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Question 25 Chapter 5 of +2-A
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Table of Contents
25. A and B are in partnership sharing profits and losses in the ratio of 5 : 3. C is admitted as a partner who pays 40,000 as capital and the necessary amount of goodwill which is valued at 60,000 for the firm. His share of profits will be 1/5th which he takes 1/10th from A and 1/10th from B.
Give Journal entries and also calculate future profit-sharing ratio of the partners.
The solution of Question 25 Chapter 6 of +2-A
| Date | Particulars |
L.F. | Debit | Credit | |
| Cash A/c | Dr | 52,000 | |||
| To C’s Capital A/c | 40,000 | ||||
| To Premium for Goodwill A/c | 12,000 | ||||
| (Being C brought his share of goodwill) | |||||
| Premium for Goodwill A/c | Dr | 12,000 | |||
| To A’s Capital A/c | 6,000 | ||||
| To B’s Capital A/c | 6,000 | ||||
| (Being goodwill distributed among the old partners’ in their sacrificing ratio) | |||||
Working Note: –
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| Old Ratio of A and B | = | 5 : 3 |
| Sacrificing Ratio of A and B | = | 1/10 : 1/10 |
New Share = Old Ratio – Sacrificing Ratio
| A’s New Share | = | 5 | – | 1 |
| 8 | 10 |
| = | 25 – 4 | |
| 40 |
| = | 21 | ||
| 40 |
| B’s Sacrificing Share | = | 3 | – | 1 |
| 8 | 10 |
| = | 15 – 4 | |
| 40 |
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| = | 11 | ||
| 40 |
| New Ratio of A, B and C | = | 21 | : | 11 | : | 1 |
| 40 | 40 | 5 |
| = | 21 | : | 11 | : | 8 | |
| 40 | 40 | 40 | ||||
| = | 21 | : | 11 | : | 8 |
Distribution of C’s share of Goodwill
C’s share of Goodwill
| A &B will get share of Goodwill | = | New Partner’s Share of Goodwill X Sacrificing Ratio |
| = | 12,000 | X | 1 | |
| 2 | ||||
| = | 6000 each |
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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