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Question
Atul and Geeta were partners sharing profits in the ratio 3 : 2. Ira was admitted into the firm for `1/4"th"` share of profits. Ira brought ₹ 40,000 as her capital. The capitals of Atul and Geeta after all adjustments relating to goodwill, revaluation of assets and liabilities etc. are ₹ 60,000 and ₹ 40,000 respectively. It is agreed that capitals should be according to the new profit sharing ratio.
Calculate the amount of actual cash to be paid off or brought in by the old partners. Pass the necessary journal entry/entries for the same.
Solution
Old profit sharing ratio = 3:2
Ira's share = `1/4`
Remaining Share = ` 1- 1/4 =3/4`
Atul's New Share = `3/4 xx 3/5 = 9/20`
Geeta's New Share = `3/4 xx 2/5 =6/20`
New Profit Sharing ratio of Atul, Geeta and Ira
= `9/20 : 6/20 : 1/4 = 9:6:5`
Ira's Capital for `1/4`share = ₹ 40,000
Total capital of firm = `₹ 40,000 xx 4/1 = ₹ 1,60,000`
Atul's New Capital = `₹ 1,60,000 xx 9/20 = ₹ 1,60,000`
Geeta's New Capital = `₹ 1,60,000 xx 6/20 = ₹ 48,000`
Cash to be brought in/(paid off) by Atul = New Capital - Existing Capital
= ₹ 72,000 - ₹ 60,000 = ₹ 12,000
Cash to be brought in/(paid off) by Geeta = ₹ 48,000 - ₹ 40,000 = ₹ 8,000
| Journal | ||||
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| Cash/Bank A/c ...Dr. | 20,000 | |||
| To Atul's capital A/c | 12,000 | |||
| To Geeta's Capital A/c | 8,000 | |||
| (Being cash brought in by Atual and Geeta for the deficit capital) | ||||
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