A and B are partners sharing profits and losses in the ratio of 3:1. On Ist Jan. 2017 they admitted C as a new partner for 1/4 share in the profits of the firm.

Q.31. A and B are partners sharing profits and losses in the ratio of 3:1. On Ist Jan. 2017 they admitted C as a new partner for 1/4 share in the profits of the firm. C brings Rs 20,000 as for his 1/4 share in the profits of the firm. The capitals of A and B after all adjustments in respect of goodwill, revaluation of assets and liabilities, etc. has been worked out at Rs 50,000 for A and Rs 12,000 for B. It is agreed that partner’s capitals will be according to new profit sharing ratio. Calculate the new capitals of A and B and pass the necessary journal entries assuming that A and B brought in or withdrew the necessary cash as the case may be for making their capitals in proportion to their profit sharing ratio?

SOLUTION

Books of A,B and C

Journal

Date	Particulars		L.F.	Amount (Dr.)	Amount (Cr.)
2017
Jan.1	A’s Capital A/c	Dr.		5,000
	To Bank A/c				5,000
	(Excess of capital withdrawn by A)
	Cash A/c	Dr.		3,000
	To B’s capital A/c				3,000
	(B bought his leaking of share capital)

Working notes:

1.Calculation of New profit sharing Ratio

C’s share=1/4

Let’s be Total share of the firm = 1

Reaming
 share=1-1/4

=3/4

Partners new share = Reaming share X partners old share

A = 3/4 X 3/4

   =9/16

B = 1/4 X 3/4

   =3/16

c =1/4 X 4/4

   = 4/16

2. New Capital of A and B.

C bring Rs. 20,000 for 1/4th share of profit in the new firm.

Thus, total capital of firm on the basis of C’s share  = 20,000 ×4/1 = 80,000

A’s Capital = 9/16 × 80,000 = 45,000

Thus, A will withdraw = 50,000 – 45,000 = 5,000

A’s Capital = 3/16 × 80,000 = 15,000

Thus, B’s will bring 15,000 – 12,000 = 3,000.

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