A and B are partners sharing profits and losses in the ratio of 7 : 5. They admit C, their Manager, into partnership who is to get 1/6th share in the business. C brings in ₹ 10,000 for his capital and ₹ 3,600 for the 1/6th share of goodwill which he acquires 1/24th from A and 1/8th from B. Profits for the first year of the new partnership was ₹ 24,000. Pass necessary Journal entries for C's admission and apportion the profit between the partners.
Solution
Journal 

Date 
Particulars 
L.F. 
Debit Amount Rs 
Credit Amount Rs 


Cash A/c 
Dr. 

13,600 


To C’s Capital A/c 



10,000 

To Premium for Goodwill A/c 



3,600 

(C brought capital and his share of goodwill) 











Premium for Goodwill A/c 
Dr. 

3,600 


To A’s Capital A/c 



900 

To B’s Capital A/c 



2,700 

(C’s share of goodwill transferred to A and B in their sacrificing ratio i.e. 3:1) 











Profit and Loss Appropriation A/c 
Dr. 

24,000 


To A’s Capital A/c 



13,000 

To B’s Capital A/c 



7,000 

To C’s Capital A/c 



4,000 

(Profit after C’s admission distributed) 




Working Note:
WN 1 :
Sacrificing Ratio = A : B
= `1/24 : 1/8` = 1 : 3
WN 2 : Distribution of C’s share of Goodwill (in sacrificing ratio)
A will be get = 3,600 x `1/4` = Rs. 900
B will be get = 3,600 x `3/4` = Rs. 2,700
WN3 : Calculation of New Profit Sharing Ratio
New Ratio = Old Ratio  Sacrificing Ratio
A's = `7/12  1/24 = 13/24`
B's = `5/12  1/8 = 7/24`
New Profit Sharing Ratio = A : B : C
= `13/24 : 7/24 : 1/6`
= 13 : 7 : 4
WN4 : Distribution of Profit earned after C’s admission (in new ratio)
A will get = 24,000 x `13/24` = Rs. 13,000
B will get = 24,000 x `7/24` = Rs. 7,000
C will get = 24,000 x `4/24` = Rs. 4,000.