Question 21 Chapter 5 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 21 Chapter 5 of +2-A

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
  = 3
  25

 

B Sacrifice Share = 2 X 2
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)

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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2 Book 1 min - Question 21 Chapter 5 of +2-A - T.S. Grewal 12 Class Part - A Vol. 1
Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms

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