Balance Sheet of J and K who share profits in the ratio of 3 : 2 is as follows:
Balance Sheet as at 31st March, 2023

Liabilities ₹ Assets ₹
Reserve
J’s Capital
K’s Capital		 1,00,000
1,50,000
1,00,000		 Cash
Other Assets		 2,00,000
1,50,000
3,50,000 3,50,000

M joins the firm from 1st April, 2023 for half share in the future profits. He is to pay ₹ 1,00,000 as goodwill and ₹ 3,00,000 for capital. Draft the Journal entries and prepare Balance Sheet in each of the following cases:

  • If M gets his share of profits in the profit-sharing ratio of the old partners.
  • If M gets his share of profits in equal proportion from the old partners.
  • If M gets his share of profits in the ratio of 3 : 1 from the old partners, determine the future profit sharing ratio of the partners in each case.

Solution :