Question

A and B are partners sharing profits in the ratio of 3 : 2. They admit C into the firm for 3/7th profits (which he takes 2/7th from A and 1/7th from B) and brings ₹ 6,00,000 as premium out of his share of ₹ 7,20,000. Goodwill account does not appear in the books of A and В.

Hint: Premium for Goodwill A/c will be debited by ₹ 6,00,000 and Current Account of C will be debited by ₹ 1,20,000 and Capital Accounts of A and B will be credited by ₹ 4,80,000 and ₹ 2,40,000 respectively.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Bank/Cash A/c   ...Dr.		6,00,000
	To Premium for Goodwill A/c			6,00,000
	(Being part of premium for goodwill brought in cash by C)
	Premium for Goodwill A/c   ...Dr.		6,00,000
	C's Current A/c   ...Dr.		1,20,000
	To A's Capital A/c			4,80,000
	To B's Capital A/c			2,40,000
	(Being C's total share of goodwill distributed to A and B in their sacrificing ratio of 2 : 1)

Working Notes:

A. Identify the Sacrificing Ratio

C takes `2/7` from A and `1/7` from B.

A's Sacrifice: `2/7`

B's Sacrifice: `1/7`

Therefore, the Sacrificing Ratio (A : B) is 2 : 1.

B. Allocation of Total Goodwill Share

C's total required share of goodwill is ₹ 7,20,000.

Amount brought in cash (Premium for Goodwill): ₹ 6,00,000

Amount NOT brought in cash (to be adjusted via C's Current Account):

7,20,000 − 6,00,000 = 1,20,000

C. Distribution to Sacrificing Partners (A and B in 2 : 1)

The entire ₹ 7,20,000 must be credited to A and B in their sacrificing ratio:

A's Total Credit: `7,20,000 xx 2/3 = 4,80,000`

B's Total Credit: `7,20,000 xx 1/3 = 2,40,000`