Question

Ram and Rahim are partners in a firm sharing profits in the ratio of 3 : 2. On April 1, 2023, they admit Raj as a new partner for a `3/13`th share in the profits. The new ratio will be 5 : 5 : 3. Raj contributed the following assets towards his capital and for his share of goodwill: Land ₹ 2,50,000; Plant and Machinery ₹ 1,50,000; Stock ₹ 80,000; and Debtors ₹ 70,000. On the date of admission of Raj, the goodwill of the firm was valued at ₹ 5,20,000. Record necessary journal entries in the books of the firm.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2023
April 1	Land A/c   ...Dr.		2,50,000
	Plant and Machinery A/c   ...Dr.		1,50,000
	Stock   ...Dr.		80,000
	Debtors   ...Dr.		70,000
	To Raj’s Capital A/c (Balancing Figure)			4,30,000
	To Premium for Goodwill A/c			1,20,000
	(Assets contributed by Raj on his admission as his capital and his share of goodwill premium)
April 1	Premium for Goodwill A/c   Dr.		1,20,000
	To Ram’s Capital A/c			1,12,000
	To Rahim’s Capital A/c			8,000
	(Goodwill premium transferred to the capital accounts of Ram and Rahim in sacrificing ratio of 14 : 1)

Working Note:

Calculation of Sacrificing Ratio:

Ram’s sacrifice = `3/5 - 5/13`

= `(3 xx 13)/(5 xx 13) - (5 xx 5)/(13 xx 5)`

= `39/65 - 25/65`

= `(39 - 25)/65`

= `14/65`

Rahim’s sacrifice = `2/5 - 5/13`

= `(2 xx 13)/(5 xx 13) - (5 xx 5)/(13 xx 5)`

= `26/65 - 25/65`

= `(26 - 25)/65`

= `1/65`

Sacrificing Ratio Ram and Rahim = 14 : 1

Calculation of Raj’s Share of Goodwill and Capital:

Raj’s Share of Goodwill:

Goodwill of the firm = `5,20,000 xx 3/13`

= 1,20,000

Total assets =  2,50,000 + 1,50,000 + 80,000 + 70,000

= 5,50,000.

Raj’s Capital Contribution:

Raj’s Capital = 5,50,000 − 1,20,000

= 4,30,000