Question

Sonu and Monu are partners sharing profits in the ratio of 3 : 1. Tinku is admitted as a partner for which he pays ₹ 60,000 for goodwill in cash. Sonu, Monu and Tinku decided to share future profits in equal proportion. You are required to pass necessary journal entries to give effect to the above.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Bank/Cash A/c   ...Dr.		60,000
	To Premium for Goodwill A/c			60,000
	(Being premium for goodwill brought in cash by Tinku)
	Premium for Goodwill A/c   ...Dr.		60,000
	Monu's Capital A/c   ...Dr.		15,000
	To Sonu's Capital A/c			75,000
	(Being Tinku's premium and Monu's share of gain on goodwill credited to Sonu's capital account)

Working note:

A. Find the Sacrificing Ratio

Formula: Sacrifice = Old Share − New Share

Old Ratio (Sonu : Monu): 3 : 1

Sonu's Old Share = `3/4`

Monu's Old Share = `1/4`

New Ratio (Sonu : Monu : Tinku): 1 : 1 : 1 (Equal)

Sonu's New Share = `1/3`

Monu's New Share = `1/3`

Sonu's Sacrifice:

`3/4 - 1/3 = (9 - 4)/12 = 5/12`

Monu's Sacrifice:

`1/4 - 1/3 = (3 - 4)/12 = -1/12`

B. Accounting Treatment for Monu's Gain

Since Monu is gaining `1/12` share upon Tinku's admission, Monu must also compensate the only sacrificing partner (Sonu).

We first calculate the total goodwill of the firm based on Tinku's share:

Tinku's share = `1/3`

Tinku's Goodwill Premium = ₹ 60,000

Total Goodwill of the Firm:

`60,000 xx 3/1 = 1,80,000`

Monu's Share of Goodwill to be Gained/Debited:

`1,80,000 xx 1/12 = 15,000`

C. Total Compensation Received by Sonu

Sonu is the only sacrificing partner and will receive:

From Tinku (Premium for Goodwill): ₹ 60,000

From Monu (Monu's Capital/Current Account): ₹ 15,000

Total Credit to Sonu's Capital Account: 60,000 + 15,000 = 75,000