Anwar and Bashir were partners in a firm sharing profit or losses in the ratio 7:5. With effect from 1st April 2021 they agreed to share profits in the ratio of 5:4. Due to the change in profit sharing ratio what is Bashir's gain or sacrifice?
Answers
Answer:
Explanation:
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