Q.19. A and B are partners in a firm sharing profits and losses in the ratio of 3:2. They decide to admit C into partnership with 1/4 share in profits.

Q.19. A and B are partners in a firm sharing profits and losses in the ratio of 3:2. They decide to admit C into partnership with 1/4 share in profits. C will bring in Rs. 30,000 for capital and the requisite amount of goodwill premium in cash. The goodwill of the firm is valued at Rs, 20,000. The new profit sharing ratio is 2:1:1. A and B withdraw their share of goodwill. Give necessary journal entries?

SOLUTION

Journal Entries

Date	Particulars	L.F	Amount(Dr.)	Amount(Cr.)
	Cash A/c		35,000
	To c’s capital			30,000
	To premium for goodwill A/c			5,000
	(Amount for goodwill and c’s share of goodwill bought by c)
	Premium for goodwill A/c		5,000
	To A’s capital A/c			2,000
	To B’s capital A/c			3,000
	(C’s share of Goodwill credited to A and B in sacrificing ratio)
	A’s capital A/c		2,000
	B’s capital A/c		3,000
	To cash A/c			5,000
	(share of goodwill withdrawn by old partners)

Sacrifice ratio = old share-new share

A = 3/5-2/4

Sacrifice ratio = old share-new share

A = 3/5-2/4

   =2/20

B = 2/5-1/4

    =3/20

Sacrificing ratio=A:B

  =2/20:3/20

  =2:3

Goodwill of the firm  = Rs 20,000

C's share of goodwill = 20,000 X 1/4

                                   = 5,000

         A will received =5,000 X 2/5 

                                  = 2,000

         B will received =5,000 X 3/5

                                  = 3,000

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