Question

Champak and Raja were partners sharing profits and losses in the ratio of 3 : 7. Varun was admitted on 1st April, 2025 as a new partner for 1/3rd share in the profits of the firm. Half of Varun's share was gifted by Raja and the remaining share was purchased by Varun in the ratio of 2 : 3 from Champak and Raja respectively.

Varun brought in ₹ 4,80,000 as Capital and his requisite share of Goodwill. Firm's goodwill was valued at ₹ 3,60,000. Net profit for the year ended 31st March, 2026 amounted to ₹ 2,40,000.

Pass the necessary journal entries at the time of admission of the new partner and for distribution of net profit.

Answer 1

1. Calculation of Sacrificing Ratio and New Ratio

Individual Sacrifice by Champak and Raja

Varun's Share: `1/3`

Gifted by Raja: `1/3 xx 1/2 = 1/6`

Remaining Share: `1/3 - 1/6 = 1/6`

Purchased from Champak: `1/6 xx 2/5 = 2/30`

Purchased from Raja: `1/6 xx 3/5 = 3/30`

Total Sacrifice

Champak's Sacrifice: `2/30`

Raja's Sacrifice: `1/6 + 3/30 = (5 + 3)/30 = 8/30`

Sacrificing Ratio (Champak : Raja): 2 : 8 ⇒ 1 : 4

New Profit Sharing Ratio

Champak's New Share: `3/10 - 2/30 = (9 - 2)/30 = 7/30`

Raja's New Share: `7/10 - 8/30 = (21 - 8)/30 = 13/30`

Varun's New Share: `1/3 = 10/30`

New Ratio (Champak : Raja : Varun): 7 : 13 : 10

2. Calculation of Amounts

Varun's Goodwill Share: `3,60,000 xx 1/3 = 1,20,000`

Goodwill Premium to Champak: `1,20,000 xx 1/5 = 24,000`

Goodwill Premium to Raja: `1,20,000 xx 4/5 = 96,000`

Distribution of Net Profit (₹ 2,40,000 in 7 : 13 : 10)

Champak's Share: `2,40,000 xx 7/30 = 56,000`

Raja's Share: `2,40,000 xx 13/30 = 1,04,000`

Varun's Share: `2,40,000 xx 10/30 = 80,000`

3. Journal Entries

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2025
Apr 01	Bank / Cash A/c   ...Dr.		6,00,000
	To Varun's Capital A/c			4,80,000
	To Premium for Goodwill A/c			1,20,000
	(Being capital and premium for goodwill brought by Varun)
Apr 01	Premium for Goodwill A/c   ...Dr.		1,20,000
	To Champak's Capital A/c			24,000
	To Raja's Capital A/c			96,000
	(Being premium for goodwill distributed in sacrificing ratio of 1 : 4)
2026
Mar 31	Profit & Loss A/c   ...Dr.		2,40,000
	To Profit & Loss Appropriation A/c			2,40,000
	(Being net profit transferred to P&L Appropriation Account)
Mar 31	Profit & Loss Appropriation A/c   ...Dr.		2,40,000
	To Champak's Capital A/c			56,000
	To Raja's Capital A/c			1,04,000
	To Varun's Capital A/c			80,000
	(Being net profit distributed among all partners in their new profit sharing ratio)