Question 26 Chapter 5 of +2-A
26. A and B are partners sharing profits and losses in the ratio of 7 : 5. They admit C, their Manager, into partnership who is to get 1/6th share in the business. C brings in 10,000 for his capital and 3,600 for the 1/6th share of goodwill which he acquires 1/24th from A and 1/8th from B. Profits for the first year of the new partnership was 24,000. Pass necessary Journal entries for C’s admission and apportion the profit between the partners.
The solution of Question 26 Chapter 6 of +2-A
| Date | Particulars |
L.F. | Debit | Credit | |
| Cash A/c | Dr | 13,600 | |||
| To C’s Capital A/c | 10,000 | ||||
| To Premium for Goodwill A/c | 3,600 | ||||
| (Being C brought his share of goodwill) | |||||
| Premium for Goodwill A/c | Dr | 3,600 | |||
| To A’s Capital A/c | 900 | ||||
| To B’s Capital A/c | 2,700 | ||||
| (Being goodwill distributed among the old partners’ in their sacrificing ratio) | |||||
| Profit and Loss Appropriation A/c | Dr | 24,000 | |||
| To A’s Capital A/c | 13,000 | ||||
| To B’s Capital A/c | 7,000 | ||||
| To C’s Capital A/c | 4,000 | ||||
| (Being goodwill distributed among the old partners’ in their sacrificing ratio) | |||||
Working Note: –
| Old Ratio of A and B | = | 7 : 5 |
| Sacrificing Ratio of A and B | = | 1/24 : 1/8 |
| = | 1/24 : 3/24 | |
| = | 1 : 3 |
New Share = Old Ratio – Sacrificing Ratio
| A’s New Share | = | 7 | – | 1 |
| 12 | 24 |
| = | 14 – 1 | |
| 24 |
| = | 13 | ||
| 24 |
| B’s Sacrificing Share | = | 5 | – | 3 |
| 12 | 24 |
| = | 10 – 3 | |
| 24 |
| = | 7 | ||
| 24 |
| New Ratio of A, B and C | = | 13 | : | 7 | : | 1 |
| 24 | 24 | 6 |
| = | 13 | : | 7 | : | 4 | |
| 24 | 24 | 24 | ||||
| = | 13 | : | 7 | : | 4 |
Distribution of C’s share of Goodwill
C’s share of Goodwill = 3,600
| A &B will get share of Goodwill | = | New Partner’s Share of Goodwill X Sacrificing Ratio |
| A will get share of Goodwill | = | 3,600 | X | 1 |
| 4 | ||||
| = | 900 |
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| B will get share of Goodwill | = | 3,600 | X | 3 |
| 4 | ||||
| = | 2,700 |
Distribution of Profit earned after C’s admission (in new ratio)
Total Profit = 24,000
Partners’ Share of Profit = Profit X New Ratio
| A’s share | = | 24,000 | X | 13 |
| 24 | ||||
| = | 13,000 |
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| B’s share | = | 24,000 | X | 7 |
| 24 | ||||
| = | 7,000 |
| C’s Share | = | 24,000 | X | 4 |
| 24 | ||||
| = | 4,000 |
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
