Question

A and B are partners sharing profits and losses in the ratio of 7 : 5. They admit C, their Manager, into partnership who is to get 1/6th share in the business. C brings in ₹ 10,000 for his capital and ₹ 3,600 for the 1/6th share of goodwill which he acquires 1/24th from A and 1/8th from B. Profits for the first year of the new partnership was ₹ 24,000. Pass necessary Journal entries for C's admission and apportion the profit between the partners.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
	Cash A/c	Dr.		13,600
	To C’s Capital A/c				10,000
	To Premium for Goodwill A/c				3,600
	(C brought capital and his share of goodwill)
	Premium for Goodwill A/c	Dr.		3,600
	To A’s Capital A/c				900
	To B’s Capital A/c				2,700
	(C’s share of goodwill transferred to A and B in their sacrificing ratio i.e. 3:1)
	Profit and Loss Appropriation A/c	Dr.		24,000
	To A’s Capital A/c				13,000
	To B’s Capital A/c				7,000
	To C’s Capital A/c				4,000
	(Profit after C’s admission distributed)

Working Note:
WN 1 :
Sacrificing Ratio = A : B 
                           = `1/24 : 1/8` = 1 : 3
WN 2 : Distribution of C’s share of Goodwill (in sacrificing ratio)
A will be get = 3,600 x `1/4` = Rs. 900

B will be get = 3,600 x `3/4` = Rs. 2,700

WN3 : Calculation of New Profit Sharing Ratio
New Ratio = Old Ratio - Sacrificing Ratio

A's = `7/12 - 1/24 = 13/24`

B's = `5/12 - 1/8 = 7/24`

New Profit Sharing Ratio = A : B : C
                                         = `13/24 : 7/24 : 1/6`
                                         = 13 : 7 : 4

WN4 : Distribution of Profit earned after C’s admission (in new ratio)
A will get = 24,000 x `13/24` = Rs. 13,000

B will get = 24,000 x `7/24` = Rs. 7,000

C will get = 24,000 x `4/24` = Rs. 4,000.