GSEB Class 12 Accounts Solutions Chapter 5 Admission of a Partner

Question 1. Select the correct answer for each questions :

(1) Balance of general reserve and credit balance of profit and loss account is transferred to ................ account at the time of the admission of a new partner.
(A) capital account of newly admitted partner
(B) all partners' capital accounts including new partner
(C) old partners' capital accounts
(D) revaluation account
Answer: (C) old partners' capital accounts
In simple words: When a new partner is admitted, existing general reserves and credit balances from the profit and loss account are allocated only to the capital accounts of the old partners. This ensures that new partners do not share in profits accumulated before their admission.

🎯 Exam Tip: Remember that accumulated profits and reserves belong to the existing partners, so they are distributed among them in their old profit-sharing ratio before a new partner joins.

 

Question 1.

(2) Goodwill appearing in the books of the firm at the time of admission of the new partner
(A) debited to old partners' capital accounts in their old profit-loss sharing ratio and good-will account is credited
(B) credited to all partners' capital accounts including new partner in their new profit-loss sharing ratio.
(C) admitted partners' capital A/c Cr. Goodwill A/c Dr.
(D) credited to old partners' capital accounts in their old profit-loss sharing ratio and good-will account debited.
Answer: (A) debited to old partners' capital accounts in their old profit-loss sharing ratio and goodwill account is credited
In simple words: When goodwill already exists in the firm's books at the time of a new partner's admission, it is typically written off by debiting the old partners' capital accounts in their prior profit-sharing ratio and crediting the goodwill account. This removes the old goodwill balance before accounting for new adjustments.

🎯 Exam Tip: Distinguishing between existing goodwill and new goodwill brought in by a partner is crucial. Existing goodwill is adjusted among old partners, while new goodwill is accounted for differently.

 

Question 1.

(3) Premium for goodwill brought by the partner is recorded on .................... side.
(A) debit side of old partners' capital accounts in old profit-loss sharing ratio.
(B) credit side of old partners' capital accounts in their old profit-loss Sharing ratio
(C) debit side of old partners' capital accounts in their sacrificing ratio
(D) credit side of old partners' capital accounts in their sacrificing ratio
Answer: (D) credit side of old partners' capital accounts in their sacrificing ratio
In simple words: When a new partner brings in a premium for goodwill, this amount is credited to the capital accounts of the existing partners who have sacrificed their share of profits, in proportion to their sacrificing ratio. This compensates them for the profit share they relinquish to the incoming partner.

🎯 Exam Tip: The sacrificing ratio is used to distribute the goodwill premium to old partners, as it reflects the proportion of profit share they give up to the new partner.

 

Question 1.

(4) Revaluation account is ................ type of account.
(A) personal
(B) nominal
(C) real
(D) temporary
Answer: (B) nominal
In simple words: A Revaluation Account is considered a nominal account because it records gains and losses arising from the revaluation of assets and liabilities. Like other nominal accounts, its balance is eventually transferred to the partners' capital accounts, representing profit or loss.

🎯 Exam Tip: Understanding the nature of accounts (personal, real, nominal) is fundamental for correctly applying accounting principles. Revaluation account falls under nominal as it deals with gains and losses.

 

Question 1.

(5) When new partner brings his share of goodwill in cash, .................... account is credited.
(A) cash
(B) premium for goodwill
(C) goodwill
(D) his capital account
Answer: (B) premium for goodwill
In simple words: When a new partner introduces cash specifically for goodwill, a 'Premium for Goodwill' account is credited. This separate account temporarily holds the goodwill amount before it is distributed among the sacrificing partners.

🎯 Exam Tip: A distinct 'Premium for Goodwill' account is used to record the new partner's cash contribution for goodwill, which clarifies the nature of the receipt before its allocation.

 

Question 1.

(6) As per accounting standard-26 .................... goodwill can not be shown in the books.
(B) internally generated
(C) (A) and (B) both
(D) neither of (A) and (B)
Answer: (B) internally generated
In simple words: According to Accounting Standard-26 (AS-26), goodwill that has been developed internally by the business itself, rather than acquired through a purchase where consideration was paid, cannot be recognized and shown in the firm's financial books.

🎯 Exam Tip: AS-26 emphasizes that only purchased goodwill (where a monetary consideration is paid) can be recognized in the books, as it has an objectively verifiable cost.

 

Question 1.

(7) Revaluation account is also known as .....................
(A) profit-loss account
(B) profit and loss adjustment account
(C) pro tit and loss appropriation account
(D) profit and loss suspense account
Answer: (B) profit and loss adjustment account
In simple words: The Revaluation Account is essentially an adjustment account used to record changes in the value of assets and liabilities. It determines the net profit or loss from such revaluations, making "Profit and Loss Adjustment Account" an alternative name for it.

