Question

Kumar and Rao were partners in a firm sharing profits equally. They admitted Ghosh as a new partner for 1/4th share in profits. Ghosh acquired his 1/4th share from Kumar and Rao in the ratio of 3 : 2 respectively. Ghosh brought ₹ 2,70,000 for his capital and ₹ 39,000 for 1/4th share of goodwill. Calculate new profit sharing ratio of Kumar, Rao and Ghosh and pass necessary journal entries for the above transactions in the books of the firm.

Answer 1

1. Calculation of New Profit-Sharing Ratio

Old Details:

Old Profit-Sharing Ratio of Kumar and Rao = 1 : 1 (equally)

Kumar's old share = `1/2` 

Rao's old share = `1/2`

Sacrifice Computation:

Ghosh is admitted for a `1/4` share, which he acquires from Kumar and Rao in the ratio of 3 : 2. This implies the Sacrificing Ratio is 3 : 2.

Kumar's sacrifice = `1/4 xx 3/5 = 3/20`

Rao's sacrifice = `1/4 xx 2/5 = 2/20`

New Shares:

Kumar's new share = Old share − Sacrifice = `1/2 - 3/20 = (10 - 3)/20 = 7/20`

Rao's new share = Old share − Sacrifice = `1/2 - 2/20 = (10 - 2)/20 = 8/20`

Ghosh's share = `1/4 = (1 xx 5)/(4 xx 5) = 5/20`

New Profit-Sharing Ratio = `7/20 : 8/20 : 5/20 = 7 : 8 : 5`

2. Journal Entries in the Books of the Firm

The premium for goodwill brought by Ghosh (39,000) is distributed to the old partners in their sacrificing ratio (3 : 2).

Kumar's share of premium = `39,000 xx 3/5 = 23,400`

Rao's share of premium = `39,000 xx 2/5 = 15,600`

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Bank/Cash A/c   ...Dr.		3,09,000
	To Ghosh's Capital A/c			2,70,000
	To Premium for Goodwill A/c			39,000
	(Being capital and premium for goodwill brought in by Ghosh)
2.	Premium for Goodwill A/c   ...Dr.		39,000
	To Kumar's Capital A/c			23,400
	To Rao's Capital A/c			15,600
	(Being premium for goodwill credited to sacrificing partners' capital accounts in their sacrificing ratio of 3 : 2)