Question

A, B and C were partners in a firm sharing profits in the ratio of 2 : 2 : 1. They admitted D for `1/6`th share in the profits. The new profit sharing ratio will be 13 : 8 : 4 : 5 respectively. D brought ₹ 5,00,000 for his capital and ₹ 60,000 for his share of goodwill. Pass necessary entries.

Answer 1

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Bank A/c   ...Dr.		5,60,000
	To D’s Capital A/c			5,00,000
	To Premium for Goodwil A/c			60,000
	(The amount of capital and goodwill/premium brought in cash)
	Premium for Goodwill A/c   ...Dr.		60,000
	A’s Capital A/c   ...Dr.		12,000
	To B’s Capital A/c			48,000
	To C’s Capital A/c			24,000
	(Premium for goodwill brought in by D credited to B and C along with `1/30` of the goodwill to be contributed by A due to gain in his profit shaiing ratio)

Working Note:

Old Ratio of A, B and C = 2 : 2 : 1

New Ratio of A, B, C and D = 13 : 8 : 4 : 5

Sacrifice or Gain:

A = `2/5 - 13/30`

= `(2 xx 6)/(5 xx 6) - 13/30`

= `12/30 - 13/30`

= `(12 - 13)/30`

= `1/30` (Gain)

B = `2/5 - 8/30`

= `(2 xx 6)/(5 xx 6) - 8/30`

= `12/30 - 8/30`

= `(12 - 8)/30`

= `4/30` (Sacrifice)

C = `1/5 - 4/30`

= `(1 xx 6)/(5 xx 6) - 4/30`

= `6/30 - 4/30`

= `(6 - 4)/30`

= `2/30` (Sacrifice)

D = `5/30` (Gain)

Sacrificing Ratio B and C = `4/30 : 2/30` or 4 : 3 = 2 : 1

B’s share of goodwill = `60,000 xx 2/3`

= 40,000

On D’s admission, A has also gained to the extent of `1/30`. Hence, he must also compensate B and C to the extent of  `1/30` of firm’s goodwill.

For `5/30` share, goodwill brought in by D = 60,000.

Total goodwill of the firm based on D’s share = `60,000 xx 30/5`

= 3,60,000

A to compensate = `3,60,000 xx 1/30`

= 12,000

Total goodwill contributed by D and A (60,000 + 12,000) = 72,000 will be distributed between B and C in their sacrificing ratio.

B’s share = `72,000 xx 4/6`

= 48,000

C’s share = `72,000 xx 2/6`

= 24,000