Sunila and Manisha are partners in a firm sharing profits and losses in the ratio of 5:3. Radhika is admitted in the firm for 1/5th share of profits. She brings in Rs. 40,000 as her share of goodwill. Give the necessary journal entries, when partners decided to retain goodwill in the business.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (i) Cash A/c Dr. Rs. 40,000, To Premium for Goodwill A/c Rs. 40,000; (ii) Premium for Goodwill A/c Dr. Rs. 40,000, To Sunila’s Capital A/c Rs. 25,000 and To Manisha’s Capital A/c Rs. 15,000
The premium Radhika brings is compensation to the old partners for the share of profit they give up, so it is shared in their sacrificing ratio. It is first received into Premium for Goodwill A/c and then credited to the sacrificing partners’ capital accounts.
Sacrificing ratio:
Radhika takes 1/5 from Sunila and Manisha without any other agreement, so they give it up in their old ratio of 5:3
Sacrificing ratio = 5:3
Shares of the premium:
Sunila = Rs. 40,000 × 5/8 = Rs. 25,000
Manisha = Rs. 40,000 × 3/8 = Rs. 15,000
Because the partners retain the goodwill in the business, no further entry is passed. Had they withdrawn it, a third entry debiting their capital accounts and crediting Cash would follow, which is what Option (4) does.
NCERT (2026-27 edition):
NCERT (2026-27 edition): |
