Ahmed and Sahil are partners sharing profit in the ratio of 3: 2. They agree to

Question

Ahmed and Sahil are partners sharing profit in the ratio of 3: 2. They agree to admit Chirag for 1/5 share in future profit. Chirag brings SAR. 250,000 as capital and enable to bring her share of goodwill in cash, the goodwill of the firm to be valued at SAR. 180,000. At the time of admission goodwill existed in the books of the firm at SAR.80,000.

1. Make the journal entry related to the cash brought by Chirag   (1 Point)

2. Make the journal entry related to the Goodwill written off before Chirag’s admission (2 Points)

* No hand writing or pictures please*

Explanation / Answer

Answer 1

Journal entry related to the cash brought by Chirag

Cash A/c Dr. SAR 250,000

To Chirag's Capital Account SAR 250,000

(Being Capital Brought in by Chairag)

Answer 2

Journal entry related to the Goodwill written off before Chirag’s admission

Ahmed's Capital Account Dr (WN 1) SAR 48,000

Sahil's Capital Account Dr(WN 2) SAR 32,000

To Goodwill A/c SAR 80,000

(Being Existing goodwill appearing in books written off among existing partners in old profit sharing ratio)

WN 1

80000 x 3/5 = 48000

WN 2

80000 x 2/5 = 32000

Assumption : Chairag Acquired his share from Ahmed and Sahil equally ie in 1:1.

hence sacrificing ratio should also be 1:1.

Goodwill of firm to be valued at SAR 180,000

Share of Chairag in Goodwill = 180,000 x 1/5 = SAR 36,000

Hence Journal Entry would be like.....

Chairag Capital A/c Dr SAR 36,000

To Ahmed's Capital A/c SAR 18,000

To Sahil's Capital A/c SAR 18,000

(Being the share of Chairag in Goodwill credited to Ahmed and Sahil in their Sacrificing ratio)

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