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Question

A and B are partners sharing profits and losses in the ratio of 7 : 5. They admit C, their Manager, into partnership who is to get 1/6th share in the business. C brings in ₹ 10,000 for his capital and ₹ 3,600 for the 1/6th share of goodwill which he acquires 1/24th from A and 1/8th from B. Profits for the first year of the new partnership was ₹ 24,000. Pass necessary Journal entries for C's admission and apportion the profit between the partners.

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Solution

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

Cash A/c

Dr.

13,600

To C’s Capital A/c

10,000

To Premium for Goodwill A/c

3,600

(C brought capital and his share of goodwill)

Premium for Goodwill A/c

Dr.

3,600

To A’s Capital A/c

900

To B’s Capital A/c

2,700

(C’s share of goodwill transferred to A and B in their

sacrificing ratio i.e. 3:1)

Profit and Loss Appropriation A/c

Dr.

24,000

To A’s Capital A/c

13,000

To B’s Capital A/c

7,000

To C’s Capital A/c

4,000

(Profit after C’s admission distributed)


Working Note:

WN1

WN2

Distribution of C’s share of Goodwill (in sacrificing ratio)

WN3

Calculation of New Profit Sharing Ratio

WN4

Distribution of Profit earned after C’s admission (in new ratio)


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