P And Q Are Partners Sharing Profit And Losses In Ratio 7:3. R Is Admitted For 1/4th Share In Profits. He Brings $45000 As His Share Of Goodwill. Pass Necessary Journey Entry.

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P and Q are partners sharing profit and losses in ratio 7:3. R is admitted for 1/4th share in profits. He brings $45000 as his share of goodwill. Pass necessary journal entry.

In a partnership, when a new partner is admitted, the existing partners' share of profits and losses is affected. The new partner brings in their share of goodwill, which is the value of the partnership's reputation and customer base. In this scenario, P and Q are partners sharing profits and losses in the ratio 7:3. R is admitted for 1/4th share in profits, which means his share of profits will be 7/12th of the total profits. R brings in $45000 as his share of goodwill.

Calculation of R's Share of Goodwill

To calculate R's share of goodwill, we need to find out the total goodwill of the partnership. Since R brings in $45000 as his share of goodwill, we can assume that the total goodwill of the partnership is 12 times R's share of goodwill.

Total Goodwill = 12 x R's Share of Goodwill
Total Goodwill = 12 x $45000
Total Goodwill = $540000

Journal Entry for Admission of R

When R is admitted as a partner, the following journal entry is passed:

**Dr.**  | **Cr.**
------|------
R's Capital A/c | $45000
Goodwill A/c | $540000

Explanation of Journal Entry

In the above journal entry, R's Capital A/c is debited with $45000, which is R's share of goodwill. Goodwill A/c is credited with $540000, which is the total goodwill of the partnership.

Calculation of P and Q's Share of Goodwill

Since P and Q's share of profits and losses is affected by R's admission, we need to calculate their share of goodwill. P and Q's share of profits and losses is in the ratio 7:3, which means their share of goodwill will also be in the same ratio.

P's Share of Goodwill = 7/10 x Total Goodwill
P's Share of Goodwill = 7/10 x $540000
P's Share of Goodwill = $378000

Q's Share of Goodwill = 3/10 x Total Goodwill
Q's Share of Goodwill = 3/10 x $540000
Q's Share of Goodwill = $162000

Journal Entry for P and Q's Share of Goodwill

When P and Q's share of goodwill is calculated, the following journal entry is passed:

**Dr.**  | **Cr.**
------|------
P's Capital A/c | $378000
Q's Capital A/c | $162000
Goodwill A/c | $540000

Explanation of Journal Entry

In the above journal entry, P's Capital A/c and Q's Capital A/c are debited with $378000 and $162000 respectively, which is their share of goodwill. Goodwill A/c is credited with $540000, which is the total goodwill of the partnership.

In conclusion, when R is admitted as a partner, the existing partners' share of profits and losses is affected. R brings in $45000 as his share of goodwill, which is 1/4th of the total profits. The total goodwill of the partnership is $540000, which is 12 times R's share of goodwill. P and Q's share of goodwill is calculated as 7/10 and 3/10 of the total goodwill respectively. The necessary journal entries are passed to record the admission of R and the calculation of P and Q's share of goodwill.
Frequently Asked Questions (FAQs) on Admission of a New Partner

Q: What is the effect of admitting a new partner on the existing partners' share of profits and losses?

A: When a new partner is admitted, the existing partners' share of profits and losses is affected. The new partner brings in their share of goodwill, which is the value of the partnership's reputation and customer base. The existing partners' share of profits and losses is adjusted to reflect the new partner's share.

Q: How is the share of goodwill of the new partner calculated?

A: The share of goodwill of the new partner is calculated as a fraction of the total goodwill of the partnership. The fraction is determined by the new partner's share of profits and losses.

Q: What is the total goodwill of the partnership?

A: The total goodwill of the partnership is the sum of the goodwill of all the partners. It is calculated by multiplying the share of goodwill of each partner by the total number of partners.

Q: How is the share of goodwill of the existing partners calculated?

A: The share of goodwill of the existing partners is calculated as a fraction of the total goodwill of the partnership. The fraction is determined by the existing partners' share of profits and losses.

Q: What is the effect of admitting a new partner on the capital accounts of the existing partners?

A: When a new partner is admitted, the capital accounts of the existing partners are adjusted to reflect the new partner's share of goodwill. The existing partners' capital accounts are debited with the amount of goodwill that is transferred to the new partner.

Q: What is the journal entry for admitting a new partner?

A: The journal entry for admitting a new partner includes debiting the new partner's capital account with their share of goodwill and crediting the goodwill account with the total goodwill of the partnership.

Q: What is the journal entry for adjusting the capital accounts of the existing partners?

A: The journal entry for adjusting the capital accounts of the existing partners includes debiting their capital accounts with the amount of goodwill that is transferred to the new partner and crediting the goodwill account with the same amount.

Q: What is the effect of admitting a new partner on the partnership's financial statements?

A: The admission of a new partner affects the partnership's financial statements, including the balance sheet and income statement. The new partner's share of goodwill is reflected in the balance sheet, and the existing partners' share of profits and losses is adjusted to reflect the new partner's share.

Q: What are the steps involved in admitting a new partner to a partnership?

A: The steps involved in admitting a new partner to a partnership include:

  1. Calculating the new partner's share of goodwill
  2. Adjusting the capital accounts of the existing partners
  3. Passing the necessary journal entries
  4. Reflecting the new partner's share of goodwill in the partnership's financial statements

Q: What are the benefits of admitting a new partner to a partnership?

A: The benefits of admitting a new partner to a partnership include:

  1. Increased capital
  2. New skills and expertise
  3. Access to new markets and customers
  4. Improved financial stability

Q: What are the risks involved in admitting a new partner to a partnership?

A: The risks involved in admitting a new partner to a partnership include:

  1. Loss of control
  2. Conflicts with existing partners
  3. Changes in the partnership's financial situation
  4. Potential for disputes and litigation