Question

$A$ and $B$ in partnership sharing profits and losses in the ratio of $5:3$. $C$ is admitted as a partner who pays $Rs.40,000$ as capital and the necessary amount of goodwill which is valued at $Rs.60,000$ for the firm. His share of profits will be $1/5^{th}$ which he takes $1/{10}^{th}$ from $A$ and $1/{10}^{th}$ from $B$.
Give Journal entries and also calculate future profit-sharing ratio of the partners.

Answer 1

(i) JOURNAL

1. Cash a/c... Dr. 52000

To C's Capital a/c 40000

To Premium for Goodwill a/c 12000

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

2. Premium for Goodwill a/c.... Dr. 12000

To A's Capital a/c 6000

To B's Capital a/c 6000

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

Working Note:

1. A's sacrifice= 1/10

B's sacrifice= 1/10

Therefore, Sacrificing ratio= 1:1

2. Distribution of C's goodwill in sacrificing ratio

A's share= 12000 * 1/2= 6000

B's share= 12000 * 1/2= 6000

(ii) Calculation of new profit sharing ratio:

A's new share= 5/8- 1/10= 21/40

B's new share= 3/8- 1/10= 11/40

C's share= 1/5

New Profit sharing ratio= 21:11:8