Question

A and B are partners sharing profits in the ratio of 3 : 2 . They admit C into the firm for 1/4th share in profits which he takes 1/6th from A and 1/12th from B. C brings in only 60% of his share of firm’s goodwill. Goodwill of the firm has been valued at ₹ 1,00,000. Pass necessary journal entries to record this arrangement.

Answer 1

Answer:

Profit sharing refers to various incentive plans introduced by businesses that provide direct or indirect payments to employees that depend on company's profitability in addition to employees' regular salary and bonuses. In publicly traded companies these plans typically amount to allocation of shares to employees.

Answer 2

Solution:

Old Ratio A and B = 3: 2

New Ratio A, B and C = 4: 3: 2

Sacrificing Ratio = Old Ratio-New Ratio

A's Sacrificing Ratio= $\frac{3}{5} -\frac{4}{9}$ = $\frac{27-20}{45}$ = $\frac{7}{45}$

B's Sacrificing Ratio = $\frac{2}{5} -\frac{3}{9}$ = $\frac{18-15}{45}$ = $\frac{3}{45}$

Sacrificing Ratio A and B = $\frac{7}{45} : \frac{3}{45}$ = 7:3