🎯 Exam Tip: Knowing alternative names for accounts can help in understanding their function and in solving questions where different terminology might be used.

 

Question 1.

(8) When only old profit-loss sharing ratio is given; sacrificing ratio of partners .....................
(A) equal
(B) old ratio
(C) old share - new share
(D) can not be calculated
Answer: (B) old ratio
In simple words: If only the old profit-sharing ratio of partners is provided and no specific information about the new partner's share or how old partners sacrifice their share is given, it is assumed that the sacrificing ratio of the old partners is equivalent to their old profit-sharing ratio.

🎯 Exam Tip: This is a key assumption in partnership accounting. If the new ratio isn't specified, assume the old ratio itself serves as the sacrificing ratio for distributing goodwill or revaluation profit/loss.

 

Question 1.

(9) Old partner is also required to give his share in goodwill to other old partner, when ....................
(A) his capital is less
(B) his new share in new profit-loss ratio is more than his old share
(C) his new share in new profit-loss ratio is less than his old share
(D) his new share in new profit-loss ratio is equal to old share
Answer: (B) his new share in new profit-loss ratio is more than his old share
In simple words: An existing partner might need to contribute goodwill if their new profit share is higher than their old share, indicating they are gaining profit rather than sacrificing it. This gain requires them to compensate other partners who have sacrificed their share.

🎯 Exam Tip: A partner who gains a share in profits upon admission of a new partner is treated similarly to a new partner bringing in goodwill; they must compensate the sacrificing partners.

 

Question 1.

(10) Profit or loss of revaluation account is transferred to .................... account in .................... ratio.
(D) old partners, old ratio
Answer: (D) old partners, old ratio
In simple words: The final profit or loss determined from the Revaluation Account is distributed among the old partners in their original profit-sharing ratio. This is because the revaluation relates to assets and liabilities that belonged to the firm before the new partner's admission.

🎯 Exam Tip: Remember that revaluation profit/loss, like accumulated profits/losses, belongs exclusively to the old partners and is shared in their old profit-sharing ratio.

 

Question 2. Answer the following questions in one sentence :

(1) How is a new partner admitted in a firm ?
Answer: According to the Indian Partnership Act, 1932, a new partner can be admitted into an existing firm only with the unanimous consent of all current partners, or as specified by the terms within their partnership agreement.
In simple words: A new partner can join a firm if all existing partners agree, or if their partnership agreement already outlines conditions for new admissions.

🎯 Exam Tip: Unanimous consent is a statutory requirement for admitting a new partner unless the partnership deed provides otherwise, highlighting the importance of the partnership agreement.

 

Question 2.

(2) For what purpose a new partner is admitted in a firm ?
Answer: A new partner may be admitted into an ongoing firm for several reasons, including:
- When the existing firm requires additional capital or enhanced managerial expertise.
- For distributing the financial risks associated with the partnership firm.
- In situations where an existing partner retires or passes away.
- When the firm needs specific services or skilled and efficient employees to become partners.
In simple words: New partners are admitted to bring in more capital, management skills, share risks, replace departing partners, or incorporate specialized talent into the firm.

🎯 Exam Tip: Understanding the motivations for admitting a new partner helps in analyzing the strategic and financial implications of partnership changes.

 

Question 2.

(3) State necessary accounting adjustments at the time of the admission or a new partner.
Answer: At the time of admitting a new partner, several accounting adjustments must be considered:
- Determining the new profit and loss sharing ratio and the old partners' sacrificing ratio.
- Accounting for goodwill, as well as profits or losses from the revaluation of assets and liabilities.
- Adjusting for accumulated profits, losses, and reserves.
- Making necessary adjustments to capital accounts.
In simple words: When a new partner joins, the firm needs to calculate new profit shares, adjust goodwill, revalue assets and liabilities, distribute old profits/losses, and finalize capital accounts.

🎯 Exam Tip: This list outlines the comprehensive steps required to ensure fairness and accuracy in financial records when a new partner is admitted.

 

Question 2.

(4) State rights of a new partner.
Answer: Upon admission, a new partner gains the right to share in the firm's future profits and its future assets.
In simple words: A new partner has the right to share in future profits and own a portion of the firm's assets from their admission date.

🎯 Exam Tip: The rights of an incoming partner are crucial for defining their role and entitlements within the partnership from the moment of their admission.

 

Question 2.

