Question

A, B and C are partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. They admitted D as a new partner, who brings ₹ 5,00,000 as capital and ₹ 2,10,000 as his share of goodwill in cash. A surrendered `1/5`th of his share, B surrendered `1/6`th of his share and C surrendered `1/8`th of his share in favour of D.

Find out sacrifice ratio and pass necessary journal entries for the above.

Answer 1

1. Calculation of Sacrificing Ratio

Old Shares

A's Old Share: `5/10`

B's Old Share: `3/10`

C's Old Share: `2/10`

Individual Sacrifice

A's Sacrifice (`1/5` of his share)

`5/10 xx 1/5 = 1/10`

B's Sacrifice (`1/6` of his share)

`3/10 xx 1/6 = 3/60 = 1/20`

C's Sacrifice (`1/8` of his share)

`2/10 xx 1/8 = 2/80 = 1/40`

Equating the Denominators to find the Sacrificing Ratio

Convert all sacrificed fractions to a common denominator of 40:

A: `1/10 = (1 xx 4)/(10 xx 4) = 4/40`

B: `1/20 = (1 xx 2)/(20 xx 2) = 2/40`

C: `1/40`

Sacrificing Ratio (A : B : C):

4 : 2 : 1

2. Distribution of Premium for Goodwill

Premium for Goodwill (₹ 2,10,000) brought by D is distributed among the sacrificing partners in their sacrificing ratio (4 : 2 : 1):

A's Share: `2,10,000 xx 4/7 = 1,20,000`

B's Share: `2,10,000 xx 2/7 = 60,000`

C's Share: `2,10,000 xx 1/7 = 30,000`

3. Journal Entries

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Cash / Bank A/c   ...Dr.		7,10,000
	To D's Capital A/c			5,00,000
	To Premium for Goodwill A/c			2,10,000
	(Being cash brought in by D as capital and premium for goodwill)
	Premium for Goodwill A/c   ...Dr.		2,10,000
	To A's Capital A/c			1,20,000
	To B's Capital A/c			60,000
	To C's Capital A/c			30,000
	(Being premium for goodwill credited to old partners' capital accounts in their sacrificing ratio of 4 : 2 : 1)