Question

A and B are partners in a business sharing profits and losses in the ratio of 1/3rd and 2/3rd. On 1st April, 2018, their capitals are ₹ 8,000 and ₹ 10,000 respectively. On that date , they admit C in partnership and give him 1/4th share in the future profits . C brings in ₹ 8,000 as his capital and ₹ 6,000 as goodwill. The amount of goodwill is immediately withdrawn by the old partners in cash . Draft the journal entries and show the Capital Accounts of all the Partners. Calculate proportion in which partners would share profits and losses in future.

Answer 1

Journal
Date 2018	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
April 1	Cash A/c	Dr.		14,000
	To C’s Capital A/c				8,000
	To Premium for Goodwill A/c				6,000
	(C brought capital and his share of goodwill)
April 1	Premium for Goodwill A/c	Dr.		6,000
	To A’s Capital A/c				2,000
	To B’s Capital A/c				4,000
	(C’s share of goodwill distributed between A and B in sacrificing ratio i.e. 1:2)
	A’s Capital A/c	Dr.		2,000
	B’s Capital A/c	Dr.		4,000
	To Cash A/c				6,000
	(Amount of goodwill withdrawn by A and B)

Partners’ Capital Accounts
Dr.							Cr.
Particulars	A	B	C	Particulars	A	B	C
Cash	2,000	4,000		Balance b/d	8,000	10,000
				Cash			8,000
				Premium for Goodwill	2,000	4,000
Balance c/d	8,000	10,000	8,000
	10,000	14,000	8,000		10,000	14,000	8,000

Calculation of New (Future) Ratio

C is admitted for share of profit

Let combined share of all partners after C’s admission be = 1

Combined share of A and B after C’s admission = 1 − C’s share

Distribution of Premium for Goodwill