Ashoo and Rahul are partners sharing profits in the ratio of 5:3. Gaurav was admitted for 1/5 share and was asked to contribute proportionate capital and Rs. 4,000 for premium (goodwill). The Capitals of Ashoo and Rahul, after all adjustments relating to revaluation, goodwill etc., worked out to be Rs. 45,000 and Rs. 35,000 respectively. Required: Calculate New Profit sharing ratio, capital to be brought in by Gaurav and record necessary journal entries for the same.
1. Calculation of New Profit Sharing Ratio: Let the Total Profit of the firm = 1 Gaurav's Share = 1/5 Remaining Share = 1 - 1/5 = 4/5 Ashoo's New Share = 4//8 = 20/40 = 5/10 Rahul's New Share = 4//8 = 12/40 = 3/10 Gaurav's Share = 1/5 = 2/10 New Profit Sharing Ratio = 5:3:2.
2. Calculation of Gaurav's Capital: Total Adjusted Capital of Ashoo and Rahul = Rs. 45,000 + Rs. 35,000 = Rs. 80,000. This capital represents the Remaining Share of 4/5. Total Capital of the Firm = Rs. 80,/4 = Rs. 1,00,000. Gaurav's Capital = Total Capital × Gaurav's Share Gaurav's Capital = Rs. 1,00,/5 = Rs. 20,000.
3. Journal Entries:
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
|---|---|---|---|---|
| 1. | Bank A/c Dr. | 24,000 | ||
| To Gaurav's Capital A/c | 20,000 | |||
| To Premium for Goodwill A/c | 4,000 | |||
| (Being capital and goodwill brought in by Gaurav) | ||||
| 2. | Premium for Goodwill A/c Dr. | 4,000 | ||
| To Ashoo's Capital A/c | 2,500 | |||
| To Rahul's Capital A/c | 1,500 | |||
| (Being premium distributed in sacrificing ratio 5:3) |
Explanation
The new ratio is calculated based on the assumption that the old partners share the remaining profit in their old ratio. Gaurav's capital is calculated using the 'Proportionate Capital' method found in the context, where the total capital of the firm is inferred from the combined capital of the old partners (representing the remaining share). The journal entries follow the standard accounting treatment where the premium for goodwill is credited to the old partners' capital accounts in their sacrificing ratio (which is the old ratio 5:3).
Solution Steps
Step 1: Calculate New Profit Sharing Ratio. Remaining share is 4/5, distributed in old ratio 5:3. Ashoo = 4/5 * 5/8 = 5/10; Rahul = 4/5 * 3/8 = 3/10; Gaurav = 1/5 = 2/10. Ratio is 5:3:2.
Step 2: Calculate Total Capital of the firm. Adjusted capitals of Ashoo (45,000) and Rahul (35,000) sum to 80,000. This equals 4/5 of total capital. Total Capital = 80,000 * 5/4 = 1,00,000.
Step 3: Calculate Gaurav's Capital. Gaurav's share is 1/5. Capital = 1/5 of 1,00,000 = 20,000.
Step 4: Pass Journal Entries. Entry 1: Debit Bank for Capital (20,000) + Premium (4,000); Credit Gaurav's Capital and Premium. Entry 2: Debit Premium (4,000); Credit Ashoo (5/8 of 4,000 = 2,500) and Rahul (3/8 of 4,000 = 1,500).