Q.No.21 | Chapter 5 – Admission of Partner | T.S. Grewal 12 Class Book Keeping Part - A - Vol. 1

Question 21 Chapter 5 of +2-A

21. A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. A new partner C is admitted. A surrenders 1/5th of his share and B surrenders 2/5th of his share in favour of C. For the purpose of C's admission, goodwill of the firm is valued at 75,000 and C brings in his share of goodwill in cash which is retained in the firm's books. Journalise the above transactions.

 

The solution of Question 21 Chapter 6 of +2-A

 

Date	Particulars		L.F.	Debit	Credit
	Cash A/c	Dr		21,000
	To Premium for Goodwill A/c				21,000
	(Being C brought his share of goodwill)
	Premium for Goodwill A/c	Dr		21,000
	To A’s Capital A/c				9,000
	To B’s Capital A/c				12,000
	(Being goodwill distributed among the old partners’ in their sacrificing ratio)

 

Old Ratio of A and B	=	3 : 2
A surrenders 1/5th of his share in the favour of C
B surrenders 2/5th of his share in the favour of C

In this case we have to calculate the sacrificing share of both partners with the following formula and then subtract this share from the profit share of old partners: -

Sacrificing Share of Old Partners = Old Partner’s Share X Sacrificed Ratio

A Sacrifice Share	=	3	X	1
		5		5

=	3
		25

 

B Sacrifice Share	=	2	X	2
		5		5

=	10
		25

 

New Ratio of Old Partners = Old Ratio - Sacrificed Ratio

A New Profit Share	=	3	-	3
		5		25

=	15 - 3
	25

=	12
		25

B New Profit Share	=	2	X	4
		5		25

=	10 - 4
	25

=	6
		25

C’s Share

=

A’s Sacrificing + B’s Sacrificing

C’s New Ratio	=	3	+	4
		25		25

=	3 + 4
	25

=	7
		25

New Profit sharing Ratio between A ,B and C

=

12 : 6 : 7

Calculate the C’s share of Goodwill
Firm’s Total Goodwill = 75,000

A’s get share of Goodwill	=	75,000	X	7
				25
	=	21,000

Distribution of C’s share of Goodwill
C’s share of Goodwill = 21,000

A’s get share of Goodwill	=	21,000	X	3
				7
	=	9,000

 

B’s get share of Goodwill	=	21,000	X	2
				7
	=	6,000

T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)

• Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
• Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
• Chapter No. 3 – Goodwill: Nature and Valuation
• Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
• Chapter No. 5 – Admission of a Partner
• Chapter No. 6 – Retirement/Death of a Partner
• Chapter No. 7 – Dissolution of a Partnership Firm

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 8 – Company Accounts –  Accounting for Share Capital
• Chapter No. 9 – Company Accounts – Issue of Debentures
• Chapter No. 10 – Redemption of Debentures

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 1 – Financial Statements of a Company
• Chapter No. 2 – Financial Statement Analysis 
• Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
• Chapter No. 4 – Accounting Ratios
• Chapter No. 5 – Cash Flow Statement

 

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