Question

P and Q were partners sharing profits in the ratio of 2 : 1. On 1st April, 2024, they admitted R as a new partner and the new profit-sharing ratio of P, Q and R is agreed at 3 : 1 : 1. R brought in ₹ 2,00,000 as his capital and ₹ 60,000 as his share of premium for goodwill.

On the date of R’s admission, the Balance Sheet of P and Q showed a credit balance of ₹ 45,000 in Profit and Loss A/c and Workmen Compensation Reserve of ₹ 80,000. It was agreed that there was a claim of Workmen Compensation for ₹ 50,000.

Pass necessary journal entries on R’s admission.

Answer 1

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Bank A/c   ...Dr.		2,60,000
	To R’s Capital A/c			2,00,000
	To Premium for Goodwill A/c			60,000
	(Capital and premium for goodwill brought in by R)
	Premium for Goodwill A/c   ...Dr.		60,000
	To P’s Capital A/c			20,000
	To Q’s Capital A/c			40,000
	(Premium for goodwill distributed to old partners)
	Profit and Loss A/c   ...Dr.		45,000
	To P’s Capital A/c			30,000
	To Q’s Capital A/c			15,000
	(Balance in P & L A/c transferred to old partners)
	Workmen Compensation Reserve A/c   ...Dr.		80,000
	To Provision for Workmen Compensation Claim A/c   ...Dr.			50,000
	To P’s Capital A/c			20,000
	To Q’s Capital A/c			10,000
	(Claim provided for and the balance distributed)

Working Note:

Calculate the Sacrificing Ratio:

Sacrificing Ratio = Old Ratio − New Ratio

P’s Sacrifice = `2/3 - 3/5`

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

= `10/15 - 9/15`

= `(10 - 9)/15`

= `1/15`

Q’s Sacrifice = `1/3 - 1/5`

= `(1 xx 5)/(3 xx 5) - (1 xx 3)/(5 xx 3)`

= `5/15 - 3/15`

= `(5 - 3)/15`

= `2/15`

Sacrificing Ratio of P and Q = `1/15 : 2/15` or 1 : 2

The premium for goodwill brought in by R, ₹ 60,000 is distributed among the sacrificing partners, P and Q, in their sacrificing ratio of 1 : 2.

P = `60,000 xx 1/3`

= 20,000

Q = `60,000 xx 2/3`

= 40,000

The credit balance in the Profit and Loss A/c ₹ 45,000  is an accumulated profit belonging to the old partners, P and Q. It is distributed in their old profit-sharing ratio of 2 : 1.

P = `45,000 xx 2/3`

= 30,000

Q = `45,000 xx 1/3`

= 15,000

The Workmen Compensation Reserve of ₹ 80,000 is a specific reserve. The claim against it for ₹ 50,000 is first provided for, and the remaining surplus is distributed to the old partners, P and Q, in their old profit-sharing ratio of 2 : 1.

Surplus reserve = 80,000 − 50,000

= 30,000

P’s share = `30,000 xx 2/3`

= 20,000

Q’s share = `30,000 xx 1/3`

= 10,000