Question

X and Y are partners sharing profits and losses in the ratio of 3 : 2. They admit Z into partnership, Z paying a premium of ₹ 1,00,000 for 1/4 share of the profits while X and Y as between themselves sharing profits and losses equally. Give Journal entries.

Answer 1

Given:

X and Y share profits in 3 : 2

Z is admitted for `1/4` share

Z brings ₹ 1,00,000 as premium for goodwill

X and Y will share profits equally after Z's admission.

1. Calculate the Sacrificing Ratio

Old ratio:

X = `3/5`

Y = `2/5`

Z gets = `1/4`

Remaining share:

`1 - 1/4 = 3/4`

X and Y share this equally:

`X = 3/8, Y = 3/8`

X's sacrifice:

`3/5 - 3/8 = (24 - 15)/40 = 9/40`

Y's sacrifice:

`2/5 - 3/8 = (16 - 15)/40 = 1/40`

Therefore Sacrificing ratio = 9 : 1

2. Distribution of Goodwill Premium

Z brings ₹ 1,00,000 as premium.

It is distributed between X and Y in the sacrificing ratio 9 : 1.

X = ₹ 1,00,000 × `9/10` = ₹ 90,000

Y = ₹ 1,00,000 × `1/10` = ₹ 10,000

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Bank / Cash A/c   ...Dr.		1,00,000
	To Premium for Goodwill A/c			1,00,000
	(Being premium for goodwill brought in cash by Z)
	Premium for Goodwill A/c   ...Dr.		1,00,000
	To X's Capital A/c			90,000
	To Y's Capital A/c			10,000
	(Being premium for goodwill distributed between X and Y in their sacrificing ratio of 9 : 1)