Question

A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. A new partner C is admitted. A surrenders 1/5th of his share and B surrenders 2/5th of his share and B surrenders 2/5th of his share in favour of C. For this purpose of C’s admission, goodwill of the firm is valued at ₹ 75,000 and C brings in his share of goodwill in cash which is retained in the firm’s books. Journalise the above transactions.

Answer 1

A's Goodwill = $21,000 \times \frac{3}{7}$ = $9,000$

B's Goodwill = $21,000 \times \frac{4}{7}$ = $12,000$

Explanation:

Old Ratio A and B = $3: 2$

A's Sacrifice = $\frac{3}{5} \times \frac{1}{5}=\frac{3}{25}$

B's Sacrifice = $\frac{2}{5} \times \frac{2}{5}=\frac{4}{25}$

Sacrificing Ratio A and B = $3: 4$

New Ratio = Old Ratio - Sacrificing Ratio

A's New Share = $\frac{3}{5}-\frac{3}{25}=\frac{15-3}{25}=\frac{12}{25}$

B's New Share = $\frac{2}{5}-\frac{4}{25}=\frac{10-4}{25}=\frac{6}{25}$

C's share = A's Sacrifice + B's Sacrifice

C's share = $\frac{3}{25}+\frac{4}{25}=\frac{7}{25}$

New Ration is $12: 6: 7$

C's will bring Premium for Goodwill = $75,000 \times \frac{7}{25}$

$=21,000$

Distribution of Premium for Goodwill

A's Goodwill = $21,000 \times \frac{3}{7}$ = $9,000$

B's Goodwill = $21,000 \times \frac{4}{7}$ = $12,000$