(5) Why assets and liabilities are revalued at the time of the admission of a new partner ?
Answer: Assets and liabilities are revalued during a new partner's admission to ensure that any net change in their values is accurately adjusted in the old partners' capital accounts. This process allows for proper accounting of the profit or loss arising from these revalued assets and liabilities, preventing the new partner from sharing in past gains or losses.
In simple words: Assets and liabilities are revalued to credit old partners with past gains or debit them with past losses, ensuring the new partner only shares in future profits and assets at their correct updated values.

🎯 Exam Tip: Revaluation ensures fairness among partners, as existing partners receive the benefit or bear the burden of value changes that occurred before the new partner joined.

 

Question 2.

(6) Why a new partner is required to give his share in goodwill ?
Answer: A new partner is required to contribute their share of goodwill because the existing partners sacrifice a portion of their profit share in favor of the incoming partner. This contribution serves as compensation to the old partners for the future profits they forgo due to the new partner's admission and for allowing the new partner to benefit from the firm's established reputation.
In simple words: A new partner pays for goodwill to compensate old partners for the profit share they give up and to gain a right to the firm's established reputation and future profits.

🎯 Exam Tip: Goodwill represents the value of the firm's reputation and earning capacity. New partners pay for it to acquire a share in these pre-existing advantages.

 

Question 2.

(7) What is sacrificing ratio ? How it is calculated ?
Answer: The sacrificing ratio is the proportion in which old partners surrender a portion of their profit share in favor of a new partner at the time of admission. It is calculated as:
Sacrifice of Old partners = Old share of Profit - New share of Profit.
In simple words: The sacrificing ratio shows how much profit share old partners give up for a new partner. You calculate it by subtracting each old partner's new profit share from their old profit share.

🎯 Exam Tip: The sacrificing ratio is crucial for distributing the premium for goodwill brought by the new partner to compensate the old partners for their sacrifice.

 

Question 2.

(8) Explain with reasons the accounting treatment of reserves and accumulated profit and loss appearing in the books of the firm at the time of the admission of a new partner.
Answer:
(i) When partners decide to distribute the balances of reserves and accumulated profits and losses at the time of admission of a new partner: These balances must be distributed among old partners in their old profit-loss ratio, even if no specific instruction is provided in the question regarding reserves and accumulated profit and loss. Consequently, these balances will not appear in the balance sheet of the new firm.
(ii) If partners decide not to make any change in the balance of reserves, accumulated profit and loss, and fictitious assets, and intend to show these balances in the new balance sheet at their original values: In this scenario, if the net amount of such balances is a credit, it is debited to the capital accounts of the gaining partners (including the new partner) by the amount of their gain, and credited to the capital accounts of the sacrificing partners by the amount of their sacrifice. Conversely, if the net amount of such balances is a debit, it is credited to the gaining partners' capital accounts by the amount of their gain and debited to the sacrificing partners' capital accounts by the amount of their sacrifice.
In simple words: Reserves and accumulated profits/losses existing before a new partner joins are either distributed to old partners in their old ratio (removing them from the new balance sheet) or adjusted through capital accounts if partners want to keep them in the books at old values. If credit balance, gaining partners are debited and sacrificing partners credited; if debit balance, gaining partners are credited and sacrificing partners debited.

🎯 Exam Tip: The treatment of existing reserves and accumulated profits/losses requires careful consideration to ensure that the new partner neither benefits from past accumulations nor bears past losses. Pay attention to whether the partners wish to distribute these or adjust them through capital accounts.

 

Question 2.

(9) When revaluation account is debited and credited ?
Answer: The Revaluation Account is credited when there is a gain or profit resulting from the revaluation of assets and liabilities. Conversely, the Revaluation Account is debited when there is a loss resulting from such revaluation.
In simple words: The Revaluation Account is credited for profits from revaluation and debited for losses.

🎯 Exam Tip: Remember that a credit balance in the Revaluation Account indicates a profit, while a debit balance indicates a loss from revaluation.

 

Question 2.

(10) State provision for the goodwill as per accounting standard-26.
Answer: As per Accounting Standard-26 (AS-26), goodwill should only be recognized as an asset in the firm's books if a monetary consideration has been paid for its acquisition. Internally generated goodwill, which arises from the firm's own efforts without a specific cost of acquisition, is not permitted to be shown in the books of accounts.
In simple words: AS-26 states that goodwill can only be recorded as an asset if it was purchased (i.e., money was paid for it). Goodwill created internally by the firm is not to be recorded.

🎯 Exam Tip: This standard prevents firms from artificially inflating their assets by recognizing goodwill for which no verifiable cost has been incurred.

