Question

A and B are partners in a business sharing profits and losses in the ratio of 1/3rd and 2/3rd. On 1st April, 2019, their capitals were ₹ 8,000 and ₹ 10,000 respectively. On that date, they admit C in partnership and give him 1/4th share in the future profits. C brings ₹ 8,000 as his capital and ₹ 6,000 as goodwill. The amount of goodwill is withdrawn by the old partners in cash. Draft the journal entries and show the Capital Accounts of all the Partners. Calculate proportion in which partners would share profits and losses in future.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
April 1	Cash A/c	Dr.		14,000
	To C’s Capital A/c				8,000
	To Premium for Goodwill A/c				6,000
	(C brought capital and his share of goodwill)
April 1	Premium for Goodwill A/c	Dr.		6,000
	To A’s Capital A/c				2,000
	To B’s Capital A/c				4,000
	(C’s share of goodwill distributed between A and B in sacrificing ratio i.e. 1:2)
	A’s Capital A/c	Dr.		2,000
	B’s Capital A/c	Dr.		4,000
	To Cash A/c				6,000
	(Amount of goodwill withdrawn by A and B)

 

Partners’ Capital Accounts
Dr.							Cr.
Particulars	A	B	C	Particulars	A	B	C
Cash	2,000	4,000		Balance b/d	8,000	10,000
				Cash			8,000
				Premium for Goodwill	2,000	4,000
Balance c/d	8,000	10,000	8,000
	10,000	14,000	8,000		10,000	14,000	8,000

Calculation of New (Future) Ratio

Old Ratio = A : B
                = `1/3 : 2/3`

C is admitted for  `1/4`  share of profit

Let combined share of all partners after C’s admission be = 1

Combined share of A and B after C’s admission = 1 − C’s share
= `1 - 1/4`

= `3/4`

New Ratio = Old Ratio x Combined Share of A and B in the new firm

A's = `1/3 xx 3/4 = 3/12`

B's = `2/3 xx 3/4 = 6/12`

New Profit Sharing Ratio = A :  B : C
                                         = `3/12 : 6/12 : 1/4`

                                         = `[ 3 : 6 : 3]/12`

                                         = 1 : 2 : 1

Distribution of Premium for Goodwill

A will get = Rs. 6,000 x `1/3` = Rs. 2,000

B will get = Rs.6,000 x `2/3` = Rs. 4,000