Question 23 Chapter 5 of +2-A
23. B and C are in partnership sharing profits and losses as 3 : 1. They admit D into the firm, D pays premium of 15,000 for 1/3rd share of the profits. As between themselves, B and C agree to share future profits and losses equally. Draft Journal entries showing appropriations of the premium money.
The solution of Question 23 Chapter 6 of +2-A
| Date | Particulars |
L.F. | Debit | Credit | |
| Cash A/c | Dr | 15,000 | |||
| To Premium for Goodwill A/c | 15,000 | ||||
| (Being C brought his share of goodwill) | |||||
| Premium for Goodwill A/c | Dr | 15,000 | |||
| C’s Capital A/c | Dr | 15,000 | |||
| To B’s Capital A/c | 18,750 | ||||
| (Being goodwill distributed among the old partners’ in their sacrificing ratio) | |||||
| Old Ratio of B and C | = | 3 : 1 |
| D is admitted for 1/3th share of profit |
Let the total share of the business = 1
Remaining share of B and C after D’s Admission = Total Share – D’s Share
| Remaining share | = | 1 | – | 1 |
| 3 |
| = | 3 – 1 | |
| 3 |
| = | 2 | |
| 3 |
| B and C each share of profit after D’s admission | = | 2 | X | 1 |
| 3 | 2 |
| = | 1 | |
| 3 |
| Old Ratio of B and C | = | 3 : 1 |
| New Ratio of B, C, and D | = | 1 : 1 : 1 |
Sacrificing Share = Old Ratio – New Ratio
| B’s Sacrificing Share | = | 3 | – | 1 |
| 4 | 3 |
| = | 9 – 4 | |
| 12 |
| = | 5 | Sacrifice |
|
| 12 |
Advertisement-X
| C’s Sacrificing Share | = | 1 | – | 1 |
| 4 | 3 |
| = | 3 – 4 | |
| 12 |
| = | (-1) | Gains |
|
| 12 |
Advertisement-Y
Distribution of D’s share of Goodwill
D’s share of Goodwill = 15,000
C’s gaining the share in the firm’s profit so only B will received the share of goodwill brought by D and he will also receive the share of goodwill from C
| Total Firm’s Goodwill | = | 15,000 | X | 3 |
| 1 | ||||
| = | 45,000 |
| C’s Share of Goodwill | = | Firm’s Goodwill X Gaining share of C’s |
| B’s get share of Goodwill | = | 45,000 | X | 1 |
| 12 | ||||
| = | 3,750 |
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
