Question

A and B carrying on business as partners used to share profits and losses thus; A `4/7`ths and B `3/7`ths, and goodwill existing in the books of the firm at ₹ 2,80,000 when C was admitted as a partner having `1/7`th share in profits and losses. C was asked to pay a premium of ₹ 75,000 for goodwill, and the profit-sharing ratio as between A and B remained unchanged.

Show entries in the journal of the firm.

Answer 1

Journal Entries
Date	Paticulars	L.F.	Debit (₹)	Credit (₹)
	A’s Capital A/c   ...Dr.		1,60,000
	B’s Capital A/c   ...Dr.		1,20,000
	To Goodwill A/c			2,80,000
	(Goodwill already existing in the books, now written off in old ratio)
	Bank A/c   ...Dr.		75,000
	To Premium for Goodwill A/c			75,000
	(Being premium for goodwill brought in by C)
	Premium for Goodwill A/c   ...Dr.		75,000
	To A’s Capital A/c			42,857
	To B’s Capital A/c			32,143
	(Being premium for goodwill distributed to sacrificing partners in sacrificing ratio 4 : 3)

Working Note:

New Ratio: “The profit-sharing ratio as between A and B remained unchanged”. This implies that C acquires their `1/7`th share from A and B in their old ratio of 4 : 3.

Calculate Sacrificing Ratio:

Sacrificing Ratio = Old Share - New Share

A’s Sacrifice = `1/7 xx 4/7`

= `4/49`

A’s Sacrifice = `1/7 xx 3/7`

= `3/49`

Sacrificing Ratio of A and B = `4/49 : 3/49` or 4 : 3