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A and B are partners sharing the profit in the ratio of 3:2. They take C as the new partner, who is supposed to bring Rs. 25,000 against capital and Rs. 10,000 against goodwill. New profit sharing ratio is 1:1:1. C is able to bring Rs. 30,000 only. How this will be treated in the books of the firm.
- a)A and B will share goodwill brought by C as Rs. 4,000: Rs.1,000
- b)Goodwill not brought, will be adjusted to the extent of Rs.5,000 in sacrificing ratio.
- c)Both
- d)None
Correct answer is option 'B'. Can you explain this answer?
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A and B are partners sharing the profit in the ratio of 3:2. They take...
Treatment of C's Capital and Goodwill in the Books of the Firm
Given:
A and B share the profit in the ratio of 3:2.
C is the new partner who brings Rs. 25,000 against capital and Rs. 10,000 against goodwill.
The new profit sharing ratio is 1:1:1.
C is able to bring Rs. 30,000 only.
To determine how C's capital and goodwill will be treated in the books of the firm, we need to follow the following steps:
Step 1: Calculation of New Profit Sharing Ratio
The new profit sharing ratio is 1:1:1, which means that A, B, and C will share the profits equally.
Step 2: Calculation of C's Share in the Goodwill
C's share in the goodwill can be calculated as follows:
C's share in the goodwill = Goodwill brought by C - Goodwill not brought
Goodwill not brought = Total Goodwill - Goodwill brought by C
Total Goodwill = C's Capital x New Ratio - C's Capital x Old Ratio - Goodwill brought by C
= Rs. 30,000 x 1/3 - Rs. 25,000 x 3/5 - Rs. 10,000
= Rs. 2,000
Goodwill not brought = Rs. 2,000
C's share in the goodwill = Rs. 10,000 - Rs. 2,000
= Rs. 8,000
Step 3: Treatment of C's Capital and Goodwill
Since C was only able to bring Rs. 30,000 instead of Rs. 35,000 (Rs. 25,000 against capital + Rs. 10,000 against goodwill), there is a shortfall of Rs. 5,000.
This shortfall will be adjusted in the sacrificing ratio, which is the ratio in which A and B will sacrifice their share of profits in order to make up for the shortfall.
The sacrificing ratio can be calculated as follows:
Sacrificing Ratio = Old Ratio - New Ratio
= 3:2 - 1:1:1
= 3:2 - 3:3:3
= 1:1
Since the sacrificing ratio is 1:1, A and B will share the shortfall equally.
Therefore, the treatment of C's capital and goodwill in the books of the firm will be as follows:
C's Capital: Rs. 25,000
C's Share in Goodwill: Rs. 8,000
Shortfall: Rs. 5,000
Adjustment for Shortfall:
A's Share of Shortfall: Rs. 2,500
B's Share of Shortfall: Rs. 2,500
A's New Capital: Rs. 22,500 (Rs. 25,000 - Rs. 2,500)
B's New Capital: Rs. 22,500 (Rs. 25,000 - Rs. 2,500)
The above treatment will ensure that the books of the firm are balanced and the new profit sharing ratio is maintained.
Given:
A and B share the profit in the ratio of 3:2.
C is the new partner who brings Rs. 25,000 against capital and Rs. 10,000 against goodwill.
The new profit sharing ratio is 1:1:1.
C is able to bring Rs. 30,000 only.
To determine how C's capital and goodwill will be treated in the books of the firm, we need to follow the following steps:
Step 1: Calculation of New Profit Sharing Ratio
The new profit sharing ratio is 1:1:1, which means that A, B, and C will share the profits equally.
Step 2: Calculation of C's Share in the Goodwill
C's share in the goodwill can be calculated as follows:
C's share in the goodwill = Goodwill brought by C - Goodwill not brought
Goodwill not brought = Total Goodwill - Goodwill brought by C
Total Goodwill = C's Capital x New Ratio - C's Capital x Old Ratio - Goodwill brought by C
= Rs. 30,000 x 1/3 - Rs. 25,000 x 3/5 - Rs. 10,000
= Rs. 2,000
Goodwill not brought = Rs. 2,000
C's share in the goodwill = Rs. 10,000 - Rs. 2,000
= Rs. 8,000
Step 3: Treatment of C's Capital and Goodwill
Since C was only able to bring Rs. 30,000 instead of Rs. 35,000 (Rs. 25,000 against capital + Rs. 10,000 against goodwill), there is a shortfall of Rs. 5,000.
This shortfall will be adjusted in the sacrificing ratio, which is the ratio in which A and B will sacrifice their share of profits in order to make up for the shortfall.
The sacrificing ratio can be calculated as follows:
Sacrificing Ratio = Old Ratio - New Ratio
= 3:2 - 1:1:1
= 3:2 - 3:3:3
= 1:1
Since the sacrificing ratio is 1:1, A and B will share the shortfall equally.
Therefore, the treatment of C's capital and goodwill in the books of the firm will be as follows:
C's Capital: Rs. 25,000
C's Share in Goodwill: Rs. 8,000
Shortfall: Rs. 5,000
Adjustment for Shortfall:
A's Share of Shortfall: Rs. 2,500
B's Share of Shortfall: Rs. 2,500
A's New Capital: Rs. 22,500 (Rs. 25,000 - Rs. 2,500)
B's New Capital: Rs. 22,500 (Rs. 25,000 - Rs. 2,500)
The above treatment will ensure that the books of the firm are balanced and the new profit sharing ratio is maintained.
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A and B are partners sharing the profit in the ratio of 3:2. They take C as the new partner, who is supposed to bring Rs. 25,000 against capital and Rs. 10,000 against goodwill. New profit sharing ratio is 1:1:1. C is able to bring Rs. 30,000 only. How this will be treated in the books of the firm.a)A and B will share goodwill brought by C as Rs. 4,000: Rs.1,000b)Goodwill not brought, will be adjusted to the extent of Rs.5,000 in sacrificing ratio.c)Bothd)NoneCorrect answer is option 'B'. Can you explain this answer?
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A and B are partners sharing the profit in the ratio of 3:2. They take C as the new partner, who is supposed to bring Rs. 25,000 against capital and Rs. 10,000 against goodwill. New profit sharing ratio is 1:1:1. C is able to bring Rs. 30,000 only. How this will be treated in the books of the firm.a)A and B will share goodwill brought by C as Rs. 4,000: Rs.1,000b)Goodwill not brought, will be adjusted to the extent of Rs.5,000 in sacrificing ratio.c)Bothd)NoneCorrect answer is option 'B'. Can you explain this answer? 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 sharing the profit in the ratio of 3:2. They take C as the new partner, who is supposed to bring Rs. 25,000 against capital and Rs. 10,000 against goodwill. New profit sharing ratio is 1:1:1. C is able to bring Rs. 30,000 only. How this will be treated in the books of the firm.a)A and B will share goodwill brought by C as Rs. 4,000: Rs.1,000b)Goodwill not brought, will be adjusted to the extent of Rs.5,000 in sacrificing ratio.c)Bothd)NoneCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A and B are partners sharing the profit in the ratio of 3:2. They take C as the new partner, who is supposed to bring Rs. 25,000 against capital and Rs. 10,000 against goodwill. New profit sharing ratio is 1:1:1. C is able to bring Rs. 30,000 only. How this will be treated in the books of the firm.a)A and B will share goodwill brought by C as Rs. 4,000: Rs.1,000b)Goodwill not brought, will be adjusted to the extent of Rs.5,000 in sacrificing ratio.c)Bothd)NoneCorrect answer is option 'B'. Can you explain this answer?.
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