Page 111 - DEBKVOL-1

Chapter 5 Admission of a Partner 5.27
.
Working Notes:
1. New Profit-Sharing Ratio is calculated as under:
Let total profit be = 1
D gets = 1/6th share
Remaining profit = 1 – 1/6 = 5/6 will be shared by A, B and C in their old profit-sharing ratio.
A’s share = 5/6 × 2/10 = 2/12
B’s share = 5/6 × 3/10 = 3/12
C’s share = 5/6 × 5/10 = 5/12
Thus, New Profit-sharing Ratio of A, B, C and D = 2/12 : 3/12 : 5/12 : 1/6 or 2 : 3 : 5 : 2.
2. Adjustment of Capital:
For 1/6th share D brought capital = ` 32,000
∴ Total capital of the New firm = ` 32,000 × 6/1 = ` 1,92,000
A’s Capital = ` 1,92,000 × 2/12 = ` 32,000; C’s Capital = ` 1,92,000 × 5/12 = ` 80,000
B’s Capital = ` 1,92,000 × 3/12 = ` 48,000; D’s Capital = ` 1,92,000 × 2/12 = ` 32,000.
Illustration 19 (Admission-cum-Death: Treatment of Goodwill).
A and B are partners in a firm sharing profits in the ratio of 3 : 2. They admitted C as a
partner for 1/5th share of profit on 1st April, 2018. He brings ` 4,500 as a premium out of
his share of ` 6,000. On the same date B died. According to his will, the executors should
donate his share to a school for providing scholarships to the students.
Pass Journal entries to give effect to the above.
Solution:
JOURNAL

Date Particulars L.F. Dr. (`) Cr. (`)
2018
April 1 Cash A/c ...Dr. 4,500
To Premium for Goodwill A/c 4,500
(C brings only a part of his share of goodwill)
April 1 Premium for Goodwill A/c ...Dr. 4,500
C’s Current A/c ...Dr. 1,500
A’s Capital A/c ...Dr. 6,000
To B’s Capital A/c 12,000
(Sacrificing partner (B) compensated with the share of goodwill)
Working Notes:
1. Calculation of Gaining/Sacrificing Share:
A B C
(i) Old Share 3/5 2/5 ...
(ii) New Share 4/5 ... 1/5
Sacrifice/(Gain) (i – ii) –1/5 (Gain) 2/5 (Sacrifice) –1/5 (Gain)
2. Calculation of Share of Goodwill:
For 1/5th Share of C, Goodwill = ` 6,000
Value of Firm’s Goodwill = ` 6,000 × 5/1 = ` 30,000
For 2/5th sacrifice of B, value of Goodwill = ` 30,000 × 2/5 = ` 12,000
For 1/5th Gain of A, value of Goodwill = ` 30,000 × 1/5 = ` 6,000.