Question

three business partners Abila Mwiiree and chirchir contributed 120000, 180000 240000 and respectively to boost their business , they agreed to put 20% of the profit approved back into the business
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Answer 1

Step-by-step explanation:

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 Appro, 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