Question

$A$ and $B$ are partners in firm sharing profits and losses in the ratio of $3:2$. They admit $C$ into partnership for $1/5^{th}$ share. $C$ brings in $Rs.30,000$ as capital and $Rs.10,000$ as goodwill. At the time of admission of $C$, goodwill appears in the Balance Sheet of $A$ and $B$ at $Rs.3,000$. The new profit sharing ratio of the partners will be $5:3:2$. Pass necessary Journal entries.

Answer 1

JOURNAL

1. A's Capital a/c.... Dr. 1800

B's Capital a/c.... Dr. 1200

To Goodwill a/c 3000

(Being goodwill written off in the ratio of 3:2)

2. Cash a/c.. Dr. 40000

To C's Capital a/c 30000

To Premium for goodwill a/c 10000

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

3. Premium for Goodwill a/c... Dr. 10000

To A's Capital a/c 5000

To B's Capital a/c 5000

(Being premium for goodwill brought in by C distributed among the partners in the ratio of 1:1)

Working Note:

1. Calculation of sacrificing ratio:

A's sacrifice= 3/5- 5/10= 1/10

B's sacrifice= 2/5- 3/10= 1/10

Sacrificing ratio= 1:1

2. Distribution of premium for goodwill:

A's share= 10000 * 1/2= 5000

B's share= 10000 * 1/2= 5000