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Question
A and B are partners sharing profits and losses in the ratio of 3:1. On Ist Apr. 2017 they admitted C as a new partner for 1/4 share in the profits of the firm. C brings Rs 20,000 as for his 1/4 share in the profits of the firm. The capitals of A and B after all adjustments in respect of goodwill, revaluation of assets and liabilities, etc. has been worked out at Rs 50,000 for A and Rs 12,000 for B. It is agreed that partner’s capitals will be according to new profit sharing ratio. Calculate the new capitals of A and B and pass the necessary journal entries assuming that A and B brought in or withdrew the necessary cash as the case may be for making their capitals in proportion to their profit sharing ratio?
Solution
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Books of A, B and C Journal |
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Date |
Particulars |
L.F. |
Amount Rs |
Amount Rs |
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2017 |
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Apr. 01 |
A’s Capital A/c |
Dr. |
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5,000 |
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To Cash A/c |
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5,000 |
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(Excess capital withdrawn by A) |
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Cash A/c |
Dr. |
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3,000 |
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To B’s Capital A/c |
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3,000 |
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(Capital brought in by B to make in proportion to the profit sharing) |
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1) Calculation of New Profit sharing Ratio
C's Share = `1/4`
Remaining share = 1 - `1/4` = `3/4`
A's new share = `3/4 xx 3/4 = 9/16`
B's new share = `1/4 xx 3/4 = 3/16`
`{ "C's share" = 1/4 xx 4/4 = 4/16}`
New Profit sharing ratio of A, B and C will be 9:3:4
2) New Capital of A and B.
C bring Rs 20,000 for 1/4th share of profit in the new firm.
Thus, total capital of firm on the basis of C’s share
= 20,000 x `4/1` = 80,000
A's Capital = `9/16` x 80,000 = 45,000
Thus, A will withdraw = 50,000 - 45,000 = 5,000
B's Capital = `3/16` x 80,000 = 15,000
Thus, B’s will bring 15,000 − 12,000 = 3,000
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RELATED QUESTIONS
Given below is the Balance Sheet of A and B, who are carrying on partnership business on 31.12.2016. A and B share profits and losses in the ratio of 2:1.
Balance Sheet of A and B as on December 31, 2016
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Liabilites |
Amount (Rs) |
Assets |
Amount (Rs) |
||
|
Bills Payable |
|
10,000 |
Cash in Hand |
10,000 |
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Creditors |
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58,000 |
Cash at Bank |
40,000 |
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Outstanding |
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2,000 |
Sundry Debtors |
60,000 |
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Expenses |
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- |
Stock |
40,000 |
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Capitals: |
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|
Plant |
1,00,000 |
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A |
1,80,000 |
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Buildings |
1,50,000 |
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|
B |
1,50,000 |
3,30,000 |
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4,00,000 |
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4,00,000 |
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