# Commerce Accountancy Chapter 5 - Admission Of A Partner

#### Question 26:

Adil and Bhavya are partners sharing profits and losses in the ratio of 7 : 5. They admit Cris, their Manager, into partnership who is to get 1/6th share in the business. Cris brings in    ` 10,000 for his capital and    ` 3,600 for the 1/6th share of goodwill which he acquires 1/24th from Adil and 1/8th from Bhavya. Profits for the first year of the new partnership was    ` 24,000. Pass necessary Journal entries for Cris's admission and apportion the profit between the partners.

 Journal Date Particulars L.F. Debit Amount    ` Credit Amount    ` Cash A/c Dr. 13,600 To Cris’s Capital A/c 10,000 To Premium for Goodwill A/c 3,600 (Cris brought capital and his share of goodwill) Premium for Goodwill A/c Dr. 3,600 To Adil’s Capital A/c 900 To Bhavya’s Capital A/c 2,700 (Cris’s share of goodwill transferred to Adil and Bhavya in their sacrificing ratio i.e. 3:1) Profit and Loss Appropriation A/c Dr. 24,000 To Adil’s Capital A/c 13,000 To Bhavya’s Capital A/c 7,000 To Cris’s Capital A/c 4,000 (Profit after Cris’s admission distributed)

Working Note:

WN1

 Adil Bhavya Sacrificing Ratio = 1/24 : 1/8 1 : 3

WN2

Distribution of Cris’s share of Goodwill (in sacrificing ratio)

Bhavya will get =3,600×3/4=2,700

WN3

Calculation of New Profit Sharing Ratio

New ratio= old ratio – Sacrificing Ratio

 Adil’s =7/12-1/24 =13/24 Bhavya’s =5/12-1/8 =7/24 Adil Bhavya Cris New profit sharing ratio= 13/24 : 7/24 : 1/6 = 13/24 : 7/24 : 4/24 = 13 : 7 : 4

WN4

Distribution of Profit earned after Cris’s admission (in new ratio)

Bhavya will get =24,000×7/24=7,000

Cris will get =24,000×4/24=4,000

#### Question 27:

Anshul and Parul are partners sharing profits in the ratio of 3 : 2. They admit Payal as partner for 1/4th share in profits on 1st April, 2021. Payal brings    `5,00,000 as capital and her share of goodwill by cheque. It was agreed to value goodwill at three years' purchase of average profit of last four years.

 Profits for the last four years ended 31st March, were ` 2018 4,00,000 2019 5,00,000 2020 6,00,000 2021 7,00,000

1. Closing Stock for the year ended 31st March, 2020 was overvalued by
` 50,000.
2.
` 1,00,000 should be charged annually to cover management cost.

Pass necessary Journal entries on Payal's admission.

 In the books of the Anshul, Parul and Payal Journal Date Particulars L.F. Debit Amount  ` Credit Amount  ` 2021 April 01 Bank A/c Dr. 8,37,500 To Payal’s Capital A/c 5,00,000 To Premium for Goodwill A/c 3,37,500 (Being capital and goodwill paid by the new partner) 2021 Premium for Goodwill A/c Dr. 3,37,500 April 01 To Anshul’s Capital A/c (3,37,500 × 3/5) 2,02,500 To Parul’s Capital A/c (3,37,500 × 2/5) 1,35,000 (Being premium for goodwill adjusted in sacrificing ratio)

Working Notes:

 Particulars Year 31st March 2016 31st March 2017 31st March 2020 31st March 2021 Profits for the year 4,00,000 5,00,000 6,00,000 7,00,000 Less: Overvaluation of Closing Stock - - 50,000 - Add: Overvaluation of Opening Stock - - - 50,000 Less: Annual Charge for Management Cost 1,00,000 1,00,000 1,00,000 1,00,000 Normal Profits 3,00,000 4,00,000 4,50,000 6,50,000

Average Profits =    `4,50,000

Goodwill = Average Profits × No. of years of Purchase =    ` (4,50,000 ×3) =    ` 13,50,000

#### Question 28:

A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. They admit C into partnership for 1/5th share. C brings    ` 30,000 as capital and    ` 10,000 as goodwill. At the time of admission of C, goodwill appeared in the Balance Sheet of A and B at    ` 3,000. New profit-sharing ratio of the partners will be 5 : 3 : 2. Pass necessary Journal entries.

