Question

A and B are partners sharing profits and losses as 2 : 1. On 1st April, 2022 they admit C as a partner for `1/4`th share who pays ₹ 4,50,000 as goodwill privately. On 1st April, 2023, they take D as a partner for `3/5`th share who brings ₹ 4,00,000 as goodwill, out of which half is withdrawn by the existing partners. On lst April, 2024, E is admitted as a partner for `1/6`th share who brings ₹ 5,00,000 as goodwill which is retained in the business.

Journalise the above transactions in the books of the firm.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2023
April 1	Bank A/c   ...Dr.		4,00,000
	To Premium for Goodwill A/c			4,00,000
	(Premium for goodwill brought in by D)
April 1	Premium for Goodwill A/c   ...Dr.		4,00,000
	To A’s Capital A/c			2,00,000
	To B’s Capital A/c			1,00,000
	To C’s Capital A/c			1,00,000
	(Premium credited to A, B and C in the sacrificing ratio of 2 : l : l)
April 1	A’s Capital A/c   ...Dr.		1,00,000
	B’s Capital A/c   ...Dr.		50,000
	C’s Capital A/c   ...Dr.		50,000
	To Bank A/c			2,00,000
	(Half of premium withdrawn by the old partners)
2024
April 1	Bank A/c   ...Dr.		5,00,000
	To Premium for Goodwill A/c			5,00,000
	(Premium for goodwill brought in by E)
April 1	Premium for Goodwill A/c   ...Dr.		5,00,000
	To A’s Capital A/c			1,00,000
	To B’s Capital A/c			50,000
	To C’s Capital A/c			50,000
	To D’s Capital A/c			3,00,000
	(Premium credited to A, B, C and D in the sacrificing ratio of 2 : l : l : 6)

Working Notes:

(1) C has paid the premium privately, and hence, no entry is required to be passed for such payment.

(2) Calculation of profit sharing ratios:

(i) After C’s admission:

C is given a `1/4` share. Hence the remaining share is `1 - 1/4 = 3/4`

A’s share = `2/3 xx 3/4`

= `6/12`

= `2/4`

B’s share = `1/3 xx 3/4`

= `3/12`

= `1/4`

C’s share = `1/4`

Profit sharing ratio = `2/4 : 1/4 : 1/4` or 2 : 1 : 1

(ii) After D’s admission:

D is given a `3/5` share. Hence the remaining share is `1 - 3/5 = 2/5`

A’s share = `2/4 xx 2/5`

= `4/20`

= `2/10`

B’s share = `1/4 xx 2/5`

= `2/20`

= `1/10`

C’s share = `1/4 xx 2/5`

= `2/20`

= `1/10`

D’s share = `3/5 xx 4/4`

= `12/20`

= `6/10`

(3) As the new profit-sharing ratios are not given in the question, it will be presumed that the partners have sacrificed in their old ratio.