Question

A and B were partners in a firm sharing profits in the ratio of 7 : 3. On 1-3-2024, they admitted C as a new partner for `1/6`th share in the profits of the firm. They fixed the new profit sharing ratio as 3 : 2 : 1. The P & L A/c on the date of admission showed a balance of ₹ 20,000 (Cr.). The firm also had a reserve of ₹ 1,50,000. C is to bring ₹ 40,000 as a premium for his share of goodwill.

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

Answer 1

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2024
March l	Profit & Loss A/c   ...Dr.		20,000
	To A’s Capital A/c			14,000
	To B’s Capital A/c			6,000
	(Accumulated profits transferred to the old partner’s capital accounts on the admission of C)
March l	Reserve A/c   ...Dr.		1,50,000
	To A’s Capital A/c			1,05,000
	To B’s Capital A/c			45,000
	(Reserve transferred to old partner’s capital accounts on the admission of C)
March l	Bank A/c   ...Dr.		40,000
	To Premium for Goodwill A/c			40,000
	(Premium for goodwill brought in by C for l/3rd share)
March l	Premium for Goodwill A/c   ...Dr.		40,000
	B’s Capital A/c   ...Dr.		8,000
	To A’s Capital A/c			48,000
	(Premium for goodwill brought in by C credited to A, along with `1/30` of the goodwill to be contributed by B due to gain in his profit-sharing ratio)

Working Note:

Old Ratio of A and B = 7 : 3

New Ratio of A, B, and C = 3 : 2 : 1

Sacrifice or Gain:

A = `7/10 - 3/6`

= `(7 xx 6)/(10 xx 6) - (3 xx 10)/(6 xx 10)`

= `42/60 - 30/60`

= `(42 - 30)/60`

= `12/60`

= `6/30` (Sacrifice)

B = `3/10 - 2/6`

= `(3 xx 6)/(10 xx 6) - (2 xx 10)/(6 xx 10)`

= `18/60 - 20/60`

= `(18 - 20)/60`

= `2/60`

= `1/30` (Gain)

C = `1/6`

= `(1 xx 5)/(6 xx 5)`

= `5/30` (Gain)

Since B is gaining `1/30` in the profit, therefore, he will also compensate A proportionately:

For a `1/6` share, C brought 40,000 as a premium. Therefore, B will compensate A = `40,000 xx 6/1 xx 1/30`

= 8,000