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Calculate Proportion in Which Partners Would Share Profits and Losses in Future - Accountancy

Journal Entry

A and B are partners in a business sharing profits and losses in the ratio of 1/3rd and 2/3rd. On 1st April, 2019, their capitals were ₹ 8,000 and ₹ 10,000 respectively. On that date, they admit C in partnership and give him 1/4th share in the future profits. C brings ₹ 8,000 as his capital and ₹ 6,000 as goodwill. The amount of goodwill is withdrawn by the old partners in cash. Draft the journal entries and show the Capital Accounts of all the Partners. Calculate proportion in which partners would share profits and losses in future.

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Solution

Journal

Date
 

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2019

 

 

 

 

April 1


Cash A/c


Dr.

 


14,000

 

 

To C’s Capital A/c

 

 

8,000

 

To Premium for Goodwill A/c

 

 

6,000

 

(C brought capital and his share of goodwill)

 

 

 

 

 

 

 

 

April 1


Premium for Goodwill A/c


Dr.

 


6,000

 

 

To A’s Capital A/c

 

 

2,000

 

To B’s Capital A/c

 

 

4,000

 

(C’s share of goodwill distributed between
A and B in sacrificing ratio i.e. 1:2)

 

 

 

 

 

 

 

 

 

A’s Capital A/c

Dr.

 

2,000

 

 

B’s Capital A/c

Dr.

 

4,000

 

 

To Cash A/c

 

 

6,000

 

(Amount of goodwill withdrawn by A and B)

 

 

 

 

Partners’ Capital Accounts

Dr.

 

 

 

 

 

 

Cr.

Particulars

A

B

C

Particulars

A

B

C

Cash

2,000

4,000

 

Balance b/d

8,000

10,000

 

 

 

 

 

Cash

 

 

8,000

 

 

 

 

Premium for Goodwill

2,000

4,000

 

Balance c/d       

8,000

10,000

8,000

 

 

 

 

 

10,000

14,000

8,000

 

10,000

14,000

8,000

Calculation of New (Future) Ratio

Old Ratio = A : B
                = `1/3 : 2/3`

C is admitted for  `1/4`  share of profit

Let combined share of all partners after C’s admission be = 1

Combined share of A and B after C’s admission = 1 − C’s share
= `1 - 1/4`

= `3/4`

New Ratio = Old Ratio x Combined Share of A and B in the new firm

A's = `1/3 xx 3/4 = 3/12`

B's = `2/3 xx 3/4 = 6/12`

New Profit Sharing Ratio = A :  B : C
                                         = `3/12 : 6/12 : 1/4`

                                         = `[ 3 : 6 : 3]/12`

                                         = 1 : 2 : 1

Distribution of Premium for Goodwill

A will get = Rs. 6,000 x `1/3` = Rs. 2,000

B will get = Rs.6,000 x `2/3` = Rs. 4,000

Concept: Adjustment for Accumulated Profits and Losses
  Is there an error in this question or solution?
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APPEARS IN

TS Grewal Class 12 Accountancy - Double Entry Book Keeping Volume 1
Chapter 5 Admission of a Partner
Exercise | Q 32 | Page 89
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