Question : A and B are partners in a firm sharing profit and losses in the ratio of 5:3. They admitted C as a new partner for 1/5 th share in the profit. C brought Rs 40,000 for his 1/5 th share in the profit. C brought Rs 40,000 for his 1/5 th share in the profit as premium. They decided to share the profits in the ratio of 3: 1: 1. Choose necessary journal entry in the books of the firm on admission of C.
Option 1: Cash account Dr and credited C's capital account with Rs 40,000
Option 2: Debited C account and credited A with Rs 5000 and Credited B with Rs 35,000
Option 3: Both 1 and 2
Option 4: None of the above
Correct Answer: None of the above
Solution : Answer = None of the above
SR= OR - NR
A= 5/8-3/5=25-24/40=1/40
B=3/8-1/5=15-8=7/40
SR= 7: 1
Because when a new partner brings his share of goodwill in cash the premium for the goodwill account is opened. the entry will be premium for the goodwill account is debited and the sacrificing partners' capital account will be credited.
Hence, the correct option is 4.
