Sam and Jose are partners in a firm sharing profits and losses in the ratio of 3 : 2. On 1st April 2018, they

Question 27 of 40

Q. Sam and Jose are partners in a firm sharing profits and losses in the ratio of 3 : 2. On 1st April 2018, they admitted Joel as a partner. On the date of Joel's admission, goodwill appeared in the books of the firm as ₹ 20,000. Assuming that the accounts are maintained on Fluctuating Capital method, pass the necessary journal entries if the partners decided to :

(a) Write off the entire amount of existing goodwill.

(b) Write off ₹ 10,000 of the existing goodwill.

Tamil Nadu DgeTamil Nadu HSC (DGE) Commerce Board 2023Subjective· 3mImportance★★★★★

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Existing goodwill is written off among the old partners in their old ratio (3 : 2) by debiting their capital accounts and crediting the Goodwill account.

Concept

When goodwill already appears in the books at the time of a new partner's admission, it must be written off among the old partners in their old profit-sharing ratio (Sam : Jose = 3 : 2), because it belongs to them. Under the fluctuating capital method, this is done through the partners' capital accounts.

(a) Write off the entire ₹20,000

Shared 3 : 2 → Sam = 20,000 × 3/5 = ₹12,000; Jose = 20,000 × 2/5 = ₹8,000.

Date	Particulars	Dr (₹)	Cr (₹)
1.4.2018	Sam's Capital A/c Dr	12,000
	Jose's Capital A/c Dr	8,000
	To Goodwill A/c		20,000
	(Being existing goodwill written off among old partners in old ratio 3 : 2)

(b) Write off ₹10,000 of the existing goodwill

Shared 3 : 2 → Sam = 10,000 × 3/5 = ₹6,000; Jose = 10,000 × 2/5 = ₹4,000.

Date	Particulars	L.F.	Dr (₹)	Cr (₹)
1.4.2018	Sam's Capital A/c Dr		6,000

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Same / Similar Concept — real previous-year questions on the same or a closely similar concept, not this exact question.

CBSE 2025Set MARCH1 markMCQ
$Q. Select the odd one out.$
(a) Revaluation Profit
(b) Investment fluctuation fund
(c) Goodwill brought by new partner
(d) Accumulated Loss
›Reveal solutionSolution
The odd one out is (d) Accumulated Loss, because it is a debit item borne by the old partners, unlike the other three which are credits distributed to them.

When a partner is admitted, several past items are adjusted among the old partners in their old ratio (Tamil Nadu HSC Commerce syllabus, Admission of a Partner):

Revaluation Profit — a gain on revaluing assets/liabilities, credited to old partners.

Investment Fluctuation Fund — a reserve/credit, its surplus is credited to old partners.

Goodwill brought by the new partner — credited to the sacrificing (old) partners.

Accumulated Loss — a past loss, debited to old partners. …
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CBSE 2025Set MARCH1 markMCQ
$Q. At the time of admission, the Goodwill brought by the new partner may be credited to the Capital accounts of whom ?$
(a) The new partner
(b) The old partners
(c) The Sacrificing partners
(d) All the partners
›Reveal solutionSolution

Goodwill brought in by the new partner is credited to the sacrificing partners.

On admission, the new partner acquires his share of profit only because the existing partners sacrifice part of theirs (Admission of a Partner, TN HSC Commerce). The premium (goodwill) he brings is therefore a compensation to those who sacrifice. It is credited to the sacrificing partners' capital accounts in their sacrificing ratio — not to the new partner, and not necessarily to all old …

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CBSE 2023Set MARCH1 markMCQ
$Q. At the time of admission, the goodwill brought by the new partner may be credited to the Capital accounts of :$
(a) the new partner
(b) all the partners
(c) the sacrificing partners
(d) the old partners
›Reveal solutionSolution

Goodwill brought in by a new partner is credited to the Capital accounts of the sacrificing partners in their sacrificing ratio — option (c).

In the Admission of a Partner topic of the TN HSC Commerce syllabus, a new partner acquires his share of future profits from the existing partners, who therefore sacrifice part of their share. To compensate them, the new partner pays a premium for goodwill.

When the goodwill (premium) is brought in cash and retained in the business, the accounting treatment is:

Cash/Bank A/c Dr.

To Premium for Goodwill A/c

Premium for Goodwill A/c Dr.

To Sacrificing Partners' Capital A/c (in the sacrificing ratio)

…

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