Question

P and share profits in the ratio of P, 5/8 and Q, 3/8. R is admitted as а partner who brings in ₹ 60,000 as his capital and ₹ 20,000 for goodwill. The new profit-sharing ratio is agreed at 7 : 5 : 4. Draft Journal entries.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Bank/Cash A/c   ...Dr.		80,000
	To R's Capital A/c			60,000
	To Premium for Goodwill A/c			20,000
	(Being capital and premium for goodwill brought in cash by R)
2.	Premium for Goodwill A/c   ...Dr.		20,000
	To P's Capital A/c			15,000
	To Q's Capital A/c			5,000
	(Being premium for goodwill distributed between P and Q in their sacrificing ratio of 3 : 1)

Working note:

1. Sacrificing Ratio

The sacrificing share is calculated by subtracting the new profit share from the old profit share:

Sacrificing Share = Old Share − New Share

P's Old Share = `5/8`, Q's Old Share = `3/8`

P's New Share = `7/16`, Q's New Share = `5/16`, R's New Share = `4/16`

Make the denominators equal (base 16) to subtract easily:

P's Old Share = `(5 xx 2)/(8 xx 2) = 10/16`

P's Old Share = `(3 xx 2)/(8 xx 2) = 6/16`

Now, calculate individual sacrifice:

P's Sacrifice = `10/16 - 7/16 = 3/16`

P's Sacrifice = `6/16 - 5/16 = 1/16`

The Sacrificing Ratio of P and Q is 3 : 1.

2. Distribution of Goodwill Premium

R's premium for goodwill (₹ 20,000) is distributed between P and Q in their sacrificing ratio (3 : 1):

P's Share = `20,000 xx 3/4 = 15,000`

Q's Share = `20,000 xx 1/4 = 5,000`