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A and B used to share profit in ratio 3:2. On 1st April 1998, K was admitted as a partner. A and B has been sharing profits in ratio 3:2 but the ratio was altered to 3:2:1 after K's admission. On 31st March 1998, the balances on the partner's capital accounts were: A $80, 000; B $40,000. On his admission K introduced 40, 000 as his capital. Goodwill was valued as N48, 000 and is to be maintained in the books. You are required to show the necessary adjustments upon the admission of K.

To make the necessary adjustments upon the admission of K, we need to calculate the new profit sharing ratio and the value of K's share in the partnership.

First, let's calculate the new profit sharing ratio:

Before K's admission, A and B shared profits in the ratio 3:2

After K's admission, the new ratio becomes 3:2:1

We can find the total of the new ratio by adding the individual ratios: 3 + 2 + 1 = 6

To get the new ratio for A, B, and K, we need to divide their individual ratios by the total ratio: A = 3/6, B = 2/6, K = 1/6

Therefore, the new profit sharing ratio is 3:2:1 for A, B, and K.

Next, let's calculate the value of K's share in the partnership:

K introduced $40,000 as his capital on admission

The total capital of the partnership before admission was $80,000 (A) + $40,000 (B) = $120,000

After K's admission, the total capital becomes $120,000 + $40,000 = $160,000

K's share in the partnership can be calculated using the new profit sharing ratio: K's share = 1/6 * $160,000 = $26,667

Therefore, K's share in the partnership is $26,667.

Finally, we need to make the necessary adjustments to the partner's capital accounts:

A's capital account balance remains unchanged at $80,000

B's capital account balance remains unchanged at $40,000

K's capital account is credited with his capital contribution of $40,000, and his share of goodwill of $8,000 (1/6 * $48,000 = $8,000), for a total of $48,000

The total capital of the partnership is now $80,000 (A) + $40,000 (B) + $40,000 (K's capital contribution) = $160,000

Therefore, the necessary adjustments upon the admission of K are:

K's capital account is credited with $48,000

A's and B's capital account balances remain unchanged.

Explanation:

To adjust for the admission of K as a partner, the following steps should be taken:

Calculate the new profit sharing ratio:

The total ratio is now 3+2+1=6. A's new ratio is 3/6=1/2, B's new ratio is 2/6=1/3, and K's new ratio is 1/6.

So, the new profit sharing ratio is 1:1/3:1/6 or 6:2:1.

Calculate the new capital balance for each partner:

A's new capital balance is 80,000*(6/9) = $53,333.33

B's new capital balance is 40,000*(6/9) = $26,666.67

K's capital balance is $40,000

Account for the goodwill:

The value of goodwill is N48,000 and needs to be maintained in the books. Since the new partner K did not contribute to the creation of goodwill, A and B should share the cost of goodwill based on their old profit sharing ratio. So, A will bear 3/5 of the goodwill cost (i.e. N28,800) and B will bear 2/5 of the goodwill cost (i.e. N19,200).

The journal entries to be made are as follows:

a) To record K's capital introduction:

K's Capital A/c $40,000

To A's Capital A/c $20,000

To B's Capital A/c $13,333.33

To Goodwill A/c $6,666.67

b) To adjust the capital balances:

A's Capital A/c $13,333.33

To Profit and Loss Suspense A/c $13,333.33

B's Capital A/c $6,666.67

To Profit and Loss Suspense A/c $6,666.67

c) To record the payment for goodwill:

Goodwill A/c $28,800

To A's Capital A/c $17,280

To B's Capital A/c $11,520

Note: The Profit and Loss Suspense A/c is used to balance the adjustment entries and will be transferred to the partners' capital accounts in the next accounting period.

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