Commerce Accountancy Chapter 5 - Admission Of A Partner

Question 31:

A and B are partners in a business sharing profits and losses in the ratio of 1/3rd and 2/3rd. On 1st April, 2020, their capitals were    ` 8,000 and    ` 10,000 respectively. On that date, they admit C in partnership and give him 1/4th share in the future profits. C brings    ` 8,000 as his capital and    ` 6,000 as goodwill. The amount of goodwill is withdrawn by the old partners in cash. Draft the journal entries and show the Capital Accounts of all the Partners. Calculate proportion in which partners would share profits and losses in future.

 Journal Date Particulars L.F. Debit Amount  ` Credit Amount  ` 2020 April 1 Cash A/c Dr. 14,000 To C’s Capital A/c 8,000 To Premium for Goodwill A/c 6,000 (C brought capital and his share of goodwill) April 1 Premium for Goodwill A/c Dr. 6,000 To A’s Capital A/c 2,000 To B’s Capital A/c 4,000 (C’s share of goodwill distributed between A and B in sacrificing ratio i.e. 1:2) A’s Capital A/c Dr. 2,000 B’s Capital A/c Dr. 4,000 To Cash A/c 6,000 (Amount of goodwill withdrawn by A and B)

 Partners’ Capital Accounts Dr. Cr. Particulars A B C Particulars A B C Cash 2,000 4,000 Balance b/d 8,000 10,000 Cash 8,000 Premium for Goodwill 2,000 4,000 Balance c/d 8,000 10,000 8,000 10,000 14,000 8,000 10,000 14,000 8,000

Calculation of New (Future) Ratio

 A B OLD RATION 1  : 2  :

C is admitted for  ¼ share of profit

Let combined share of all partners after C’s admission be = 1

Combined share of A and B after C’s admission = 1 − C’s share

=1-1/4

=3/4

New ratio= old ratio × Combined share of A and B in the new firm

 A’s =1/3×3/4 =3/12 B’s =2/3×3/4 =6/12

 A B C New profit sharing ratio= 3/12 : 6/12 : 1/4 = 3/12 : 6/12 : 3/12 = 1 : 2 : 1

Distribution of Premium for Goodwill

A will get =6,000×1/3=2,000

B will get =6,000×2/3=4,000

Question 32:

A and B were partners in a firm sharing profits and losses in the ratio of 3 : 2. They admitted C as a new partner for 3/7th share in the profit and the new profit-sharing ratio will be 2 : 2 : 3. C brought    ` 2,00,000 as his capital and    ` 1,50,000 as premium for goodwill. Half of their share of premium was withdrawn by A and B from the firm. Calculate sacrificing ratio and pass necessary Journal entries for the above transactions in the books of the firm.

 Journal Date Particulars L.F. Debit Amount    ` Credit Amount    ` Cash A/c Dr. 3,50,000 To C’s Capital A/c 2,00,000 To Premium for Goodwill A/c 1,50,000 (C brought capital and Premium for Goodwill) Premium for Goodwill A/c Dr. 1,50,000 To A’s Capital A/c 1,10,000 To B’s Capital A/c 40,000 (Premium for Goodwill distributed) A’s Capital A/c Dr. 55,000 B’s Capital A/c Dr. 20,000 To Cash A/c 75,000 (Half of the goodwill withdrawn by A and B)

Calculation of Sacrificing Ratio

Sacrificing Ratio =Old ratio- new ratio

 A’s =3/5-2/7 =11/35 B’s =2/5-2/7 =4/35 X Y Sacrificing Ratio = 11/35 : 4/35 = 11 : 4

Working Notes-

WN1

Distribution of Premium for Goodwill

A will get =1,50,000×11/35=1,10,000

B will get 1,50,000×4/35=40,000

WN2

Amount of Premium for Goodwill withdrawn

A will get =1,10,000×1/2=55,000

B will get =40,000×1/2=20,000

Question 33:

and B are partners sharing profits in the ratio of 2 : 1. They admit C for 1/4th share in profits. C brings in    ` 30,000 for his capital and    ` 8,000 out of his share of    ` 10,000 for goodwill. Before admission, goodwill appeared in books at    ` 18,000. Give Journal entries to give effect to the above arrangement.

