Question

A and B are partners in a firm sharing profits and losses in the ratio of 3: 2. They decide to admit C into partnership with $\frac{1}{4}$ share in profits. C will bring in Rs.30,000 for capital and the requisite amount of goodwill premium in cash. The goodwill of the firm is valued at Rs. 20,000. The new profit sharing ratio is 2 : 1: 1. A and B withdraw their share of goodwill. Given necessary journal entries.

Answer 1

$\text{Journal Entries}$\
$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F}& \text{Amt.(Cr)}& \text{Amt.(Cr)}\\ \text{(i)}& \text{Cash A/c}& Dr& & 35,000& \\ & \text{To C's Capital A/c}& & & & \text{35,000}\\ & \text{(C admitted and paid capital Rs.30,000 and premium Rs. 5,000 for 1/4 shares )}& & & & \\ & \underset{–}{}& & & & \\ \text{(ii)}& \text{C's Capital A/c}& Dr& & 5,000& \\ & \text{To A's Capital A/c}& & & & \text{2,000}\\ & \text{To B's Capital A/c}& & & & \text{3,000}\\ & \text{(Premium distributed among old partners in sacrificing ratio i.e, 2 : 3 )}& & & & \\ & \underset{–}{}& & & & \\ \text{(iii)}& \text{A's Capital A/c}& Dr& & 2,000& \\ & \text{B's Capital A/c}& Dr& & 3,000& \\ & \text{To Cash A/c}& & & & \text{5,000}\\ & \text{(Share of goodwill withdrawn in cash )}& & & & \end{array}$

Note : Sacrificing ratio = Old ratio - New ratio