CBSE Class 12 Accountancy Admission Of A Partner Important Questions Set 03

Very Short Answer Questions (1 Mark)

Question 1. State whether the following statement is True or False:
At the time of admission of a partner, capital of partners cannot be adjusted on the basis of old partners' capitals.
Answer:
False

Teacher's Note:
1. Capitals can be adjusted either on the basis of the new partner's capital or on the basis of the old partners' capitals.

Question 2. State whether the following statement is True or False:
Employees' Provident Fund is a liability and therefore it will not be distributed.
Answer:
True

Teacher's Note:
1. EPF is owed to employees, unlike a reserve, so it is shown in the Balance Sheet and not credited to partners.

Question 3. Fill in the blank:
P, Q and R are sharing profits and losses in the ratio of 3/8, 1/4 and 3/8 respectively. M, a new partner is given 1/4th share. Then new profit-sharing ratio will be ________.
Answer:
9 : 6 : 9 : 8

Teacher's Note:
1. Remaining 3/4 is shared 3 : 2 : 3, giving 9/32, 6/32, 9/32 and M 8/32.

Question 4. Fill in the blank:
For any increase in the value of asset, the Revaluation Account is ________.
Answer:
Credited

Teacher's Note:
1. Gains are credited to Revaluation A/c; losses are debited.

Question 5. Fill in the blank:
The capital balances of P and Q are ₹45,000 and ₹25,000 respectively after making all the adjustments. If C, the incoming partner, is to bring 1/3rd of the total capital of the firm, then his share of capital will be ________.
Answer:
₹35,000

Teacher's Note:
1. P and Q's ₹70,000 is 2/3 of the total, so the total is ₹1,05,000 and C brings 1/3 of it.

Question 6. Fill in the blank:
If goodwill is appearing in the Balance Sheet at the time of admission of a new partner, the existing goodwill is written-off among ________ partners in ________ ratio.
Answer:
old; old profit sharing

Teacher's Note:
1. Existing goodwill is written off before the new partner's goodwill is adjusted.

Question 7. Fill in the blank:
Investment Fluctuation Reserve is a reserve set aside out of profit to adjust the difference between ________ and ________ of investment.
Answer:
book value; market value

Teacher's Note:
1. Only the excess of IFR over the fall in value is distributed to old partners.

Question 8. State with reason whether at the time of admission of a partner, partnership is dissolved or partnership firm is dissolved. [CBSE (AI) 2013(C)]
Answer:
At the time of admission of a partner, only partnership is dissolved and not the partnership firm as there is change in the existing agreement and a new agreement comes into existence.

Teacher's Note:
1. Firm = the business; partnership = the agreement. Admission changes only the agreement.

Question 9. Under what circumstances, will the premium of goodwill paid by incoming partner not be recorded in the books of accounts? [CBSE Delhi 2014(C)]
Answer:
When premium of goodwill is paid privately by incoming partner, no entry will be recorded in the books of accounts.

Teacher's Note:
1. Private payment passes directly between partners, so the firm's cash and accounts are not affected.

Question 10. In the absence of a partnership deed, in which ratio do the old partners sacrifice their share of profit in case of admission of a new partner? [CBSE 2019 (67/3/1)]
Answer:
In the absence of partnership deed, the old partners will sacrifice in their old ratio, i.e., equally.

Teacher's Note:
1. Without a deed, partners share profits equally under the Partnership Act, so the old ratio itself is equal.

Question 11. A and B were partners in a firm sharing profits and losses in the ratio of 4 : 3. They admitted C as a new partner. The new profit sharing ratio between A, B and C was 3 : 2 : 2. A surrendered 1/4th of his share in favour of C. Calculate B's sacrifice. [CBSE (Delhi) 2017]
Answer:
A's Old Share = 4/7
A's Sacrifice = 1/4 of 4/7 = 1/7
C's Share = 2/7
B's Sacrifice = C's Share − A's Sacrifice = 2/7 − 1/7 = 1/7
Or
B's Sacrifice = B's Old Share − B's New Share = 3/7 − 2/7 = 1/7.

Teacher's Note:
1. Check with both methods: the new partner's share must equal the total of the sacrifices.

Question 12. State the meaning of sacrificing ratio? [CBSE (AI) 2011, (AI) 2014 (C)]
Answer:
Sacrificing ratio may be defined as the ratio in which the old partners agree to surrender a part of their share of profit in favour of incoming partner. It is calculated as:
Sacrificing Ratio = Old Share − New Share.

Teacher's Note:
1. Sacrificing ratio is used to share the new partner's goodwill among the old partners.

