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
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
