Aand B are partners sharing profits in the ratio of 3:2. They admit C into partnership. The new profitsharing ratio is agreed at3:3:2. Firm's goodwill on C's admission is valued at rs 3,20,000 but c is could not bring any amount of goodwill in cash. Give Journal entries in the case of When Goodwill account is not to be raised.
Answers & Comments
When Goodwill account is not to be raised, the admission of C into the partnership can be recorded with the following journal entries:
1. To record C's capital contribution:
Assuming C brings cash or other assets into the partnership as their capital contribution, we need to record it:
Debit: Cash / Other Assets (C's Capital) - (Amount contributed by C)
Credit: C's Capital Account - (Amount contributed by C)
2. To record the distribution of Goodwill:
Since C is not bringing any amount of goodwill in cash, the existing partners A and B will absorb the goodwill value in their profit-sharing ratio.
Debit: A's Capital Account - (Value of Goodwill × A's share in the new ratio)
Debit: B's Capital Account - (Value of Goodwill × B's share in the new ratio)
Credit: Goodwill Account - (Total value of Goodwill)
3. To adjust the capital balances:
The capital balances of A, B, and C need to be adjusted according to the new profit-sharing ratio.
Debit: A's Capital Account - (Adjustment for new ratio)
Debit: B's Capital Account - (Adjustment for new ratio)
Credit: C's Capital Account - (Adjustment for new ratio)
Please note that the specific amounts for each entry will depend on the actual values involved in the transaction, such as C's capital contribution, the value of Goodwill, and the adjustment needed for the new profit-sharing ratio. These amounts should be determined based on the information provided in the question or any additional data given.
Verified answer
Answer:
When the Goodwill account is not to be raised, the entry for C's admission into the partnership can be recorded without considering the goodwill amount. The entries are as follows:
1. To record C's investment into the partnership:
**Journal Entry:**
C's Capital A/c Dr. (Investment brought in by C)
To A's Capital A/c (A's share of capital)
To B's Capital A/c (B's share of capital)
2. To adjust the profit-sharing ratio and distribute the accumulated profits (if any):
**Journal Entry:**
Accumulated Profits A/c Dr. (If there are any profits accumulated before C's admission)
To A's Capital A/c
To B's Capital A/c
To C's Capital A/c (Profits distributed according to the new ratio)
3. To adjust A and B's capital to the new ratio:
**Journal Entry:**
A's Capital A/c Dr. (If A's capital is not in the new ratio)
To B's Capital A/c (To adjust A's capital to the new ratio)
4. To record C's share of goodwill (if any partner agrees to compensate C for goodwill):
**Journal Entry:**
C's Capital A/c Dr. (C's share of goodwill)
To A's Capital A/c (To share goodwill with A)
To B's Capital A/c (To share goodwill with B)
It's important to note that in this scenario, the Goodwill account is not raised, and the values are directly recorded in the individual partner's capital accounts. Additionally, any changes to the capital accounts will be based on the new profit
Explanation: