Question

$A$ and $B$ are partners in a business sharing profits and losses in the ratio of $1/3^{rd}$ and $2/3^{rd}$. On $1^{st}$April,2018, their capitals are $Rs.8,000$ and $Rs.10,000$ respectively. On that date, they admit $C$ in partnership and give him $1/4^{th}$ share in the future profits. $C$ brings in $Rs.8,000$ as his capital and $Rs.6,000$ 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 The amount of goodwill is immediately withdrawn by the old partners in cash.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

(i) JOURNAL

1. Cash a/c.... Dr. 14000

To C's Capital a/c 8000

To Premium for Goodwill a/c 6000

(Being capital and premium for goodwill brought in by C)

2. Premium for goodwill a/c... Dr. 6000

To A's Capital a/c 2000

To B's Capital a/c 4000

(Being premium for goodwill distributed among the partners in the ratio of 1:2)

3. A's Capital a/c.... Dr. 2000

B's Capital a/c.... Dr. 4000

To Cash a/c 6000

(Being amount of goodwill withdrawn by the partners)

(ii) PARTNER'S CAPITAL A/C
Dr. Cr.

Particulars	A	B	C	Particulars	A	B	C
To Cash	2000	4000	Nil	By Balance b/d	8000	10000	Nil
				By Cash	Nil	Nil	8000
				By Premium for Goodwill	2000	4000	Nil
To Balance c/d	8000	10000	8000
	10000	14000	8000		10000	14000	8000

(iii) Calculation of new Profit sharing ratio:

A's old share= 1/3

B's old share= 2/3

C is admitted for 1/4th share

remaining share= 1-[1/4]= 3/4

A's new share= 1/3 * 3/4= 1/4

B's new share= 2/3 * 3/4= 2/4

C's share= 1/4

New Profit sharing ratio= 1:2:1