Question 13. What are accumulated profits? [CBSE (AI) 2009]
Answer:
The profit which have been accumulated over the years and have not been distributed to partners' capital/current accounts are called accumulated profits.

Teacher's Note:
1. Examples: General Reserve, credit balance of P&L A/c; they go to old partners in the old ratio.

Question 14. S, B and J were partners in a firm. T was admitted as a partner in the partnership firm for 1/5th share of profits. Calculate the sacrificing ratio of S, B and J. [CBSE 2019 (67/5/2)]
Answer:
Sacrificing ratio of S, B and J is 1 : 1 : 1.

Teacher's Note:
1. No profit-sharing ratio is given, so the partners share equally and sacrifice in that equal ratio.

Question 15. Why is sacrificing ratio calculated? [CBSE Delhi 2009]
Answer:
Sacrificing ratio is calculated because the premium for goodwill brought in by the new partner is divided among the old partners in their sacrificing ratio.

Teacher's Note:
1. Gaining ratio is used on retirement; sacrificing ratio on admission.

Question 16. State two reasons for the preparation of 'Revaluation Account' on the admission of a partner. [CBSE (AI) 2008]
Answer:
(i) To record the revised value of assets and liabilities.
(ii) To divide the profit or loss on revaluation among the old partners.

Teacher's Note:
1. Revaluation protects the new partner from gains or losses that arose before his admission.

Question 17. State the reason of contributing for goodwill by a new partner at the time of his admission. [CBSE Delhi 2012]
Answer:
To compensate the old partners for their sacrifice of share of profit.

Teacher's Note:
1. Goodwill is the reward to old partners for the reputation the new partner will now share.

Question 18. Give the meaning of hidden goodwill. [CBSE Delhi 2011]
Answer:
Hidden goodwill is the excess of desired total capital of the firm over the actual combined capital of all partners. The difference between total capital and actual capital is called hidden goodwill.

Teacher's Note:
1. Total capital is found from the new partner's capital and share; combined capital includes the new partner's capital.

Short Answer Questions (2 Marks)

Question 19. The average profit earned by a firm is ₹2,50,000 which includes overvaluation of stock of ₹10,000 on an average basis. The capital invested in the business is ₹14,00,000 and the normal rate of return is 15%. Calculate goodwill of the firm on the basis of 4 times the super profit. [CBSE (AI) 2015(C)]
Answer:
Actual Average Profit = 2,50,000 − 10,000 = ₹2,40,000
[Hint: Overvaluation of stock increases the net profit. Hence, it has been deducted to calculate actual average profit.]
Normal Profit = 14,00,000 × \( \frac{15}{100} \) = ₹2,10,000
Super Profit = 2,40,000 − 2,10,000 = ₹30,000
Goodwill = 30,000 × 4 = ₹1,20,000

Teacher's Note:
1. Overvalued stock inflates profit, so deduct it; undervalued stock is added back.

Question 20. The total capital of firm of Sakshi, Mehak and Megha is ₹1,00,000 and the market rate of interest is 15%. The net profits for the last 3 years were ₹30,000, ₹36,000 and ₹42,000. Goodwill is to be valued at 2 years’ purchase of the last 3 years’ super profit. Calculate the goodwill of the firm. [CBSE Delhi 2017(C)]
Answer:
Average Profit = \( \frac{30,000 + 36,000 + 42,000}{3} \) = ₹36,000
Normal Profit = 1,00,000 × \( \frac{15}{100} \) = ₹15,000
Super Profit = 36,000 − 15,000 = ₹21,000
Goodwill = 21,000 × 2 = ₹42,000

Teacher's Note:
1. Average the super profits (or the profits) of the three years first, then multiply by the years’ purchase.

Question 21. J and K are partners in a firm. Their capitals are J ₹3,00,000 and K ₹2,00,000. During the year ended 31.3.2010, the firm earned a profit of ₹1,50,000. Assuming that the normal rate of return is 20%, calculate the value of goodwill of the firm:
(i) By capitalisation method and
(ii) By super profit method if the goodwill is valued at 2 years’ purchase of super profits. [CBSE (F) 2011]
Answer:
(i) Total Capitalised Value = 1,50,000 × \( \frac{100}{20} \) = ₹7,50,000
Capital employed = 3,00,000 + 2,00,000 = ₹5,00,000; Goodwill = 7,50,000 − 5,00,000 = ₹2,50,000
(ii) Normal Profit = 5,00,000 × \( \frac{20}{100} \) = ₹1,00,000; Super Profit = 1,50,000 − 1,00,000 = ₹50,000
Goodwill = 50,000 × 2 = ₹1,00,000

Teacher's Note:
1. Capital employed here is the total of both partners’ capitals.

