X and Y are partners with capitals of Rs 50,000 each

40 :-  X and Y are partners with capitals of Rs 50,000 each. They admit Z as a partner for 1/4th share in the profits of the firm. Z brings in Rs 80,000 as his share of capital. 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.

Solution :-

WORKING NOTES :-
Calculation of hidden goodwill of the firm
Capital of the firm as per Z’s capital                      80,000 x 4                                         3,20,000
Less: capital of all the partners                      50,000 + 50,000 + 40,000 + 80,000            2,20,000
HIDDEN GOODWILL OF THE FIRM                                                                          1,00,000

Calculation of share of goodwill
Share for premium to be brought in by Z                               1,00,000 x 1/4                      25,000
X’s share = 25,000 x 1/2  = Rs 12,500
Y’s share = 25,000 x 1/2  = Rs 12,500