A, B and C are partners in a firm sharing profits the ratio of 3:2:1. D is admitted into the firm for 1/4 share in profits, which he gets as 1/8 from A and 1/8 from B. The total capital of the firm is agreed upon as Rs. 1,20,000 and D is to bring in cash equivalent to 1/4 of this amount as his capital. The capitals of other partners are also to be adjusted in the ratio of their respective shares in profits. The capitals of A, B and C after all adjustments are Rs. 40,000, Rs. 35,000 and Rs. 30,000 respectively. Calculate the new capitals of A,B and C, and record the necessary journal entries

Explanation

1. Calculation of new profit sharing ratio:
`{:(A,=(1)/(2)-(1)/(8)=(3)/(8)),(B,=(1)/(3)-(1)/(8)=(5)/(24)):}`
C will continue to get `1//6` as his share in the profits, Thus, the new profit sharing ratio between A,B,C and D will be:
`(3)/(8): (5)/(24): (1)/(6): (1)/(4)` or `(9)/(24): (5)/(24): (4)/(24): (6)/(24)` or '9: 5:4:6
2. Required capitals of all partners:
`{:("A's Capital",=Rs.120000 xx (9)/(24) = Rs. 45000),("B's Capital",=Rs. 120000 xx (5)/(24) = Rs. 25000),("C's Capital",=Rs. 120000 xx (4)/(24) = Rs. 20000),("D's Capital",=Rs 120000 xx (6)/(24) = Rs. 30000):}`
Hence, A will bring in Rs. 5,000 (Rs. 45,000 – Rs. 40,000), B will withdraw Rs. 10,000 (Rs. 35,000 – Rs. 25,000), C will withdraw Rs. 10,000 (Rs. 30,000 – Rs, 20,000) and D will bring in Rs. 30,000. Alternatively, the current accounts can be opened and the amounts to be brought in or withdrawn by A, B and C will be transferred to their respective current accounts subject to the agreement among the partners. The journal entries in this regard will be recorded as follows: