A and B carrying on business as partners used to share profits and losses thus; A 4/7ths and B 3/7ths, and goodwill appeared in the books of the firm at ₹ 2,80,000 when C was admitted as a partner having 1/7th share in profits and losses
A and B carrying on business as partners used to share profits and losses thus; A 4/7ths and B 3/7ths, and goodwill appeared in the books of the firm at ₹ 2,80,000 when C was admitted as a partner having 1/7th share in profits and losses. C was asked to pay a premium of ₹ 75,000 for goodwill, and the profit-sharing ratio as between A and B remained unchanged. Show entries in the journal of the firm.
[Ans. Goodwill of ₹ 2,80,000 written off by A and B in their old ratio, i.e., 4 : 3.]
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Solution:-
Explanatory Notes:–
Entry 1: Existing goodwill must be written off among old partners in their old profit-sharing ratio (4:3). A’s share: (4/7) x 2,80,000 = ₹1,60,000. B’s share: (3/7) x 2,80,000 = ₹1,20,000.
Entry 3: Since the ratio between A and B remains unchanged, their sacrificing ratio is the same as their old ratio (4:3). The premium brought by C (₹75,000) is distributed to A and B in this ratio. A’s share: (4/7) x 75,000 = approx ₹ 42,857. B’s share: (3/7) x 75,000 = approx ₹32,143.
Explanatory Notes:–
Entry 1: Existing goodwill must be written off among old partners in their old profit-sharing ratio (4:3). A’s share: (4/7) x 2,80,000 = ₹1,60,000. B’s share: (3/7) x 2,80,000 = ₹1,20,000.
Entry 3: Since the ratio between A and B remains unchanged, their sacrificing ratio is the same as their old ratio (4:3). The premium brought by C (₹75,000) is distributed to A and B in this ratio. A’s share: (4/7) x 75,000 = approx ₹ 42,857. B’s share: (3/7) x 75,000 = approx ₹32,143.
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