Question

Ram and Mohan were partners in a firm sharing profits in the ratio of 4:1. On 1-3-2015, they admitted Sohan as a new partner for $\frac{1}{3}rd$ share in the profits of the firm. They fixed the new profit sharing ratio as 4:2:3.

The P & L A/c on the date of admission showed a Balance of Rs 32,000 (Dr.) The firm also had a reserve of Rs 1,00,000. Sohan is to bring Rs 60,000 as premium for his share of goodwill.

Showing your calculations clearly, pass necessary journal entries to record the above transactions.

Answer 1

JOURNAL

$\begin{array}{ccccc}\text{Date}& \text{Particulars}& \text{L.F}& \text{Dr.(Rs)}& \text{Cr. (Rs)}\\ 2015& & & & \\ \text{March 1}& \text{Ram Capital A/c}Dr.& & 25,600& \\ & \text{Mohan's Capital A/c}Dr.& & 6,400& \\ & \text{To Profit \& Loss A/c}& & & 32,000\\ & \text{(Accumulated less transferred to old partner's capital}& & & \\ & \text{accounts on the admission of Sohan)}& & & \\ & \underset{–}{}& & & \\ \text{March 1}& \text{Reserve A/c}Dr.& & 1,00,000& \\ & \text{To Ram's Capital A/c}& & & 80,000\\ & \text{To Mohan's Capital A/c}& & & 20,000\\ & \text{(Reserve transferred to old partner's capital}& & & \\ & \text{accounts on the admission of Sohan)}& & & \\ & \underset{–}{}& & & \\ \text{March 1}& \text{Bank A/c}Dr.& & 60,000& \\ & \text{To Sohan's Capital A/c}& & & 60,000\\ & \text{(Premium for goodwill brought in by Sohan for}& & & \\ & \frac{1}{3}rd\text{share)}& & & \\ & \underset{–}{}& & & \\ \text{March 1}& \text{Sohan's Capital A/c}Dr.& & 60,000& \\ & \text{Mohan's Capital A/c}Dr.& & 4,000& \\ & \text{To Ram's Capital A/c}& & & 64,000\\ & \text{(Premium for goodwill brought in by Sohan credited}& & & \\ & \text{to Ram along with}\frac{1}{45}\text{of the goodwill to be}& & & \\ & \text{contributed by Mohan due to gain in his profit}& & & \\ & \text{sharing ratio)}& & & \end{array}$

Working Note:

Old Ratio of Ram and Mohan = 4:1

New Ratio of Ram, Mohan and Sohan = 4:2:3

Sacrifice or Gain:

$\text{Ram}=\frac{4}{5}-\frac{4}{9}=\frac{36-20}{45}=\frac{16}{45}\text{(Sacrifice)}$

$\text{Mohan}=\frac{1}{5}-\frac{2}{9}=\frac{9-10}{45}=\frac{1}{45}\text{(Gain)}$

$\text{Sohan}=\frac{3}{9}or\frac{15}{45}\text{(Gain)}$

Since Mohan is gaining $\frac{1}{45}$ in the profit, therefore, he will also compensate Ram proportionately:

For $\frac{1}{3}rd$ share Sohan brought Rs 60,000 as premium. Therefore, Mohan will compensate Ram by Rs $60,000\times \frac{3}{1}\times \frac{1}{45}=Rs4,000$.