 Journal Date Particulars L.F. Debit Amount    ` Credit Amount    ` A’s Capital A/c Dr. 12,000 B’s Capital A/c Dr. 6,000 To Goodwill A/c 18,000 (Goodwill written-off) Cash A/c Dr. 38,000 To C’s Capital A/c 30,000 To Premium for Goodwill 8,000 (C brought Capital and goodwill) Premium for Goodwill A/c Dr. 8,000 C’s Capital A/c Dr. 2,000 To A’s Capital A/c 6,667 To B’s Capital 3,333 (C’s share of goodwill distributed between A and B in Sacrificing Ratio)

Working Notes:

WN1 Writing-off of Goodwill

A’s Capital Account will be debited by =18,000×2/3=12,000

B’s Capital Account will be debited by =18,000×1/3=6,000

WN2 Distribution of C’s share of Goodwill

A will get =10,000×2/3=6,667

B will get =10,000×1/3=3.333

Question 34:

and B are partners sharing profits and losses in the ratio of 3 : 2. They admit C as partner in the firm for 1/4th share in profits which he takes 1/6th from A and 1/12th from B. C brings in only 60% of his share of firm's goodwill. Goodwill of the firm has been valued at    ` 1,00,000. Pass necessary journal entries to record this arrangement.

 Journal Date Particulars L.F. Debit Amount  ` Credit Amount  ` Bank A/c Dr. 15,000 To Premium for Goodwill A/c 15,000 (Goodwill brought in cash) Premium for Goodwill A/c Dr. 15,000 To A’s Capital A/c 10,000 To B’s Capital A/c 5,000 (Goodwill distributed between A & B in sacrificing ratio) C’s Capital A/c Dr 10,000 To A’s Capital A/c 6,667 To B’s Capital A/c 3,333 (Goodwill adjusted)

Working Notes:

WN1: Calculation of Sacrificing Ratio

A's sacrifice =16×22=212

B's sacrifice =112

Sacrificing Ratio between A and B = 2:1

WN2: Calculation of share in goodwill of new partner

C's share in goodwill=1,00,000×14=
` 25,000

Goodwill brought in cash    ` 15,000(25,000×60%)

Remaining goodwill of    ` 10,000 will be adjusted through C's Capital A/c

Question 35:

On the admission of Rao, goodwill of Murty and Shah is valued at    ` 30,000. Rao is to get 1/4th share of profits. Previously Murty and Shah shared profits in the ratio of 3 : 2. Rao is unable to bring amount of goodwill. Give Journal entries in the books of Murty and Shah when:
(a) there is no Goodwill Account and
(b) Goodwill appears in the books at
` 10,000.

(a) Where there is no Goodwill Account

 Journal Date Particulars L.F. Debit Amount    ` Credit Amount    ` Rao’s Capital A/c Dr. 7,500 To Murty’s Capital A/c 4,500 To Shah’s Capital A/c 3,000 (Rao’s share of goodwill charged from his capital account and distributed between Murty and Shah in sacrificing ratio i.ech 3:2)

(b) Goodwill appears at    ` 10,000

 Journal Date Particulars L.F. Debit Amount    ` Credit Amount    ` Murty’s Capital A/c Dr. 6,000 Shah’s Capital A/c Dr. 4,000 To Goodwill A/c 10,000 (Goodwill written-off at the time of Rao’s admission in old ratio) Rao’s Capital A/c Dr. 7,500 To Murty’s Capital A/c 4,500 To Shah’s Capital A/c 3,000 (Rao’s share of goodwill charged from his Capital Account and distributed between Murty and Shah in sacrificing ratio i.ech 3:2)

Working Notes;

WN1: Calculation of Rao’s share of Goodwill

Rao’s share of goodwill=30,000×1/4=7,500

WN2: Adjustment of Rao’s share of Goodwill

Murty will get =7,500×3/5=4,500

Shah will get =7,500×2/5=3,000