Karan and Varun were partners in a firm sharing profits and losses in the ratio of 1:2. Their fixed capitals were RS 2,00,000 and RS 3,00,000 respectively. On 1st April, 2016, Kishore was admitted as a new partner for 1/4th share in the profits. Kishore brought RS 2,00,000 for his capital which was to be kept fixed like the capital of Karan and Varun. Kishore acquired his share of porfit from Varun.
Calculate goodwill of the firm on Kishore's admission and the new protif-sharing ratio of karan, Varun and Kishore. Also, pass necessary Journal entry for the treatment of Goodwill on Kishore's admission considering that Kishore did not share of goodwill premium in cash.

Explanation

(a) Calculation of Goodfwill of the Firm:
Kishore's Share = 1/4, Kishore's Capital =RS 2,00,000
(i) Total Capital of the New Firm =`RS 2,00,000xx4=RS8,00,000`
(ii) Existing total capital of Karan, Varun and Kishore
`=RS2,00,000+RS3,00,000+RS2,00,000=RS 7,00,000`
Value of Firm's Goodwill =(i)-(ii)
`=RS8,00,000-RS7,00,000=RS1,00,000`.
Thus, Kishore's share of Goodwill `=1//4xxRS1,00,000=RS25,000`
(b) Calcuation of New Profit-sharing Ratio:
Karan's New Share =1/3
Varun's New Share = Old Share -Sacrifice `=(2)/(3)-(1)/(4)=(5)/(12)`
Kishore's Share =1/4
Thus, New Profit-Sharing Ratio of Karan, Varun and Kishore `=(1)/(3):(5)/(12):(1)/(4)or4:5:3`.

1. As only Varun has sacificed his share of porfit, he will get entire premuim for goodwill of kishore.
2. Kishore is unable to bring his share of goodwill , it will be debited to his Current Account.