Atul and Geeta were partners sharing profits in the ratio 3: 2. Ira was admitted into the firm for…………..

Question :Atul and Geeta were partners sharing profits in the ratio 3: 2. Ira was admitted into the firm for 1/4!» share of profits. Ira brought 2 40,000 as her capital. The capitals of Atul and Geeta after all adjustments relating to goodwill, revaluation of assets and liabilities etc. are % 60,000 and % 40,000 respectively. It is agreed that capitals should be according to the new profit sharing ratio. Calculate the amount of actual cash to be paid off or brought in by the old partners. Pass the necessary journal entry/entries for the Same.

The correct answer is -First, we need to calculate the new profit sharing ratio after Ira’s admission:

Atul’s share = 3/5 Geeta’s share = 2/5 Ira’s share = 1/4

Total = 17/20

New profit sharing ratio: Atul = (3/5) / (17/20) = 12/17 Geeta = (2/5) / (17/20) = 8/17 Ira = (1/4) / (17/20) = 5/34

Total = 1

We can now calculate the new capital of each partner:

Atul’s new capital = (12/17) x (240,000 + 60,000) = % 2,28,235 Geeta’s new capital = (8/17) x (240,000 + 40,000) = % 1,41,176 Ira’s capital = (5/34) x (240,000) = % 35,294

To adjust the capitals, Atul needs to bring in % 68,235 (2,28,235 – 60,000) and Geeta needs to bring in % 1,01,176 (1,41,176 – 40,000).

Journal entry to adjust capital:Atul’s Capital A/C Dr. % 68,235 Geeta’s Capital A/C Dr. % 1,01,176 To Atul’s Capital A/C % 48,235 To Geeta’s Capital A/C % 1,01,176

(Note: Atul brings in % 48,235 and Geeta brings in % 1,01,176)

Now, the capital accounts of Atul and Geeta will be: Atul’s capital = % 1,08,235 (60,000 + 48,235) Geeta’s capital = % 1,41,176 (40,000 + 1,01,176)