Question

A, B and C were partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. They admit D into partnership with `1/4`th share which he acquires from A and B in the ratio of 2 : 1. On D’s admission the goodwill of the firm is valued at ₹ 6,00,000. However, D is unable to bring his share of goodwill in cash.

Pass necessary journal entry and also calculate the new profit sharing ratio.

Answer 1

Calculation of New Profit Sharing Ratio:

New Share = Old Share − Sacrifice Share

Sacrifice of A = `2/3 xx 1/4`

= `2/12`

Sacrifice of B = `1/3 xx 1/4`

= `1/12`

A’s New Share = `3/6 - 2/12`

= `(3 xx 2)/(6 xx 2) - 2/12`

= `6/12 - 2/12`

= `4/12`

B’s New Share = `2/6 - 1/12`

= `(2 xx 2)/(6 xx 2) - 1/12`

= `4/12 - 1/12`

= `3/12`

C’s New Share = `1/6`

= `(1 xx 2)/(6 xx 2)`

= `2/12`

D’s New Share = `1/4`

= `(1 xx 3)/(4 xx 3)`

= `3/12`

New Ratio of A, B, C, and D = `4/12 : 3/12 : 2/12 : 3/12` or 4 : 3 : 2 : 3

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	D’s Current A/c   ...Dr.		1,50,000
	To A’s Capital A/c			1,00,000
	To B’s Capital A/c			50,000

Working Note:

Since D is unable to bring his share of goodwill in cash, his share of goodwill is adjusted through his current account.

Firm’s Goodwill =  ₹ 6,00,000

D’s Share of Goodwill = `6,00,000 xx 1/4`

= 1,50,000

The sacrificed share of goodwill is credited to the sacrificing partners A and B in their sacrificing ratio of 2 : 1.

A’s Share of Goodwill = `1,50,000 xx 2/3`

= 1,00,000

B’s Share of Goodwill = `1,50,000 xx 1/3`

= 50,000