Question

B and C are in partnership sharing profits and losses as 3 : 1. They admit D into the firm, D pays premium of ₹ 15,000 for 1/3rd share of the profits. As between themselves, B and C agree to share future profits and losses equally. Draft Journal entries showing appropriations of the premium money.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
	Cash A/c	Dr.		15,000
	To Premium for Goodwill A/c				15,000
	(D brought his share of goodwill in cash)
	Premium for Goodwill A/c	Dr.		15,000
	To B’s Capital A/c				15,000
	(Premium for goodwill transferred to B’s Capital)
	C’s Capital A/c	Dr.		3,750
	To B’s Capital A/c				3,750
	(Goodwill charged from C’s Capital Account due to his gain in profit sharing)

WN 1 : Calculation of Sacrificing Ratio : 
Let combined share of all partners after D’s admission be = 1
Combined share of B and C after C's admission = 1 - C's share
= 1 - `1/3` = `2/3`

B and C each share of profit after D’s admission will be = `2/3 xx 1/2 = 1/3` each
Sacrificing Ratio = Old Ratio - New Ratio
B's = `3/4 - 1/3 = 5/12` (Sacrificing)

C's = `1/4 - 1/3 = -1/12` (gaining)
WN 2 :
C is gaining in new the firm. Hence, C’s gain in goodwill will be debited to his capital and given to B (sacrificing partner).

Goodwill of the Firm = Premium for goodwill brought by D x Reciprocal of D's share
= 15,000 x `3/1`
= Rs. 45,000.

C's share of gain in goodwill = Goodwill of the firm x share of gain = 45,000 x `1/12` = Rs. 3,750.