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3.4 Double Entry Book Keeping (Section A)—ISC XII

Years Ended 31st March, 2014 31st March, 2015 31st March, 2016 31st March, 2017 31st March, 2018
Profits (`) 15,390 16,130 20,415 23,535 28,780

You are required to determine the amount to be paid by C to each partner on both the
occasions and their ultimate Profit-sharing Ratio.
Solution:
On 1st Occasion (1st April, 2016):
C buys 5/17th share of A, i.e., 17/33 × 5/17 = 5/33 and 4/16th share of B, i.e., 16/33 × 4/16 = 4/33.

` 15,390 + ` 16,130 + ` 20,415
Goodwill = × 2 = ` 34,623
3
C will pay ` 5,246 to A (i.e., ` 34,623 × 5/33 for acquiring 5/33rd share) and ` 4,197 to B
(i.e., ` 34,623 × 4/33 for acquiring 4/33rd share).

New Profit-sharing Ratio: A(17/33 – 5/33 = 12/33); B(16/33 – 4/33 = 12/33); C(5/33 + 4/33
= 9/33) or 12/33: 12/33: 9/33 or 4 : 4 : 3.
On 2nd Occasion (1st April, 2018):
C purchases 1/12th of remaining shares of A and B which is 12/33 (each). Therefore,
C purchases 12/33 × 1/12 = 1/33rd share (each). New Profit-sharing Ratio will be
A(12/33 – 1/33 = 11/33); B(12/33 – 1/33 = 11/33); C(9/33 + 1/33 + 1/33 = 11/33) or 11/33 :
11/33 : 11/33 or 1 : 1 : 1.
Ultimate Profit-Sharing Ratio will be equal.

` 20,415 + ` 23,535 + ` 28,780
Goodwill = × 2 = ` 48,487.
3
On 2nd occasion, C will pay ` 1,469 each (i.e., ` 48,487 × 1/33) to A and B (for acquiring
1/33rd share from each of them).
Illustration 2 (Calculation of Investment to be made to become a Partner).
A commenced his business with a capital of ` 5,00,000 on 1st April, 2013. During 5 years
ended 31st March, 2018, the results of his business were:

Year Ended `
31st March, 2014 Loss 10,000
31st March, 2015 Profit 26,000
31st March, 2016 Profit 34,000
31st March, 2017 Profit 40,000
31st March, 2018 Profit 50,000

During this period, he withdrew ` 80,000 for his personal use. On 1st April, 2018, he
admitted B into partnership on the following terms: