Question

A and B are partners sharing profits in the ratio of 3:2. On 1^st April 2005 they admit C into the firm. C brought in Rs. 1,00,000 for his capital but he was not in a position to bring his share of goodwill. The goodwill of the firm was valued at Rs. 1,50,000. Goodwill existing in the books of the firm is Rs. 2,75,000. The new profit sharing ratio is 2: 1: 1. Pass the journal entries.

Answer 1

Working Note: 

Sacrificing Ratio = Old Ratio – New ratio

A's Sacrifice = \(\frac{3}{5} - \frac{2}{4} = \frac{12-10}{20} = \frac{2}{20}\)

B's sacrifice = \(\frac{2}{5}-\frac{1}{4} = \frac{8-5}{20} = \frac{3}{20}\)

S. Ratio is = \(\frac{2}{20} : \frac{3}{20} = 2 : 3\)

C’s share of goodwill = 1,50,000 × \(\frac{1}{4}\)= 37,500 This Rs. 37,500 is to be debited to the new partner’s capital account and credited to old partners’ capital as C (new partner) cannot bring in the same. 

Journal