 Journal Entries Date Particulars L.F. Debit Amount    ` Credit Amount    ` A’s Capital A/c Dr. 1,800 B’s Capital A/c Dr. 1,200 To Goodwill A/c 3,000 (Goodwill written-off) Cash A/c Dr. 40,000 To C’s Capital A/c Dr. 30,000 To Premium for Goodwill A/c 10,000 (C brought capital and his share of goodwill in cash) Premium for Goodwill Dr. 10,000 To A’s Capital A/c 5,000 To B’s Capital A/c 5,000 (Premium for Goodwill distributed)

 A B C OLD RATION 3  : 2  : 1 NEW RATIO 5  : 3  : 2

Sacrificing Ratio = Old Ratio − New Ratio

 A’s =3/5-5/10 =1/10 B’s =2/5-3/10 =1/10 X Y Sacrificing Ratio = 1/10 : 1/10 = 1 : 1

Distribution of Premium for Goodwill C’s share of Goodwill)

A and B each will get =10,000×1/2=5,000

Goodwill written-off

A’s capital will be debited =3,000×3/5=1,800

B’s capital will be credited =3,000×2/5=1,200

#### Question 29:

Anu and Bhagwan were partners in a firm sharing profits in the ratio of 3 : 1. Goodwill appeared in the books at  `4,40,000. Raja was admitted to the partnership. The new profit-sharing ratio among Anu, Bhagwan and Raja was 2 : 2 : 1.
Raja brought
`1,00,000 for his capital and necessary cash for his goodwill premium. Goodwill of the firm was valued at  `2,50,000.
Record necessary Journal entries in the books of the firm for the above transactions.

 Journal Date Particulars L.F. Debit Amount  ` Credit Amount  ` Anu’s Capital A/c Dr. 3,30,000 Bhagwan’s Capital A/c Dr. 1,10,000 To Goodwill A/c 4,40,000 (Old goodwill written off in old ratio) Cash A/c Dr. 1,50,000 To Raja’s Capital A/c 1,00,000 To Premium for Goodwill A/c 50,000 (Capital and goodwill brought in by Raju) Premium for Goodwill A/c Dr. 50,000 Bhagwan’s Capital A/c 320×2,50,000 Dr. 37,500 To Anu’s Capital A/c 720×2,50,000 87,500 (Premium for goodwill adjusted)

Working Notes:

WN1 Calculation of Share in Old Goodwill

Anu's share=4,40,000×3/4=3,30,000

Bhagwan's share=4,40,000×1/4=1,10,000

WN2 Calculation of Raja's Share of Goodwill

Raja's Share of Goodwill=Firm's Goodwill×Raja's Profit Share

=2,50,000×1/5=50,000

WN3 Calculation of Sacrificing Ratio

Sacrificing Ratio=Old Share-New Share

Anu's=3/4-2/5=7/20(sacrifice)

Bhagwan's=1/4-2/5=-3/20(gain)

#### Question 30:

Ram and Mohan are partners in a firm sharing profits in the ratio of 3 : 2. On 1st April, 2021, they admit Sohan as a partner for 1/4th share in the profits. Sohan contributed following assets towards his capital and for his share of goodwill:
Stock
` 60,000; Debtors    ` 80,000; Land    ` 1,00,000, Plant and Machinery    ` 40,000.
On the date of admission of Sohan, the goodwill of the firm was valued at
` 6,00,000.
Pass necessary Journal entries in the books of the firm on Sohan's admission.

 Journal Date Particulars L.F. Debit Amount  ` Credit Amount  ` 2021 April 1 Stock A/c Dr. 60,000 Debtors A/c Dr. 80,000 Land A/c Dr. 1,00,000 Plant and Machinery A/c Dr. 40,000 To Sohan’s Capital A/c 1,30,000 To Premium for Goodwill A/c 1,50,000 (Z brought assets for his share of goodwill and Capital) April 1 Premium for Goodwill A/c Dr. 1,50,000 To Ram’s Capital A/c 90,000 To Mohan’s Capital A/c 60,000 (Sohan’s share of Goodwill distributed between Ram and  Mohan in sacrificing ratio)

Working Notes:

WN1

Z’s share of goodwill=6,00,000×1/4=1,50,000

WN2

Distribution of Z’s Goodwill

X will get =1,50,000×3/5=90,000

Y will get =1,50,000×2/5=60,000