Journal Entries for Admission of C into Partnership

The admission of a new partner in a partnership requires the following journal entries:

1. Entry for C’s Capital Investment
C’s capital contribution includes Rs. 3,00,000 as capital and Rs. 1,00,000 as goodwill.

Cash A/c Dr. 3,00,000
Goodwill A/c Dr. 1,00,000
To C’s Capital A/c 4,00,000

2. Entry for C’s Share of Profits
C is entitled to a 1/4 share in profits, which means he will receive 25% of the profits. This entry records C’s share of profits.

Profit & Loss A/c Dr. 2,50,000
To C’s Capital A/c 2,50,000

3. Entry for Adjustment of Old Partners’ Capital Accounts
The new profit sharing ratio of the partners is 3:3:2. Therefore, the old capital accounts of A and B need to be adjusted. A and B will contribute their shares of goodwill to the partnership.

Goodwill A/c Dr. 2,00,000 (A’s share)
Goodwill A/c Dr. 1,33,333 (B’s share)
To A’s Capital A/c 2,00,000
To B’s Capital A/c 1,33,333

4. Entry for Distribution of New Profit Sharing Ratio
The new profit sharing ratio will be 3:3:2. This entry records the distribution of profits according to the new ratio.

Profit & Loss A/c Dr. 3,00,000 (A’s share)
Profit & Loss A/c Dr. 3,00,000 (B’s share)
Profit & Loss A/c Dr. 2,00,000 (C’s share)
To A’s Capital A/c 3,00,000
To B’s Capital A/c 3,00,000
To C’s Capital A/c 2,00,000

Explanation of the Journal Entries

1. Entry for C’s Capital Investment
This entry records the cash and goodwill contributed by C to the partnership. Cash is debited because it is an asset that increases, and goodwill is debited because it is an intangible asset that represents the value of the partnership’s reputation and customer base.

2. Entry for C’s Share of Profits
C’s share of profits is debited to the Profit & Loss Account and credited to his Capital Account. This entry records the distribution of profits to C.

3. Entry for Adjustment of Old Partners’ Capital Accounts
This entry adjusts the old capital accounts of A and B to reflect the new profit sharing ratio of 3:3:2. A and B will contribute their shares of goodwill to the partnership, which will increase their capital accounts.

4. Entry for Distribution of New Profit Sharing Ratio
This entry records the distribution of profits according to the new profit sharing ratio of 3:3:2. A, B, and C will receive their shares of profits, and their capital accounts will be credited accordingly.