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Give Necessary Journal Entries? - Accountancy

Journal Entry

A and B are partners in a firm sharing profits and losses in the ratio of 3:2. They decide to admit C into partnership with 1/4 share in profits. C will bring in Rs. 30,000 for capital and the requisite amount of goodwill premium in cash. The goodwill of the firm is valued at Rs, 20,000. The new profit sharing ratio is 2:1:1. A and B withdraw their share of goodwill. Give necessary journal entries?

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Solution

Journal Entries

Date

Particulars

L.F.

Debit Amount Rs

Credit Amount Rs

 

Cash A/c

Dr.

 

35,000

 

 

To C's Capital A/c

 

 

 

30,000

 

To Premium for Goodwill A/c

 

 

 

5,000

 

(Amount of Capital and Share of Goodwill brought by C)

 

 

 

 

 

 

   

 

 

 

 

Premium for Goodwill A/c

Dr.

 

5,000

 

 

To A's Capital A/c

 

 

 

2,000

 

To B's Capital A/c

 

 

 

3,000

 

(C's Share of Goodwill credited to A and B in 2:3,

Sacrificing Ratio)

 

 

 

 

 

   

 

 

 

 

A's Capital A/c

Dr.

 

2,000

 

 

B's Capital A/c

Dr.

 

3,000

 

 

To Cash A/c

 

 

 

5,000

 

(Share of Goodwill withdrawn by Old  Partners)

 

 

 

 

Sacrificing Ratio = Old Ratio − New Ratio

A = `3/5 - 2/4`

   = ` [ 12 - 10]/20 = 2/20`

B = `2/5 - 1/4`

   = ` [ 8 - 5]/20 = 3/20`

Sacrificing Ratio = A : B

                           = `2/20 : 3/20`

                          = ` 2 : 3` 
Goodwill of the firm = Rs 20,000

C’s share of Goodwill = 20,000 x `1/4` = Rs. 5,000

A will receive = 5,000 x `2/5` = Rs. 2,000

Or 20,000 x `2/20` = 2,000

B will receive = 5,000 x `3/5` = 3,000

Or 20,000 x `3/20` = 3,000.

Concept: Admission of a New Partner
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APPEARS IN

NCERT Class 12 Accountancy - Not-for-profit Organisation and Partnership Accounts
Chapter 3 Reconstitution of a Partnership Firm – Admission of a Partner
Exercise | Q 19 | Page 166
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