Question

A and B are partners sharing profits and losses in the ratio of 2 : 5. They admit C on the condition that he will bring in ₹ 14,000 as his share of goodwill in cash to be distributed between A and B. C’s share in the future profits or losses will be 1/4th. What will be the new profit-sharing ratio and what amount of goodwill brought in by C will be received by A and B.

Answer 1

Answer:

the answer is given in the above

Answer 2

Profit-sharing ratio and goodwill amount brought by C is calculated below.

Explanation:

Old ratio between A and B is given as 2:5.

After C’s admission his share = 1/4th of profit

Combined share of A and B = 1- C’s share

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

Calculation of New Ratio:

New Ratio = Old Ratio $\times$ combined share of A and B  

A’s new share

$=\frac{2}{7} \times \frac{3}{4}=\frac{6}{28}$

B’s new share

$=\frac{5}{7} \times \frac{3}{4}=\frac{15}{28}$

New profit-sharing ratio becomes

$=\frac{6}{28}: \frac{15}{28}: \frac{1}{4}=\frac{6: 15: 7}{28}=6: 15: 7$

Distribution of C's share of goodwill:

C’s share of goodwill is given as Rs.14,000

A’s goodwill

$=14,000 \times \frac{2}{7}=4,000$

B’s goodwill

$=14,000 \times \frac{5}{7}=10,000$