Question

P and Q are partners sharing profits in the ratio of 7 : 5. They admit R into partnership for `1/4` share who pays ₹ 30,000 in cash for goodwill. P and Q decide to share future profits equally among themselves. Pass entries.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Bank A/c   ...Dr.		30,000
	To Premium for Goodwill A/c			30,000
	(Amount of goodwill/premium brought in cash)
	Premium for Goodwill A/c   ...Dr.		30,000
	To P’s Capital A/c			25,000
	To Q’s Capital A/c			5,000
	(Goodwill/premium transferred to old partners in a sacrificing ratio of 5 : 1)

Working Note:

Calculation of new profit-sharing ratio:

R takes `1/4` share out of 1.

= `1 - 1/4`

= `3/4`

Thus, the remaining profit is `3/4`; This is divided equally between P and Q.

P’s new share =  `3/4 xx 1/2`

= `3/8`

Q’s new share =  `3/4 xx 1/2`

= `3/8`

R = `1/4`

= `(1 xx 2)/(4 xx 2)`

= `2/8`

The Profit-sharing ratio of P, Q, and R = `3/8 : 3/8 : 2/8` or 3 : 3 : 2

Calculation Sacrificing Ratio:

Sacrifice made by P = `7/12 - 3/8`

= `(7 xx 2)/(12 xx 2) - (3 xx 3)/(8 xx 3)`

= `14/24 - 9/24`

= `(14 - 9)/24`

= `5/24`

Sacrifice made by Q = `5/12 - 3/8`

= `(5 xx 2)/(12 xx 2) - (3 xx 3)/(8 xx 3)`

= `10/24 - 9/24`

= `(10 - 9)/24`

= `1/24`

Sacrificing Ratio of P and Q is 5 : 1