Question

$A$ and $B$ were partners in a firm sharing profits and losses in the ratio of $3:2$. They admitted $C$ as a new partner for $3/7^{th}$ share in the profit and new profit sharing ratio will be $2:2:3$. $C$ brought $Rs.2,00,000$ as his capital and $Rs.1,50,000$ as premium for goodwill. Half of their share of premium was withdrawn by $A$ and $B$ from the firm. Calculate sacrificing ratio and pass necessary Journal entries for the above transaction in the books of the firm.

Answer 1

JOURNAL

1. Cash a/c... Dr. 350000

To C's Capital a/c 200000

To Premium for Goodwill a/c 150000

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

2. Premium for Goodwill a/c... Dr. 150000

To A's Capital a/c 110000

To B's Capital a/c 40000

(Being premium for goodwill distributed among the partners in the ratio of 11:4)

3. A's Capital a/c.... Dr. 55000

B's Capital a/c.... Dr. 20000

To Cash a/c 75000

(Being half of the premium for goodwill withdrawn by the partners)

Calculation of sacrificing ratio:

A's sacrifice= 3/5- 2/7= 11/35

B's sacrifice= 2/5- 2/7= 4/35

Sacrificing ratio= 11:4

Working Note:

Distribution of goodwill:

A's share= 150000 * 11/15= 110000

B's share= 150000 * 4/15= 40000