Question

A and B are partners sharing profits in the ratio of 7: 8. C was admitted in the firm for 1/6th share who paid
1,80,000 as capital and 45,000 as premium in cash. At the time of admission, General Reserve amounting to
45,000 and Profit and Loss Account amounting to 24,000 appeared on the liabilities side of the Balance Sheet.
Show necessary Journal entries to record the above transaction.

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Answer 1

Answer:

JOURNAL

1. Cash a/c... Dr. 13600

To C's Capital a/c 10000

To Premium for Goodwill a/c 3600

(Being capital and premium for goodwill brought in by C)

2. Premium for Goodwill a/c.. Dr. 3600

To A's Capital a/c 900

To B's Capital a/c 2700

(Being premium for goodwill brought in by C distributed among the partners in the ratio of 1:3)

3. Profit and Loss Appropriation a/c.. Dr. 24000

To A's Capital a/c 13000

To B's Capital a/c 7000

To C's Capital a/c 4000

(Being profit after C's admission distributed among the partners in the ratio of 13:7:4)

Working Note:

1. Calculation of sacrificing ratio:

A's sacrifice= 1/24

B's sacrifice= 1/8

Hence, Sacrificing ratio= 1:3

2. Distribution of premium for goodwill in sacrificing ratio:

A's share= 3600 * 1/4= 900

B's share= 3600 * 3/4= 2700

3. Calculation of new Profit sharing ratio:

A's new share= 7/12- 1/24= 13/24

B's new share= 5/12- 1/8= 7/24

C's share= 1/4

New profit sharing ratio= 13:7:4

4. Distribution of profit in new profit sharing ratio:

A's share= 24000 * 13/24= 13000

B's share= 24000 * 7/24= 7000

C's share= 24000 * 4/24= 4000

Step-by-step explanation:

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