Question 22. A and B are partners sharing profits and losses in the ratio of 3 : 2. C is admitted for 1/5 th share. Afterwards D enters for 25 paise in the rupee. Calculate new ratio of A, B, C and D.
Answer:
Old ratio = 3 : 2, C's share = \(\frac{1}{5}\)
Let total share = 1
Remaining share = \(1 - \frac{1}{5} = \frac{4}{5}\)
A's new share = \(\frac{4}{5} \times \frac{3}{5} = \frac{12}{25}\)
B's new share = \(\frac{4}{5} \times \frac{2}{5} = \frac{8}{25}\)
New ratio of A, B and C = \(\frac{12}{25} : \frac{8}{25} : \frac{1}{5}\) = 12 : 8 : 5
D's share = 25 paise, or = \(\frac{1}{4}\)
Let total share = 1, Remaining share = \(1 - \frac{1}{4} = \frac{3}{4}\)
A's new share = \(\frac{3}{4} \times \frac{12}{25} = \frac{36}{100}\)
B's new share = \(\frac{3}{4} \times \frac{8}{25} = \frac{24}{100}\); C's new share = \(\frac{3}{4} \times \frac{5}{25} = \frac{15}{100}\)
New Ratio = \(\frac{36}{100} : \frac{24}{100} : \frac{15}{100} : \frac{1}{4} = \frac{36:24:15:25}{100}\)
= 36 : 24 : 15 : 25.

Teacher's Note:
1. 25 paise in the rupee means 25/100 = 1/4 share. Check that the final shares add up to 100/100.

Short Answer Questions (3 Marks)

Teacher's Note:
1. Hidden goodwill is not shown in the books; only Aditi's share is adjusted through her current account (AS 26).

Teacher's Note:
1. Always compute old share − new share for each partner; a partner whose share does not fall gets no premium.

Teacher's Note:
1. The old partners' capital here is their net worth (assets minus outside liabilities). As no ratio is given, they share equally and sacrifice equally.

Teacher's Note:
1. Overvalued closing stock inflates that year's profit, so deduct it before averaging; then deduct the management charge from the average.

Teacher's Note:
1. Assets brought in kind are debited to their own accounts; capital is the balancing figure after the goodwill premium.

Long Answer Questions (5 Marks)

Teacher's Note:
1. The existing provision of ₹700 is only topped up to ₹1,000, so the revaluation loss on debtors is just ₹300.
2. Capitals are fixed from B’s capital in the new ratio 33 : 22 : 20; the excess in W’s and R’s accounts is paid off in cash.

Teacher's Note:
1. Premium is shared in the sacrificing ratio (1 : 1 here), not in the old ratio 3 : 2 - always work out old share minus new share first.
2. There is no Workmen Compensation Reserve, so the whole claim of ₹40,000 is a revaluation loss.

Teacher's Note:
1. Only the excess of Workmen’s Compensation Reserve over the liability (₹20,000) is credited to old partners; the ₹2,30,000 is shown as a liability.
2. Mahesh’s share does not change, so he gets no part of the goodwill premium.

Teacher's Note:
1. The 1/6 sent to General Reserve is not a partner’s share: the profit-sharing ratio is 1/2 : 1/3 = 3 : 2.
2. “Undervalued by 10%” means the Balance Sheet figure is 90% of the true value, so stock rises by ₹10,000, not ₹9,000.

Teacher's Note:
1. Start with the Revaluation Account: the profit is the balancing figure (3,000 − 1,408 = 1,592), shared equally.
2. Cash at Bank is the balancing figure of the Balance Sheet once the capitals are known.

Teacher's Note:
1. Revaluation profit of ₹3,650 is shared 3 : 2; Raman’s goodwill of ₹3,270 is credited to Rajesh and Ravi equally (1,635 each), as shown in his column.
2. Machinery is the balancing figure of the Balance Sheet: 1,06,150 − 87,150 = ₹19,000.

Teacher's Note:
1. Revaluation profit (8,000 − 4,500 = ₹3,500) is shared 3 : 2, the same ratio in which General Reserve (6,000 : 4,000) was credited.
2. In a capital account, fill the side with all known figures first; the missing item is the difference between the two sides.

Teacher's Note:
1. Total capital = 1,00,000 × 10 = ₹10,00,000; old partners’ 9/10 = ₹9,00,000 is split 3 : 2 : 1, and differences go to current accounts, not cash.

Teacher's Note:
1. Before adjustment Shikhar has ₹9,40,000 and Rohit ₹4,10,000, so they withdraw ₹37,000 and ₹23,000 in cash.