Question

X and Y are partners with capital of Rs.50,000 each. They admit Z as a partner with 1/4th share in the profits of the firm. Z brings in Rs.80,000 as his share of capital. The Profit and Loss Account showed a credit balance of Rs.40,000 as on date of admission of Z. Give necessary Journal entries to record the goodwill.

Answer 1

Capitalised value of the firm on the basis of Z's share  = 80 ,000 x 4 /1 = Rs. 3,20,000

Goodwill = Capitalised value of the firm - Total capital after z's admission 

= 50,000 +50,000 +40,000 +80,000

= Rs. 2,20,000