Question

Partners A, B and C share the profit of a business in the ratio of 3 : 2 : 1 respectively. For one-sixth share they admit D who brings in ₹ 2 00,000 including ₹ 60,000 for his share of goodwill. Show the journal entries if A, B, C and D decide to share the profits respectively in the ratio of (a) 15 : 10 : 5 : 6; (b) 5 : 3 : 2 : 2 and (c) 2 : 2 : 1 : 1. Assume that the entire cash brought in by D remains in the business. Give Journal entries.

Answer 1

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Bank A/c   ...Dr.		2,00,000
	To D’s Capital A/c			1,40,000
	To Premium for Goodwill A/c			60,000
	(Amount of capital and goodwill/premium brought in cash)
2. (a)	Premium for Goodwill A/c   ...Dr.		60,000
	To A’s Capital A/c			30,000
	To B’s Capital A/c			20,000
	To C’s Capital A/c			10,000
	(Goodwill distributed among A, B and C in sacrificing ratio 3 : 2 : 1)
(b)	Premium for Goodwill A/c   ...Dr.		60,000
	To A’s Capital A/c			30,000
	To B’s Capital A/c			30,000
	(Goodwill distributed among A and B in sacrificing ratio 1 : 1)
(c)	Premium for Goodwill A/c   ...Dr.		60,000
	To A’s Capital A/c			60,000
	(Goodwill credited fully to A as he alone sacrifices)

Working Note:

The old profit-sharing ratio of A, B, and C is 3 : 2 : 1.

D is admitted for `1/6`th share.

Remaining share for A, B, C = `1 - 1/6`

= `5/6`

(a) New Ratio = 15 : 10 : 5 : 6

Sacrificing Ratio Calculation = Old Ratio – New Ratio

A = `3/6 - 15/36`

= `(3 xx 6)/(6 xx 6) - 15/36`

= `18/36 - 15/36`

= `(18 - 15)/36`

= `3/36`

B = `2/6 - 10/36`

= `(2 xx 6)/(6 xx 6) - 10/36`

= `12/36 - 10/36`

= `(12 - 10)/36`

= `2/36`

C = `1/6 - 5/36`

= `(1 xx 6)/(6 xx 6) - 5/36`

= `6/36 - 5/36`

= `(6 - 5)/36`

= `1/36`

Sacrificing Ratio of A, B, and C = `3/36 : 2/36 : 1/36` or 3 : 2 : 1

(b) New Ratio = 5 : 3 : 2 : 2

Sacrificing Ratio Calculation = Old Ratio – New Ratio

A = `3/6 - 5/12`

= `(3 xx 2)/(6 xx 2) - 5/12`

= `6/12 - 5/12`

= `(6 - 5)/12`

= `1/12`

B = `2/6 - 3/12`

= `(2 xx 2)/(6 xx 2) - 3/12`

= `2/12 - 3/12`

= `(2 - 3)/12`

= `1/12`

C = `1/6 - 2/12`

= `(1 xx 2)/(6 xx 2) - 2/12`

= `2/12 - 2/12`

= `(2 - 2)/12`

= 0

Sacrificing Ratio of A, B, and C = `1/12 : 1/12 : 0` or 1 : 1

(C) New Ratio = 2 : 2 : 1 : 1

Sacrificing Ratio Calculation = Old Ratio – New Ratio

A = `3/6 - 2/6`

= `1/6`

B = `2/6 - 2/6`

= 0

C = `1/6 - 1/6`

= 0

Only A sacrifices.