Question : X and Y are partners sharing profit and losses in the ratio of 4:1. They agreed to admit Z into partnership for 1/3 rd share in profit. It was agreed that X, Y and Z would share future profit equally in future. Z brought Rs 50,000 as goodwill for his 1/3rd share in profits. Choose the necessary journal entry that will be recorded for the treatment in the books of the firm.
Option 1: Debiting Z with Rs 50,000 and crediting X and Y with Rs 20,000 and Rs 30,000
Option 2: Bank account debiting Rs 50,000 and crediting Z's capital account with Rs 50,000
Option 3: Debiting Z with Rs 50,000 and Debiting Y with Rs 20,000 and crediting X with Rs 70,000
Option 4: Both 2 and 3
Correct Answer: Both 2 and 3
Solution : Answer = Both 2 and 3
Bank A/c Dr 50,000
Z's Capital A/c 50,000
Z's Capital A/c Dr 50,000
Y's Capital A/c Dr 20,000 (1,50,000 x 2/15)
To X's Capital A/c - 70,000
Z's Share of Goodwill = 50,000
1/3 = 50000 = 50000 x 3 = 1,50,000 Hence, the correct option is 4.
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