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Question
A and B are partners sharing profits and losses in the ratio of 2 : 5. They admit C on the condition that he will bring ₹ 14,000 as his share of goodwill to be distributed between A and B. C's share in the future profits or losses will be 1/4th. What will be the new profit-sharing ratio and what amount of goodwill brought in by C will be received by A and B?
Solution
Old Ratio = A : B = 2 : 5
C is admitted for `1/4` share
Let the combined share of A, B and C be = 1
Combined share of A and B after C’s admission = 1 − C’s share
= 1- `1/4` = `3/4`
New Ratio = Old Ratio × Combined share of A and B
A's = `2/7 xx 3/4 = 6/28`
B's = `5/7 xx 3/4 = 15/28`
New Profit Sharing Ratio = A : B : C
= `6/28 : 15/28 : 1/4`
= `[ 6:15:7]/28`
= 6 : 15 : 7
Distribution of C’s share of Goodwill
C’s share of Goodwill = Rs 14,000
A's will get = 14,000 x `2/7` = Rs. 4,000
B will get =14,000 x `5/7` = Rs. 10,000
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| Liabilities | Amount (₹) |
Assets | Amount (₹) |
||
|
Trade creditors |
53,000 | Bank | 60,000 | ||
| Employees' Provident Fund | 47,000 | Debtors | 60,000 | ||
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| 4,80,000 | 4,80,000 | ||||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
|||
| Sundry Creditors |
13,800 |
Cash at Bank | 11,000 | |||
| Capital A/cs: | Sundry Debtors | 10,000 | ||||
| X |
45,000 |
|
Less: Provision for Doubtful Debts | 200 | 9,800 | |
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| Z |
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90,000 |
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||
|
|
|
Land and Building |
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
| General Reserve |
12,000 |
Bank | 7,600 | ||
| Sundry Creditors |
15,000 |
Debtors |
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|
|
| Bills Payable |
12,000 |
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5,600 |
|
| Outstanding Salary | 2,200 | Stock | 9,000 | ||
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| Capital A/cs: | Premises | 80,000 | |||
| Pankaj |
46,000 |
|
|||
| Naresh | 30,000 | ||||
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96,000 |
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|
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
| Creditors |
24,140 |
Cash at Bank | 3,300 | ||
| Capital A/cs: |
|
Sundry Debtors |
3,045 |
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|
| X | 12,000 |
|
Less: Provision for Doubtful Debts |
105 |
2,940 |
| Y |
9,000 |
|
Stock | 4,800 | |
| Z | 6,000 | 27,000 | Plant and Machinery | 5,100 | |
|
|
Land and Building | 15,000 | |||
|
|
|
Y's Loan |
20,000 |
||
|
51,140 |
51,140 |
||||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
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21,000 |
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|
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Patents | 10,000 | |
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50,000 |
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| Goodwill | 6,000 | ||||
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|
1,60,000 |
1,60,000 |
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
| Creditors |
10,800 |
Cash at Bank | 13,000 | ||
| Bills Payable |
5,000 |
Debtors |
10,000 |
|
|
| Capital A/cs: |
|
Less: Provision for Doubtful Debts |
200 |
9,800 |
|
| A | 45,000 | Stock | 9,000 | ||
| B |
30,000 |
|
Machinery | 24,000 | |
| C |
15,000 |
90,000 |
Freehold Premises |
50,000 |
|
|
1,05,800 |
1,05,800 |
||||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
| Sundry Creditors |
12,600 |
Bank | 4,100 | ||
| Provident Fund |
3,000 |
Debtors |
30,000 |
|
|
| General Reserve |
9,000 |
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1,000 |
29,000 |
|
| Capital A/cs: |
|
|
|||
|
Amit |
40,000 | Stock | 25,000 | ||
|
Balan |
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|
Chander |
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|
|
|
|
Machinery |
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||
|
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||||
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| 16,00,000 | 16,00,000 | ||||
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|
Liabilities |
Amount |
Assets |
Amount |
|
| Sundry Creditors | 75,000 | Cash in Hand | 24,000 | |
| General Reserve | 90,000 | Cash at Bank | 1,40,000 | |
| Capital A/cs: | Sundry Debtors |
80,000 |
||
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Stock | 1,40,000 | |
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2,75,000 |
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| 10,40,000 | 10,40,000 | |||
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