Question

A and B are partners in a business sharing profits and losses in the ratio of 1/3rd and 2/3rd. On 1st April, 2018, their capitals are ₹ 8,000 and ₹ 10,000 respectively. On that date, they admit C in partnership and give him 1/4th share in the future profits. C brings in ₹ 8,000 as his capital and ₹ 6,000 as goodwill. The amount of goodwill is immediately withdrawn by the old partners in cash. Draft the journal entries and show the Capital Accounts of all the Partners. Calculate proportion in which partners would share profits and losses in future.

Answer 1

A's Goodwill = $2,000$

B's Goodwill = $4,000$

Explanation:

Calculation of New Ratio

Old Ratio A and B = $\frac{1}{3}: \frac{2}{3}$

C is admitted for $\frac{1}{4}$ share of profit

Let combined share of all partners after C's admission be = $1$

Combined share of A and B after C admission = $1-$ C's share

$-1-\frac{1}{4}=\frac{3}{4}$

New Ratio = Old Ratio * Combined Share of A and B in the new firm

A's New Ratio = $\frac{1}{3} \times \frac{3}{4}=\frac{3}{12}$

B's New Ratio = $\frac{2}{3} \times \frac{3}{4}=\frac{6}{12}$

New profit sharing A, B, C = $\frac{3}{12}: \frac{6}{12}: \frac{1}{4}=\frac{3: 6: 3}{12}$ = $1: 2: 1$

Distribution of Premium for Goodwill

A's Goodwill = $6,000 \times \frac{1}{3}$ = $2,000$

B's Goodwill = $6,000 \times \frac{2}{3}$ = $4,000$