admitted and new profit sharing ratio is 2:2:1. C brings in cash Rs. 8,000 for capital and Rs. 2,000 for goodwill. The balance sheet of A and B is
Liabilities:
Capital-A 8,000
Capital-B 8,000
Reserve Account 4,000
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Total 20,000
Assets:
Goodwill 2,500
Other assets 17,500
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Total 20,000
Partners decided that goodwill account should appear in the new firm's books at Rs. 6,000. Give journal entries and prepare balance sheet of new firm.
Solution No 1:
for 1/5th share, the value of goodwill is Rs. 2,000
for full share, the value of good will is Rs. 10,000
Journal Entries
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Goodwill 7,500
To A 4,500
To B 3,000
(Difference between total value of goodwill and the value of goodwill already appearing has been raised and credited to old partners in the old ratio)
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Cash 10,000
To C's Capital 10,000
(Amount brought in by C for capital and goodwill, credited to his capital account)
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Reserve Fund 4,000
To A 2,400
To B 1,600
(Reserve Fund written off in old ratio)
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A 1,600
B 1,600
C 800
To Goodwill 4,000
(Goodwill brought down to the desired amount in the new ratio)
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Balance Sheet
---------------------
Liabilities:
A's capital 13,300
B's capital 11,000
C's capital 9,200
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Total 33,500
Assets:
Goodwill 6,000
Assets 17,500
Cash 10,000
-----------------------------------------
Total 33,500
Solution No 2:
Journal Entries
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sacrifice=new sharing ratio - old sharing ratio
A's sacrifice=3/5-2/5=1/5
B's sacrifice=2/5-2/5=0
Cash Account 10,000
To C's capital 8,000
To Goodwill Account 2,000
(Total cash brought by C as capital and goodwill)
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Goodwill Account 2,000
To A's capital 2,000
To B's capital 0
(Goodwill brought by C is distributed among old partners according to their portion of sacrifice)
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A's capital 1,500
B's capital 1,000
To goodwill 2,500
(Goodwill already shown in balance sheet is debited in old partners with old sharing ratio)
-------------------------------------------------------------------
Reserve Account 4,000
To A's capital 2,400
To B's capital 1,600
(reserve amount in balance sheet is distributed in old partners with old sharing ratio)
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Goodwill Account 6,000
To A's capital 2,400
To B's capital 2,400
To C's capital 1,200
(New required goodwill is created according to new sharing ratio)
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Balance Sheet
---------------------
Liabilities:
A's capital 13,300
B's capital 11,000
C's capital 9,200
-----------------------------------------
Total 33,500
Assets:
Goodwill 6,000
Assets 17,500
Cash 10,000
-----------------------------------------
Total 33,500