Question

​A and B , carrying on business in partnership and sharing profits and losses in the ratio of 3 : 2 , require a partner, when their Balance Sheet stood as:

Liabilities		₹	Assets	₹
Creditors		11,800	Cash	1,500
A's Capital	51,450		Stock	28,000
B's Capital	36,750	88,200	Debtors	19,500
			Furniture	2,500
			Machinery	48,500
		1,00,000		1,00,000

They admit C into partnership and give him 1/8th share in the future profits on the following terms:
(a) Goodwill of the firm be valued at twice the average of the last three years' profits which amounted to ₹ 21,000; ₹ 24,000 and ₹ 25,560.
(b) C is to bring in cash for the amount of his share of goodwill.
(c) C is to bring in cash ₹ 15,000 as his capital.
Pass journal entries recording these transactions , draw out the Balance Sheet of the new firm and state new profit-sharing ratio.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
	Cash A/c	Dr.		20,880
	To C’s Capital A/c				15,000
	To Premium for Goodwill A/c				5,880
	(C brought capital and share of goodwill)
	Premium for Goodwill A/c	Dr.		5,880
	To A’s Capital A/c				3,528
	To B’s Capital A/c				2,352
	(Premium for Goodwill distributed between A and B in sacrificing ratio i.e. 3:1)

Partners’ Capital Account
Dr.							Cr.
Particulars	A	B	C	Particulars	A	B	C
				Balance b/d	51,450	36,750
				Cash			15,000
Balance c/d	54,978	39,102	15,000	Premium for Goodwill	3,528	2,352
	54,978	39,102	15,000		54,978	39,102	15,000

Balance Sheet after Admission of C
Liabilities		Amount Rs	Assets	Amount Rs
Capital:			Cash (1,500 + 20,880)	22,380
A	54,978		Stock	28,000
B	39,102		Debtors	19,500
C	15,000	1,09,080	Furniture	2,500
Creditors		11,800	Machinery	48,500
		1,20,880		1,20,880

Calculation of New Profit Sharing Ratio

C is admitted for share of profit
Let combined share of all partners after admission of C be = 1
Combined share of A and B after C’s admission = 1 − C’s share




Working Note-

WN1




WN2