Question

A, B and C are in partnership sharing profits and losses in the ratio of 5 : 4 : 1 respectively. Two new partners D and E are admitted. The profits are now to be shared in the ratio of 3 : 4 : 2 : 2 : 1 respectively. D is to pay ₹ 90,000 for his share of Goodwill but E has insufficient cash to pay for Goodwill. Both the new partners introduced ₹ 1,20,000 each as their capital. You are required to pass necessary Journal entries.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
	Bank A/c	Dr		3,30,000
	To D’s Capital A/c				1,20,000
	To E’s Capital A/c				1,20,000
	To Premium for Goodwill A/c				90,000
	(Capital and Goodwill brought in cash)
	C’s Capital A/c	Dr.		36,000
	E’s Capital A/c	Dr.		45,000
	Premium for Goodwill A/c	Dr.		90,000
	To A’s Capital A/c				1,35,000
	To B’s Capital A/c				36,000
	(Goodwill adjusted)

Working Notes:
WN1: Calculation of Sacrificing Ratio
A : B : C = 5 : 4 : 1 (Old Ratio)
A : B : C : D : E = 3 : 4 : 2 : 2 : 1 (New Ratio)
Sacrificing (or Gaining) Ratio = Old Ratio - New Ratio
A's Share = `5/10 - 3/12 = [ 30 - 15]/60 = 15/60` (Share of Sacrifice)
B's Share = `4/10 - 4/12 = [ 24 - 20]/60 = 4/60`(Share of Sacrifice)

C's share = `1/10 - 2/12 = [ 6 - 10]/60 = - 4/60` (Share of gain)   

WN2: Adjustment of Goodwill
D's Share in goodwill for `2/12`th share = 90,000

∴ Total goodwill of the firm = 90,000 x `12/2` = Rs. 5,40,000.

E's share in goodwill = 5,40,000 x `1/12` = Rs. 45,000

C's share in goodwill = 5,40,000 x `4/60` = Rs. 36,000.