A, B and C are partners sharing profits and losses in the ratio of 3: 2 : 1. D is admitted. The new profit sharing ratio between A, B, C and D will be 3 : 3 : 2 : 2. Goodwill of the firm is valued at ` 3,00,000. Goodwill already appears in the books at ` 6,000. D brings his share of firm’s goodwill in cash. The amount of goodwill is withdrawn by the concerned partners to the extent of 30% of what is credited to them. Give the journal entries relating to adjustment of goodwill
Answers
Answer:
A's old share= 2/5
B's old share= 2/5
C's old share= 1/5
D is admitted for 1/6th share. C will retain his original share.
Hence, remaining share= 1- [1/6] - [1/5]
= 19/30
This remaining share will be shared by A and B in their old ratio, i.e, 2:2
A's new share= 2/4 * 19/30
= 38/120
B's new share= 2/4 * 19/30
= 38/120
New Profit sharing ratio= 38:38:24:20
= 19:19:12:10
Sacrificing ratio= old ratio- new ratio
A's sacrifice= 2/5- 19/60
= 5/60
B's sacrifice= 2/5- 19/60
= 5/60
Sacrificing ratio= 5:5= 1:1
[Note: since nothing is mentioned, we assume that only A and B have sacrificed since C retains his old share]