Question

A, B are two partners sharing profits and losses in the ratio of 3:1. They admit K as a partner and he pays Rs. 30,000 as capital. The new ratio is to be 3:1:1. The goodwill of the firm is to be based on 3 years’ purchase of the average 4 years’ profits which are Rs. 15,000, 12,000, 18,000, 19,000.

Required: 

Show the journal entries, if:

    (A) K pays for the goodwill in cash.

    (B) He is unable to bring the cash for the goodwill.

Answer 1