Question

A and B are in partnership sharing profits and losses in the ratio of 5 : 3. C is admitted as a partner who pays ₹ 40,000 as capital and the necessary amount of goodwill which is valued at ₹ 60,000 for the firm. His share of profits will be 1/5th which he takes 1/10th from A and 1/10th from B.
Give Journal entries and also calculate future profit-sharing ratio of the partners.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
	Cash A/c	Dr.		52,000
	To C’s Capital A/c				40,000
	To Premium for Goodwill A/c				12,000
	(C brought Capital and his share of goodwill in cash)
	Premium for Goodwill A/c	Dr.		12,000
	To A’s Capital A/c				6,000
	To B’s Capital A/c				6,000
	(C’s share of Goodwill distributed in A and B)

Working Notes-
WN1 : Sacrificing Ratio = A : B
                                      = `1/10 : 1/10` = 1 : 1
WN 2 : Calculation of new profit sharing Ratio
Old Ratio = A : B 
                = 5 : 3
New Ratio = Old Ratio - Sacrificing Ratio
A's = `5/8 - 1/10 = 21/40`

B's = `3/8 - 1/10 = 11/40`

New Profit Sharing Ratio = A : B : C

                                        = `21/40 : 11/40 : 1/5`

                                        = `[ 21 : 11 : 8 ]/40`
WN 3 = Distribution of C's share of Goodwill ( in Sacrificing Ratio)
A and B each will get = 12,000 x `1/2` = Rs. 6,000