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Sterlingenterprises is a partnership business with Ryan, Williams and Sania as partners engaged in production and sales of electrical items and equipment. 

Their capital contributions were Rs.50,00,000, Rs.50,00,000 and Rs.80,00,000 respectively with the profit the sharing ratio of 5:5:8. As they are now looking forward to expanding their business, it was decided that they would bring in sufficient cash to double their respective capitals. 

This was duly followed by Ryan and Williams but due to unavoidable reasons Sania could not do so and ultimately it was agreed that to bridge the shortfall in the required capital a new partner should be admitted who would bring in the amount that Sania could not bring and that the new partner would get share of profits equal to half of Sania’s share which would be sacrificed by Sania only. 

Consequent to this agreement Ejaz was admitted and he brought in the required capital and Rs.30,00,000 as premium for goodwill. Based on the above information you are required to answer the following questions. 

1 What will be the new profit-sharing ratio of Ryan, Williams, Sania and Ejaz?

(a) 1:1:1:1 

(b) 5:5:8:8 

(c) 5:5:4:4 

(d) None of the above 

2 What is the amount of capital brought in by the new partner Ejaz? 

(a) Rs.50,00,000 

(b) Rs.80,00,000 

(c) Rs.40,00,000 

(d) Rs.30,00,000 

3 What is the value of the goodwill of the firm? 

(a) Rs.1,35,00,000 

(b) Rs.30,00,000 

(c) Rs.1,50,00,000 

(d) Cannot be determined from the given data. 

4. What will be correct journal entry for distribution of Premium for Goodwill brought in by Ejaz? 

(i) Ejaz Capital A/c ……..Dr.     30,00,000 

To Sania’s Capital A/c    30,00,000 (Being………..) 

(ii) Premium for Goodwill A/c……Dr.    30,00,000 

To Sania’s Capital A/c     30,00,000 (Being……..) 

(iii) Premium for Goodwill A/c……Dr     30,00,000 

To Reyan’s Capital A/c      8,33,333 

To William’s Capital A/c     8,33,333

To Ejaz’s Capital A/c         13,33,333 (Being………..) 

(iv) Premium for Goodwill A/c……Dr     30,00,000 

To Reyan’s Capital A/c      10,00,000 

To William’s Capital A/c     10,00,000 

To Ejaz’s Capital A/c         10,00,000 (Being……..)

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1 Answer

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1 ( c) 5:5:4:4 

(b) Rs.80,00,000 

3 (a) Rs.1,35,00,000 

4 (b) Premium for Goodwill A/c…………….Dr   30,00,000 

To Sania’s Capital A/c      30,00,000

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