Hem and Nem are partners in a firm sharing profits in the ratio of 3:2. Their capitals were Rs. 80,000 and Rs. 50,000 respectively. They admitted Sam on Jan. 1, 2017 as a new partner for 1/5 share in the future profits. Sam brought Rs. 60,000 as his capital. Calculate the value of goodwill of the firm and record necessary journal entries on Sam’s admission.

Explanation

Value of Firm's Goodwill
`{:("Sam's capital",=Rs.60000),("Sam's share",=(1)/(5)),("Total capital of new firm ",=5xxRs.60000 = Rs. 300000),("Hem's + Nem's +Sam's",=Rs.80000 +Rs. 50000+ Rs. 60000),(,=Rs.190000),("Goodwill of the firm",=Rs.110000(Rs.300000-Rs.190000)),("Sam's share",=(1)/(5)xx Rs. 110000 Rs. = 22000):}`

Alternatively, if goodwill account is not to be raised, the second journal entry passed for goodwill shall be as fallows.