Question

P and Q are partners sharing profits and losses as 2 : 3. R and S are admitted and profit sharing ratio becomes 3 : 4 : 3 : 2. Goodwill is valued at ₹ 3,00,000. R brings required goodwill and ₹ 2,00,000 cash for Capital. S brings in ₹ 1,00,000 cash and Motor Vehicle for ₹ 80,000 as his capital in addition to the required amount of goodwill in cash.

Show the necessary journal entries.

Answer 1

Journal Entries
Date	Particulars	L.F	Debit (₹)	Credit (₹)
	Bank A/c   ...Dr.		2,75,000
	To R’s Capital A/c			2,00,000
	To Premium for Goodwill A/c			75,000
	(Amount of capital and goodwill/premium brought in cash, i.e., 2,00,000 + 75,000)
	Bank A/c   ...Dr.		1,50,000
	Motor Vehicle   ...Dr.		80,000
	To S’s Capital A/c			1,80,000
	To Premium for Goodwill A/c			50,000
	(Amount of capital and goodwill brought in cash, i.e., 1,00,000 + 50,000, and Motor Vehicle 80,000 for capital)
	Premium for Goodwill A/c   ...Dr.		1,25,000
	To P’s Capital A/c			45,000
	To Q’s Capital A/c			80,000
	(Amount of goodwill/premium transferred to old partners in sacrificing ratio, i.e., 9 : 16)

Working Notes:

(1) Calculation of goodwill of R’s share and S’s share:

Value of the total goodwill of the firm = 3,00,000

R’s share of goodwill = `3,00,000 xx 3/12`

= 75,000

S’s share of goodwill = `3,00,000 xx 2/12`

= 50,000

(2) Calculation of Sacrificing Ratio:

Sacrifice Ratio = Old Ratio − New Ratio

P’s Sacrifice = `2/5 - 3/12`

= `(2 xx 12)/(5 xx 12) - (3 xx 5)/(12 xx 5)`

= `24/60 - 15/60`

= `(24 - 15)/60`

= `9/60`

Q’s Sacrifice = `3/5 - 4/12`

= `(3 xx 12)/(5 xx 12) - (4 xx 5)/(12 xx 5)`

= `36/60 - 20/60`

= `(36 - 20)/60`

= `16/60`

Sacrificing Ratio of P and Q = `9/60 : 16/60` or 9 : 16