Question

A and B are partners in a firm, sharing Profits and Losses in the ratio of 3 : 2. Their capitals are Rs 1,80,000 and Rs 1,40,000 respectively. They admit X in partnership on the conditions that he will bring Rs 67,500 as goodwill and Rs 1,50,000 as capital and will get $\frac{1}{4}$ share in the profits of the firm. Assuming that the capital and goodwill have been brought in cash by the new partner, pass the necessary journal entries and find out new profit sharing ratio of partners when (A) Goodwill is retained in the firm and (B) Goodwill is withdrawn by old partners.

Answer 1

(A) When the amount of Goodwill is not withdrawn by the old partners:

JOURNAL

$\begin{array}{ccccc}\text{Date}& \text{Particular}& \text{L.F}& \text{Dr.(Rs)}& \text{Cr.(Rs)}\\ & \text{Bank A/c}Dr.& & 2,17,500& \\ & \text{To X's Capital A/c}& & & 2,17,500\\ & \text{(The amount of capital and goodwill/premium}& & & \\ & \text{brought in cash by new partner)}& & & \\ & \underset{–}{}& & & \\ & \text{X's Capital A/c}Dr.& & 67,500& \\ & \text{To A's Capital A/c}& & & 40,500\\ & \text{To A's Capital A/c}& & & 27,000\\ & \text{(The amount of goodwill/premium credited to the old}& & & \\ & \text{partner's capitals in Sacrifice Ratio i.e., 3:2}& & & \end{array}$

(B) When the amount of Goodwill is withdrawn by the old partners:

JOURNAL

$\begin{array}{ccccc}\text{Date}& \text{Particular}& \text{L.F}& \text{Dr.(Rs)}& \text{Cr.(Rs)}\\ & \text{Bank A/c}Dr.& & 2,17,500& \\ & \text{To X's Capital A/c}& & & 2,17,500\\ & \text{(The amount of capital and goodwill/premium}& & & \\ & \text{brought in cash by new partner)}& & & \\ & \underset{–}{}& & & \\ & \text{X's Capital A/c}Dr.& & 67,500& \\ & \text{To A's Capital A/c}& & & 40,500\\ & \text{To B's Capital A/c}& & & 27,000\\ & \text{(The amount of goodwill/premium credited to the old}& & & \\ & \text{partner's capitals in Sacrifice Ratio i.e., 3:2)}& & & \\ & \underset{–}{}& & & \\ & \text{A's Captial A/c}Dr.& & 40,500& \\ & \text{B's Capital A/c}Dr.& & 27,000& \\ & \text{To Bank A/c}& & & 67,500\\ & \text{(The amount of goodwill/premium withdrawn by the}& & & \\ & \text{old partners)}& & & \end{array}$

Note (1) As the new profit sharing ratio is not given in the question, therefore it will be presumed that the old profit sharing ratio will be the sacrificing ratio, i.e., it will be presumed that the partners have sacrificed in their old ratio.