Question

Based on the above, answer the question. Amrita and Kalyani are partners sharing profits in the ratio of 3 : 2. They decided to expand the business by admitting Suraj as a new partner for 1/4th share. Suraj’s share of goodwill is valued at Rs 90,000 for which he compensated Amrita and Kalyani in the ratio 1 : 4. Following information is also provided:

• Machinery : Rs 25,00,000
• Land : Rs 10,00,000
• Computer : Rs 2,50,000
• Workmen compensation fund : Rs 5,30,000

Claim against workmen compensation is Rs 2,00,000 and goodwill appeared in the books at Rs 60,000.
What journal entry will be passed for goodwill appearing in the books?

• A. Dr. Goodwill A/c Rs 60,000 Cr. Amrita’s Capital A/c Rs 36,000 Cr. Kalyani’s Capital A/c Rs 24,000
• B. Dr. Amrita’s Capital A/c Rs 36,000 Dr. Kalyani’s Capital A/c Rs 24,000 Cr. Goodwill A/c Rs 60,000
• C. Dr. Amrita’s Capital A/c Rs 12,000 Dr. Kalyani’s Capital A/c Rs 48,000 Cr. Goodwill A/c Rs 60,000
• D. Dr. Goodwill A/c Rs 60,000 Cr. All partner’s Capital A/c Rs 60,000

Hint:

"At the time of any retirement, always keep this formula: Debit for share / Credit for share."

Answer 1

The Correct Option is B

The goodwill needs to be eliminated, and compensation needs to be identified between partners.
Journal Entry:
Amrita’s capital = Rs 60,000 * (3/5) = Rs 36,000
Kalyani’s capital = Rs 60,000 * (2/5) = Rs 24,000
Thus, the journal entry will be:
Dr. Amrita’s Capital A/c Rs 36,000
Dr. Kalyani’s Capital A/c Rs 24,000
Cr. Goodwill A/c Rs 60,000