Question

A and B were partners with fixed capitals of ₹ 3,70,000 each. They admitted C as a new partner for a `1/4`th share of profits. C brought ₹ 3,00,000 as his capital and the necessary amount of goodwill premium for his share of goodwill. The new profit-sharing ratio will be 2 : 1 : 1.

Pass necessary journal entries for the above transactions in the books of the firm.

Answer 1

Journal Entries
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
	Bank A/c   ...Dr.		3,00,000
	To C’s Capital A/c			3,00,000
	(Capital brought in by C)
	Bank A/c   ...Dr.		40,000
	To Goodwill Premium A/c			40,000
	(Premium for goodwill brought in by C)
	Goodwill Premium A/c   ...Dr.		40,000
	To B’s Current A/c			40,000
	(Goodwill premium credited to B’s Current A/c since B alone has sacrificed)

Working Note:

Calculation of Hidden Goodwill:

Total Capital of the firm based on C’s share = `3,00,000 xx 4/1`

= ₹ 12,00,000

Actual Total Capital = 3,70,000 + 3,70,000 + 3,00,000

= ₹ 10,40,000

Hidden Goodwill = 12,00,000 − 10,40,000

= ₹ 1,60,000

C’s Share of Goodwill = `1,60,000 xx 1/4`

= ₹ 40,000

Calculation of Sacrificing Ratio:

Sacrificing Ratio = Old Ratio − New Ratio

A’s Sacrifice = `1/2 - 2/4`

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

= `2/4 - 2/4`

= 0

B’s Sacrifice = `1/2 - 1/4`

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

= `2/4 - 1/4`

= `1/4`

Since only B has sacrificed, the entire amount of goodwill brought in by C will be credited to B’s Current Account.