Question

A and B are partners sharing profits and losses in the ratio of 3:1. On Ist Jan. 2017 they admitted C as a new partner for 1/4 share in the profits of the firm. C brings Rs 20,000 as for his 1/4 share in the profits of the firm. The capitals of A and B after all adjustments in respect of goodwill, revaluation of assets and liabilities, etc. has been worked out at Rs 50,000 for A and Rs 12,000 for B. It is agreed that partner’s capitals will be according to new profit sharing ratio. Calculate the new capitals of A and B and pass the necessary journal entries assuming that A and B brought in or withdrew the necessary cash as the case may be for making their capitals in proportion to their profit sharing ratio?

Answer 1

Books of A, B and C Journal
Date	Particulars			L.F.	Amount Rs	Amount Rs
2017
Jan. 01	A’s Capital A/c		Dr.		5,000
		To Cash A/c				5,000
	(Excess capital withdrawn by A)
	Cash A/c		Dr.		3,000
		To B’s Capital A/c				3,000
	(Capital brought in by B to make in proportion to the profit sharing)

1) Calculation of New Profit sharing Ratio

New Profit sharing ratio of A, B and C will be 9:3:4

2) New Capital of A and B.

C bring Rs 20,000 for 1/4^th share of profit in the new firm.

Thus, total capital of firm on the basis of C’s share=

Thus, B’s will bring 15,000 − 12,000 = 3,000