X and Y are partners in a firm. They share profits and losses in the ratio of 2:1. Their capitals
are 24,000 and 12,000 respectively. They admit Z into partnership on the condition that he
would bring 9,000 for goodwill and 15,000 as capital and that he would receive 1/3rd share in
profits. Assuming that the new partner has brought capital and goodwill in cash, pass Journal
entries and find out new profit-sharing ratio, when :
(1) The old partners have withdrawn goodwill.
(ii) They have allowed it to remain in the business.
Answers
Answer:
Explanation: New profit sharing ratio for X,Y and Z will be 4:2:3.
Old ratio was 2:1 and Z's share will be 1/3,thus share left for X and Y is 1-1/3=2/3.Now dividing 2/3 among X and Y will give X's share as 2/3*2/3=4/9 and Y' share as 2/3*1/3=2/9.Thus 4/9,2/9 and 1/3 when reduced to simplest terms gives 4:2:3.(1/3*3/3 to make like fraction)
Journal entries:
1.Cash A/c Dr 24000
To Z's capital A/c 15000
To Goodwill A/c 9000
(Amount brought in by Z as capital and goodwill)
2.Goodwill A/c Dr 9000
To X's A/c 6000
To Y's A/c 3000
(Goodwill transferred to X and Y in ratio 2:1 and not withdrawn)
3.X's A/c Dr 6000
Y's A/c Dr 3000
To Cash A/c 9000
(Cash withdrawn by X and Y in their sacrificing ratio for their share of goodwill)