Question

Question 15

Ahmed, Mohammed, and Mahmood invested to establish a company for imports Hardware Tools. They decided to share capital and distributed the profits in equally. The total capital SR 270,000. Ahmed, Mohammed paid their share in partnership SR 180,000, and Ahmed paid SR 60,000 his full share.

The journal entry of the initial investments under Goodwill Method was.

A.

	Questions	Dr	Cr
D	Bank Mahmood                                  Ahmed capital           Mohammed Capital         Mahmood Capital Goodwill	240,000 30,000	90,000 900,000 60,000 30,000

B.

	Questions	Dr	Cr
A	Investment         Goodwill                                                                     Ahmed capital                                                                             Mohammed Capital                        Mahmood Capital	240,000 30,000	100,000 100,000 70,000

C.

	Questions	Dr	Cr
C	Investment                                                                                     Ahmed capital                                                                            Mohammed Capital           Mahmood Capital   Goodwill	270,000	90,000 900,000 60,000 30,000

D.

	Questions	Dr	Cr
A	Cash         Goodwill                            Ahmed capital                                Mohamed Capital                        Mahmood Capital	240,000 30,000	90,000 90,000 90,000

Answer 1

Under goodwill method, the calculation of goodwill is done by subtracting the book value and investment value made by the new partner.

In the given case, total capital of SR 270,000 and Ahmed, Mahmood and Mohammed decided to contribute share capital equally i.e. SR 90,000. However, the total amount paid by all the three partners towards their respective shares in partnership is SR 240,000, thus resulting in the recognition of goodwill of SR 30,000 (270,000-240,000).

Therefore, correct option is (d).