Question

Sharan and Angad are partners in a firm sharing profits and losses in the ratio of 3 : 2.

On 1st April, 2022, they admit Akhil as a partner for `1/5`th share in the profits. Akhil acquires `1/5` of his shares from Sharan and the balance from Angad.

On the date of Akhil’s admission, the goodwill of the firm was valued at ₹ 90,000. Akhil contributed the following assets towards his capital and his share of goodwill:

Particulars	Amount (₹)
Cash	60,000
Debtors	20,000
Land and Building	1,00,000
Plant and Machinery	80,000

You are required to:

1. Calculate the sacrificing ratio of the partners.
2. Pass the necessary journal entries on Akhil’s admission, ascertaining Akhil’s capital contribution and assuming that he brings into the firm his share of goodwill in cash/kind.

Answer 1

1. The old profit-sharing ratio of Sharan and Angad is 3 : 2

Akhil’s Share = `1/5`

Akhil acquires `1/5`of his share from Sharan.

Sharan sacrifices = `1/5 xx 1/5`

= `1/25`

Akhil acquires the balance from Angad. The balance is `1 - 1/5 = 4/5`.

Angad sacrifices = `4/5 xx 1/5`

= `4/25`

2. The sacrificing ratio of Sharan and Angad is `1/25 : 4/25` or 1 : 4

Akhil’s Share of Goodwill = `90,000 xx 1/5`

= 18,000

Total Assets contributed = 60,000 + 20,000 + 1,00,000 + 80,000 

= 2,60,000

Akhil’s Capital = 2,60,000 − 18,000

= 2,42,000

3. Premium for Goodwill = ₹ 18,000

Sharan = `18,000 xx 1/5`

= 3,600

Sharan = `18,000 xx 4/5`

= 14,400

4. Journal Entries for Akhil’s Admission:

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Cash A/c   ...Dr.		60,000
	Debtors A/c    ...Dr.		20,000
	Land and Building A/c   ...Dr.		1,00,000
	Plant and Machinery A/c   ...Dr.		80,000
	To Akhil's Capital A/c			2,42,000
	To Premium for Goodwill A/c			18,000
	(Akhil’s capital and goodwill brought in)
	Premium for Goodwill A/c   ...Dr.		18,000
	To Sharan’s Capital A/c			3,600
	To Angad’s Capital A/c			14,400
	(Goodwill distributed among partners in the sacrificing ratio)