35 :- On the admission of Ritu, goodwill of the firm of Murty and Shah is valued at Rs 30,000. Ritu is to get 1/4th share of profits. Previously Murty and Shah shared profits in the ratio of 3:2. Ritu is unable to bring premium for goodwill.
Give journal entries in the books of Murty and Shah when:
(a) Goodwill does not exist in the books; and
(b) Goodwill exists in the books at Rs 10,000
Solution :-
WORKING NOTES :-
(a) Calculation of new profit sharing ratio
Let the total profit sharing ratio be 1
Ritu was admitted for 1/4th share
Remaining share = 3/4
Murty’s share = 3/4 x 3/5 = 9/20
Shah’s share = 3/4 x 2/5 = 6/20
Ritu’s share = 1/4 x 5/5 = 5/20
New profit sharing ratio = 9:6:5
(b) Calculation of sacrificing share
Murty = 3/5 – 9/20 = 3/20
Shah = 2/5 – 6/20 = 2/20
Sacrificing ratio = 3:2
(c) Calculation of share of goodwill
Ritu’s share = 30,000 x 1/4 = Rs 7,500
Murty’s share = 7,500 x 3/5 = Rs 4,500
Shah’s share = 7,500 x 2/5 = Rs 3,000