Question

A, B and C were partners in a firm sharing profits in the ratio of 2 : 1 : 2. Their respective fixed capitals were A ₹ 7,00,000, B ₹ 4,50,000 and C ₹ 6,00,000. On 31st March, 2024, they admitted Divya as a new partner for a `1/5`th share in the profits. Their new profit-sharing ratio was 1 : 2 : 1 : 1. Divya brought ₹ 5,00,000 as her capital and the necessary amount for her share of the goodwill premium.

Pass necessary journal entries for the above transactions in the books of the firm on Divya’s admission.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Bank A/c   ...Dr.		5,00,000
	To Divya’s Capital A/c			5,00,000
	(Capital brought in by Divya)
	Premium for Goodwill   ...Dr.		50,000
	B’s Current A/c   ...Dr.		50,000
	To A’s Current A/c			50,000
	To C’s Current A/c			50,000
	(Divya’s share of goodwill and B’s share of goodwill due to gain credited to A and C’s Current A/cs)

Working Notes:

Hidden Goodwill Calculation:

Total Capital of the new firm based on Divya’s share = `5,00,000 xx 5/1`

= 25,00,000

Actual Total Capital = 7,00,000 + 4,50,000 + 6,00,000 + 5,00,000

= 22,50,000

Hidden Goodwill = 25,00,000 − 22,50,000

= 2,50,000

Divya’s Share of Goodwill = `2,50,000 xx 1/5`

= 50,000

Calculation of Sacrificing/Gaining Ratio:

Sacrifice Ratio = Old Ratio − New Ratio

A’s Sacrifice = `2/5 - 1/5`

= `1/5`

B’s Sacrifice = `1/5 - 2/5`

= `-1/5`

C’s Sacrifice = `2/5 - 1/5`

= `1/5`

Sacrificing Ratio of A and C = 1 : 1