A and B are partners sharing profits and losses in the ratio of 4:3. They
admit C" into partnership to th share who pays Rs. 3,500 in cash for
goodwill. A and B decide to share future profits equally among themselves. No good will appears in the book. Give necessary journal entries to record the goodwill
how to find sacrificing ratio
Answers
JOURNAL
1. A's Capital a/c.... Dr. 1800
B's Capital a/c.... Dr. 1200
To Goodwill a/c 3000
(Being goodwill written off in the ratio of 3:2)
2. Cash a/c.. Dr. 40000
To C's Capital a/c 30000
To Premium for goodwill a/c 10000
(Being capital and premium for goodwill brought in by C)
3. Premium for Goodwill a/c... Dr. 10000
To A's Capital a/c 5000
To B's Capital a/c 5000
(Being premium for goodwill brought in by C distributed among the partners in the ratio of 1:1)
Working Note:
1. Calculation of sacrificing ratio:
A's sacrifice= 3/5- 5/10= 1/10
B's sacrifice= 2/5- 3/10= 1/10
Sacrificing ratio= 1:1
2. Distribution of premium for goodwill:
A's share= 10000 * 1/2= 5000
B's share= 10000 * 1/2= 5000