Question

Charu and Deepika were partners sharing profits in the ratio of 3 : 2. They admitted Esha as a new partner and the new ratio is agreed at 4 : 3 : 2. On the date of Esha’s admission, the Balance Sheet of Charu and Deepika disclosed General Reserve ₹ 1,20,000; Dr. balance in Profit & Loss Account ₹ 40,000; Investments ₹ 2,00,000 and Investment Fluctuation Reserve ₹ 60,000.

The following was agreed upon Esha’s admission:

1. Esha will bring ₹ 3,00,000 as her Capital and her share of the goodwill premium in cash.
2. Goodwill of the firm be valued ₹ 1,80,000.
3. The market value of investments was ₹ 2,30,000.

Pass the necessary journal entries.

Answer 1

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Bank A/c   ...Dr.		3,00,000
	To Esha’s Capital A/c			3,00,000
	(Capital brought in by Esha)
	Bank A/c   ...Dr.		40,000
	To Charu’s Capital A/c			28,000
	To Deepika’s Capital A/c			12,000
	(Goodwill premium distributed to sacrificing partners)
	Investments Fluctuation Reserve A/c   ...Dr.		60,000
	To Charu’s Capital A/c			36,000
	To Deepika’s Capital A/c			24,000
	(Investments fluctuation reserve distributed to old partners)
	Investments A/c   ...Dr.		30,000
	To Revaluation A/c			30,000
	(Appreciation in the value of investments recorded)
	Revaluation A/c   ...Dr.		30,000
	To Charu’s Capital A/c			18,000
	To Deepika’s Capital A/c			12,000
	(Profit on revaluation transferred to old partners)
	General Reserve A/c   ...Dr.		1,20,000
	To Charu’s Capital A/c			72,000
	To Deepika’s Capital A/c			48,000
	(General reserve transferred to old partners)
	Charu’s Capital A/c   ...Dr.		24,000
	Deepika’s Capital A/c   ...Dr.		16,000
	To Profit & Loss A/c			40,000
	(Debit balance of Profit & Loss A/c transferred to old partners)

Working Note:

Calculation of the Sacrifice Ratio:

Charu’s sacrifice = `3/5 - 4/9`

= `(3 xx 9)/(5 xx 9) - (4 xx 5)/(9 xx 5)`

= `27/45 - 20/45`

= `(27 - 20)/45`

= `7/45`

Deepika’s sacrifice = `2/5 - 3/9`

= `(2 xx 9)/(5 xx 9) - (3 xx 5)/(9 xx 5)`

= `18/45 - 15/45`

= `(18 - 15)/45`

= `3/45`

Sacrifice Ratio = `7/45 : 3/45` or 7 : 3