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Pass Necessary Journal Entries for C'S Admission and Apportion the Profit Between the Partners. - Accountancy

Journal Entry

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.

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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.

Concept: Admission of a New Partner
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APPEARS IN

TS Grewal Class 12 Accountancy - Double Entry Book Keeping Volume 1
Chapter 5 Admission of a Partner
Exercise | Q 26 | Page 88
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