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A and B are partners in a firm . Their profit sharing ratio is 5:3.They admit C into partnership for 1/4th share.As between themselves A and B decide to share profits equally in future.C brings in Rs.1,20,000 as his capital and Rs.60,000 as premium. Calculate the sacrificing ratio and record the necessary journal entries on the assumption that the amount of premium bought in by C is retained in business.?
Most Upvoted Answer
A and B are partners in a firm . Their profit sharing ratio is 5:3.The...
Solution:

Given data:

Profit sharing ratio of A and B = 5:3
New partner C is admitted for 1/4th share
A and B agree to share profits equally in future
Capital brought in by C = Rs.1,20,000
Premium brought in by C = Rs.60,000

Calculation of new profit sharing ratio:

As per the given data, A and B decide to share profits equally in future. Hence, their new profit sharing ratio will be 1:1.

Calculation of new profit sharing ratio after admission of C:

The new partner C is admitted for 1/4th share. Hence, the remaining 3/4th share will be shared by A and B in the ratio of 1:1. Therefore, the new profit sharing ratio of A, B, and C will be:

A:B:C = 1/2 : 1/2 : 1/4 = 2:2:1

Calculation of sacrificing ratio:

The sacrificing ratio is the ratio in which the existing partners give up their share in favor of the new partner. In this case, A and B are giving up 1/4th of their share in favor of C. Hence, the sacrificing ratio will be:

Sacrificing ratio of A = (5/8) - (2/8) = 3/8
Sacrificing ratio of B = (3/8) - (2/8) = 1/8

Journal entries:

When C brings in cash and premium:
Cash A/c Dr. 1,20,000
Premium A/c Dr. 60,000
To C's Capital A/c 1,80,000

When premium is retained in business:
C's Capital A/c Dr. 60,000
To Premium Suspense A/c 60,000

Explanation:

In this question, A and B are partners in a firm with a profit sharing ratio of 5:3. They admit C into partnership for 1/4th share. As between themselves, A and B decide to share profits equally in future. C brings in Rs.1,20,000 as his capital and Rs.60,000 as premium. The sacrificing ratio is calculated to be 3:1 for A and B, respectively. This means that A will give up 3/8th of his share in favor of C, and B will give up 1/8th of his share in favor of C. The new profit sharing ratio of A, B, and C will be 2:2:1. The necessary journal entries are made to record the transaction of cash and premium brought in by C, and the retention of premium in the business.
Community Answer
A and B are partners in a firm . Their profit sharing ratio is 5:3.The...
Cash a/c. Dr 180000
To C's cap a/c. 120000
To premium a/c. 60000
(being capital and premium broughin by new partner)
premium a/c Dr 60000
A's capital a/c Dr 24000
To B's capital a/c 84000
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A and B are partners in a firm . Their profit sharing ratio is 5:3.They admit C into partnership for 1/4th share.As between themselves A and B decide to share profits equally in future.C brings in Rs.1,20,000 as his capital and Rs.60,000 as premium. Calculate the sacrificing ratio and record the necessary journal entries on the assumption that the amount of premium bought in by C is retained in business.?
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A and B are partners in a firm . Their profit sharing ratio is 5:3.They admit C into partnership for 1/4th share.As between themselves A and B decide to share profits equally in future.C brings in Rs.1,20,000 as his capital and Rs.60,000 as premium. Calculate the sacrificing ratio and record the necessary journal entries on the assumption that the amount of premium bought in by C is retained in business.? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about A and B are partners in a firm . Their profit sharing ratio is 5:3.They admit C into partnership for 1/4th share.As between themselves A and B decide to share profits equally in future.C brings in Rs.1,20,000 as his capital and Rs.60,000 as premium. Calculate the sacrificing ratio and record the necessary journal entries on the assumption that the amount of premium bought in by C is retained in business.? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A and B are partners in a firm . Their profit sharing ratio is 5:3.They admit C into partnership for 1/4th share.As between themselves A and B decide to share profits equally in future.C brings in Rs.1,20,000 as his capital and Rs.60,000 as premium. Calculate the sacrificing ratio and record the necessary journal entries on the assumption that the amount of premium bought in by C is retained in business.?.
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