Question

A and B are partners sharing profits and losses in the proportion of 3 : 2. They agree to admit C into partnership who is to get 1/5th share in the business. C brings in ₹ 1,00,000 for his capital and ₹ 40,000 for 1/5th share of goodwill which he acquires 3/20 from A and 1/20 from B. The profit for the first year of the new partnership amounted to ₹ 2,00,000.

Make the necessary Journal entries in connection with C's admission and apportion the profit between the partners.

Answer 1

Journal entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Bank/Cash A/c   ...Dr.		1,40,000
	To C's Capital A/c			1,00,000
	To Premium for Goodwill A/c			40,000
	(Being capital and premium for goodwill brought in cash by C)
2.	Premium for Goodwill A/c   ...Dr.		40,000
	To A's Capital A/c (`40,000 xx 3/4`)			30,000
	To B's Capital A/c (`40,000 xx 1/4`)			10,000
	(Being premium for goodwill distributed between A and B in their sacrificing ratio of 3 : 1)
3.	Profit & Loss Appropriation A/c   ...Dr.		2,00,000
	To A's Capital A/c			90,000
	To B's Capital A/c			70,000
	To C's Capital A/c			40,000
	(Being the first-year net profit distributed in the new profit-sharing ratio of 9 : 7 : 4)

Working note:

1. Sacrificing Ratio

The problem explicitly states how C acquires his share from the existing partners:

A's Sacrifice = `3/20`

B's Sacrifice = `1/20`

By comparing the numerators, the Sacrificing Ratio of A and B is 3 : 1.

2. New Profit-Sharing Ratio

The new share is calculated by subtracting the sacrificed share from the old share:

New Share = Old Share − Sacrificed Share

A's New Share = `3/5 - 3/10 = (12 - 3)/20 = 9/20`

B's New Share = `2/5 - 1/20 = (8 - 1)/20 = 7/20`

C's New Share = `1/5 = 4/20`

The New Profit-Sharing Ratio of A, B, and C is 9 : 7 : 4.

3. Apportionment of First-Year Profit (₹ 2,00,000)

The net profit of ₹ 2,00,000 is distributed among all partners in their new profit-sharing ratio:

A's Share of Profit = `2,00,000 xx 9/20 = 90,000`

B's Share of Profit = `2,00,000 xx 7/20 = 70,000`

C's Share of Profit = `2,00,000 xx 4/20 = 40,000`