Al Balance Sheet of J and K who share profits in the ratio of 3:2 is as follows:
BALANCE SHEET as at 31st March, 2021
Cash
Other Assets
ene
Capital
Capital
200,000
1,00,000
1.50,000
1,00,000 2,50,000
3,50,000
Moins the firm from 1st April
, 2021 for half share in the future profits. He is to payt 100.000 as goodwill
and 3,00,000 for capital. Draft the Journal entries and prepare Balance Sheet in each of the following cases
(a) M gets his share of profits in the profit-sharing ratio of the old partners.
(b) if M gets his share of profits in equal proportion from the old partners.
(d) If M gets his share of profits in the ratio of 3:1 from the old partners, determine the future profit
sharing ratio of the partners in each case.
Cantal
2.70 con- k-1.80.000 300.000
Ja cace tale
Answers
Answer:(a) M acquires his share of profit in the profit sharing ratios of the partners:
(i) JOURNAL
1. Reserve a/c... Dr. 100000
To J's Capital a/c 60000
To K's Capital a/c 40000
(Being reserve distributed among the partners)
2. Cash a/c... Dr. 400000
To M's Capital a/c 300000
To Premium for Goodwill a/c 100000
(Being capital and premium for goodwill brought in by M)
3. Premium for goodwill a/c.... Dr. 100000
To J's Capital a/c 60000
To K's Capital a/c 40000
(Being premium for goodwill distributed among the partners in the sacrificing ratio)
BALANCE SHEET
LIABILITIES AMOUNT ASSETS AMOUNT
J's Capital 235000 Cash 600000
K's Capital 215000 Other Assets 150000
M's Capital 300000
750000 750000
Calculation of new profit sharing ratio:
Old ratio= 3:2
M is admitted for 1/2 share in profits
Remaining share= 1/2
J's new ratio= 3/5 * 1/2
= 3/10
K's new ratio= 2/5 * 1/2
= 2/10
New profit sharing ratio= 3:2:5
(b) M acquires his share in equal proportion from the partners
(i) JOURNAL
1. Reserve a/c... Dr. 100000
To J's Capital a/c 60000
To K's Capital a/c 40000
(Being reserve distributed among the partners)
2. Cash a/c... Dr. 400000
To M's Capital a/c 300000
To Premium for Goodwill a/c 100000
(Being capital and premium for goodwill brought in by M)
3. Premium for goodwill a/c.... Dr. 100000
To J's Capital a/c 50000
To K's Capital a/c 50000
(Being premium for goodwill distributed among the partners in the sacrificing ratio of 1:1)
BALANCE SHEET
LIABILITIES AMOUNT ASSETS AMOUNT
J's Capital 235000 Cash 600000
K's Capital 215000 Other assets 150000
M's Capital 300000
750000 750000
Calculation of new profit sharing ratio:
Old ratio= 3:2
M is admitted for 1/2 share in profits
J's sacrifice= 1/2 * 1/4= 1/8
K's sacrifice= 1/2* 1/4= 1/8
J's new ratio= 3/5-1/8
= 19/40
K's new ratio= 2/5- 1/8
= 11/40
New profit sharing ratio= 19:11:20
(c) M acquires his share in the ratio of 3:1
(i) JOURNAL
1. Reserve a/c... Dr. 100000
To J's Capital a/c 60000
To K's Capital a/c 40000
(Being reserve distributed among the partners)
2. Cash a/c... Dr. 400000
To M's Capital a/c 300000
To Premium for Goodwill a/c 100000
(Being capital and premium for goodwill brought in by M)
3. Premium for goodwill a/c.... Dr. 100000
To J's Capital a/c 75000
To K's Capital a/c 25000
(Being premium for goodwill distributed among the partners in the sacrificing ratio of 3:1)
BALANCE SHEET
LIABILITIES AMOUNT ASSETS AMOUNT
J's Capital
235000 Cash (200000+400000) 600000
K's Capital 215000 Other assets 150000
M's Capital 300000
750000 750000
Calculation of new profit sharing ratio:
Old ratio= 3:2
M is admitted for 1/2 share in profits
J's sacrifice= 1/2 * 3/4= 3/8
K's sacrifice= 1/2* 1/4= 1/8
J's new ratio= 3/5-3/8
= 9/40
K's new ratio= 2/5- 1/8
= 11/40
New profit sharing ratio= 9:11:20
Explanation: