# A and B are in partnership sharing profits and losses in the ratio 4:3 and for the last four years

## Question:

A and B are in partnership sharing profits and losses in the ratio 4:3 and for the last four years they have been entitled to annual salaries of ₹90,000 and ₹1,50,000 respectively, but not to interest on capitals. The annual accounts have shown the following net profits before charging salaries:

Year ended on 31st March, 2016 ₹3,52,360 (Profit); 2017 ₹2,20,000 (Profit); 2018 ₹4,20,000 (Profit). On 1st April, 2018 C is admitted to partnership on the following terms:

(i) From 1st April 2018 profits and losses are to be shared as follows: A 4/9; B 1/3 and C 2/9.

(ii) C is to bring in ₹1,80,000 cash for his 2/9 share of capital.

(iii) C is to bring in an additional amount to purchase his share of partnership goodwill, valued at four year’s purchase of the weighted average profits of the last three years (after allowing for salaries), profits to be weighted 1:2:3, the greatest weight being given to the last year.

(iv) C is entitled to a salary of ₹1,20,000 p.a.; A and B to get the same salaries as before. No Goodwill Account is to be opened in the books: any adjustments in respect of Goodwill are to be made through the Partners’ current Accounts. The balances on the Partner’s Accounts on 1st April 2018 are as follows:Prepare Partners’ Capital and Current Accounts at 1st April, 2018, incorporating the entries arising on the admission of C.

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**Related Book For**

## Financial Accounting Volume II

**ISBN:** 9789387886230

4th Edition

**Authors:** Mohamed Hanif, Amitabha Mukherjee

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