X and Y are the partners in a firm. They admitted Z for 1/4th share in the profit. At the admission of Z, X and Y sacrificed in the ratio 3:2. Firm's goodwill was valued at ₹4,00,000. Z contributed following assets towards his capital and for his share of goodwill:
Land - ₹1,00,000
Pant and Machinery - ₹1,50,000
What will be the journal entry?
Answer & explanation
Correct answer: option 1
The correct answer is option 1-
Land A/c Dr. ₹1,00,000
P & M A/c Dr. ₹1,50,000
To Z's Capital A/c ₹1,50,000
To Premium for Goodwill ₹1,00,000
(Contribution by Z for his capital and goodwill)
Goodwill of the firm = ₹4,00,000
Premium for goodwill of Z = 4,00,000*1/4
= 1,00,000
Capital = Total assets - Premium for goodwill
= 2,50,000 - 1,00,000
= 1,50,000
JOURNAL ENTRY FOR THIS-
Land A/c Dr ₹1,00,000
P & M A/c Dr ₹1,50,000
To Z's Capital A/c ₹1,50,000
To Premium for Goodwill ₹1,00,000
(Contribution by Z for his capital and goodwill)