C pays Rs.40000 as premium for goodwill for his 1/5 share,
Full value of goodwill of the firm is (Rs.40000 x 5/1) = Rs.200000
Since C pays Rs.40000 as goodwill privately, no entry will be passed.
When D enters the partneship for 1/6 share, he must pay Rs.200000 x 1/6 = Rs.33333.
D pays Rs.16000 as premium for goodwill, balance amount which he does not bring is Rs.33333 - Rs.16000 = Rs.17333.
Journal entry for this will be:
Cash A/c Dr. 16000
To Premium for Goodwill 16000
Premium for Goodwill A/c Dr.16000
D's Capital A/c Dr.17333
To A's Cap. A/c 19999
To B's Cap A/c 6667
To C's Cap A/c 6667
(Share of premium distributed to A, B and C in their sacrificing ratio 3 : 1 : 1).
1 – 1/5 = 4/5
A’s new share = 4/5 x 3/4 = 12/20
B’s new share = 4/5 x 1/4 = 4/20
C’s new share = 1/5 x 4/4 = 4/20
New Ratio of A, B and C 12:4:4 or 3 : 1 : 1
Since sacrifice of A, B and C is not given on admission of D, it is assumed that they have sacrificed in their profit sharing ratio which is 3 : 1 : 1.