A and B are in partnership sharing profits and losses in the ratio of 5 : 3. C is admitted as a partner who pays ₹ 40,000 as capital and the necessary amount of goodwill which is valued at ₹ 60,000 for the firm. His share of profits will be 1/5th which he takes 1/10th from A and 1/10th from B.
Give Journal entries and also calculate future profitsharing ratio of the partners.
Solution
Journal 

Date 
Particulars 
L.F. 
Debit Amount Rs 
Credit Amount Rs 


Cash A/c 
Dr. 

52,000 


To C’s Capital A/c 



40,000 

To Premium for Goodwill A/c 



12,000 

(C brought Capital and his share of goodwill in cash) 











Premium for Goodwill A/c 
Dr. 

12,000 


To A’s Capital A/c 



6,000 

To B’s Capital A/c 



6,000 

(C’s share of Goodwill distributed in A and B) 



Working Notes
WN1 : Sacrificing Ratio = A : B
= `1/10 : 1/10` = 1 : 1
WN 2 : Calculation of new profit sharing Ratio
Old Ratio = A : B
= 5 : 3
New Ratio = Old Ratio  Sacrificing Ratio
A's = `5/8  1/10 = 21/40`
B's = `3/8  1/10 = 11/40`
New Profit Sharing Ratio = A : B : C
= `21/40 : 11/40 : 1/5`
= `[ 21 : 11 : 8 ]/40`
WN 3 = Distribution of C's share of Goodwill ( in Sacrificing Ratio)
A and B each will get = 12,000 x `1/2` = Rs. 6,000