A & B are partners sharing profit and loss in the ratio of 7:5. On 1st Jan, 2020 they admit C for 1/6 share as partner, C brings Rs.15,000 as capital & Rs.7.200 of goodwill for 1/6 share of profit, which he received 1/4 from A & 3/4 from B. On 31" Dec. the years profit is Rs 48,000. To record above transactions, prepare journal entries. Profit & loss A/c showing division of profit & new profit sharing ratio..
Answers
JOURNAL
1. Cash a/c... Dr. 13600
To C's Capital a/c 10000
To Premium for Goodwill a/c 3600
(Being capital and premium for goodwill brought in by C)
2. Premium for Goodwill a/c.. Dr. 3600
To A's Capital a/c 900
To B's Capital a/c 2700
(Being premium for goodwill brought in by C distributed among the partners in the ratio of 1:3)
3. Profit and Loss Appropriation a/c.. Dr. 24000
To A's Capital a/c 13000
To B's Capital a/c 7000
To C's Capital a/c 4000
(Being profit after C's admission distributed among the partners in the ratio of 13:7:4)
Working Note:
1. Calculation of sacrificing ratio:
A's sacrifice= 1/24
B's sacrifice= 1/8
Hence, Sacrificing ratio= 1:3
2. Distribution of premium for goodwill in sacrificing ratio:
A's share= 3600 * 1/4= 900
B's share= 3600 * 3/4= 2700
3. Calculation of new Profit sharing ratio:
A's new share= 7/12- 1/24= 13/24
B's new share= 5/12- 1/8= 7/24
C's share= 1/4
New profit sharing ratio= 13:7:4
4. Distribution of profit in new profit sharing ratio:
A's share= 24000 * 13/24= 13000
B's share= 24000 * 7/24= 7000
C's share= 24000 * 4/24= 4000