P and Q are partners sharing profits and losses in the ratio of 3:1. On 1st April 2025, they admit R as a partner for 1/5th share in profits. R is to bring in capital proportionate to his share in profits. R brought ₹60,000 as his share of premium for goodwill. The capitals of P and Q after all adjustments are ₹3,00,000 and ₹1,50,000 respectively. Calculate R's capital and pass necessary journal entries for R's admission.
Answer (1)
To calculate R's capital based on the proportion of his share in the profits and adjust the goodwill, follow these step-by-step instructions:
Understand the Profit Sharing Ratio :
P and Q are originally sharing profits and losses in the ratio of 3:1.
Total original ratio = 3+1 = 4 parts.
Now R is admitted with a 1/5th share, which means the new profit-sharing will be distributed among P, Q, and R.
Calculate R's Capital Contribution :
Since R is to bring capital proportionate to his share in profits, first determine his share out of the combined capital of P and Q.
Total Capital of P and Q = ₹3,00,000 + ₹1,50,000 = ₹4,50,000.
R's share in profits = 1/5th.
Total capital after R's admission should be apportioned according to the new profit-sharing ratio.
R's capital contribution = (1/5) * ₹4,50,000 = ₹90,000.
Goodwill Treatment :
R brings ₹60,000 as his share of the premium for goodwill.
As R is admitted for 1/5th share, the goodwill needs to be adjusted among P and Q according to their sacrifice.
Journal Entries :
Entry for Goodwill Brought in by R :
Cash A/c ........... Dr ₹60,000 -To Premium for Goodwill A/c ...... ₹60,000
Allocation of Goodwill to Other Partners (P and Q) :
As P and Q sacrifice in the ratio of 3:1:
P's sacrifice = (3/4) * ₹60,000 = ₹45,000
Q's sacrifice = (1/4) * ₹60,000 = ₹15,000
Premium for Goodwill A/c ..... Dr ₹60,000 -To P's Capital A/c ............ ₹45,000 -To Q's Capital A/c ............ ₹15,000
Entry for R's Capital Contribution :
Cash A/c ........... Dr ₹90,000 -To R's Capital A/c ............ ₹90,000
Thus, R's capital is ₹90,000, and these are the necessary journal entries to be passed for R's admission as a partner in the firm.