 

Question 3. Answer the following questions :

(1) A and B are the partners sharing profit and loss in the ratio of 3 : 2. They admitted C as a new partner for \(\frac{1}{4}\) share in profit.
Answer:
Old sharing ratio of A and B = 3 : 2
Let the total share of profit = 1
C's share = \(\frac{1}{4}\)
Remaining share of A and B = Total profit – Share of new partner
= \(1 - \frac{1}{4} = \frac{4-1}{4} = \frac{3}{4}\)
New share of old partners = Remaining share of profit \(\times\) Share in old ratio
A's new share = \(\frac{3}{4} \times \frac{3}{5} = \frac{9}{20}\)
B's new share = \(\frac{3}{4} \times \frac{2}{5} = \frac{6}{20}\)
C's new share = \(\frac{1}{4}\) (to make denominator equal, multiply by \(\frac{5}{5}\) i.e. \(\frac{5}{20}\))
Therefore, new profit sharing ratio of A, B and C = 9 : 6 : 5.

Calculation of Sacrificing Ratio :

Name of Partner	Old share	New share	Sacrifice done by a partner = Old share - New share	Gain or Sacrifice of a partner
A	\(\frac{3}{5}\)	\(\frac{9}{20}\)	\(\frac{3}{5} - \frac{9}{20} = \frac{12-9}{20} = \frac{3}{20}\)	Sacrifice
B	\(\frac{2}{5}\)	\(\frac{6}{20}\)	\(\frac{2}{5} - \frac{6}{20} = \frac{8-6}{20} = \frac{2}{20}\)	Sacrifice

Thus, the sacrificing ratio of partner A and B = \(\frac{3}{20} : \frac{2}{20}\) = 3 : 2.
In simple words: When C joins, A and B give up some of their profit share. Their new profit ratio is 9:6:5. A sacrifices 3/20 of his share, and B sacrifices 2/20, resulting in a sacrificing ratio of 3:2.

🎯 Exam Tip: Always ensure the denominators are made equal when comparing or calculating shares. The sacrificing ratio is crucial for distributing goodwill premium.

 

Question 3.

(2) A and B are the partners sharing profit and loss in the ratio of \(\frac{4}{5}\) and \(\frac{2}{10}\). They admitted C as a new partner for 20% profit of the firm.
Answer:
Old sharing ratio of partners A and B is \(\frac{4}{5}\) and \(\frac{2}{10}\). Simplifying, this is \(\frac{4}{5} : \frac{1}{5}\) (or 4 : 1).
C was admitted with 20% profit share in the firm, which means \(\frac{20}{100} = \frac{1}{5}\) share.

Calculation of new profit and loss ratio:
Let the total share of profit = 1
C's share = \(\frac{1}{5}\).
Remaining share for A and B = Total profit – Share of new partner
= \(1 - \frac{1}{5} = \frac{4}{5}\)
New share of old partners = Remaining share of profit \(\times\) share in old ratio
A's new share = \(\frac{4}{5} \times \frac{4}{5} = \frac{16}{25}\)
B's new share = \(\frac{4}{5} \times \frac{1}{5} = \frac{4}{25}\)
C's new share = \(\frac{1}{5}\) (to make denominator equal, multiply by \(\frac{5}{5}\) i.e. \(\frac{5}{25}\))
Therefore, new profit sharing ratio of A, B and C = 16 : 4 : 5.

Calculation of Sacrificing Ratio:

Name of Partner	Old share	New share	Sacrifice done by a partner = Old share - New share	Gain or Sacrifice of a partner
A	\(\frac{4}{5}\)	\(\frac{16}{25}\)	\(\frac{4}{5} - \frac{16}{25} = \frac{20-16}{25} = \frac{4}{25}\)	Sacrifice
B	\(\frac{1}{5}\)	\(\frac{4}{25}\)	\(\frac{1}{5} - \frac{4}{25} = \frac{5-4}{25} = \frac{1}{25}\)	Sacrifice

Thus, the sacrificing ratio of partner A and B = \(\frac{4}{25} : \frac{1}{25}\) = 4 : 1.
In simple words: A and B share profits in a 4:1 ratio. When C joins with a 1/5 share, A's new share becomes 16/25 and B's becomes 4/25. This means A sacrifices 4/25 of his share and B sacrifices 1/25, resulting in a sacrificing ratio of 4:1.

🎯 Exam Tip: Always simplify the old profit-sharing ratio first to avoid unnecessary complexity in calculations. Percentage share for a new partner should be converted to a fraction.

 

Question 3.

(3) A and B are the partners in a firm. They admitted C for \(\frac{1}{6}\) th share as a new partner. After the admission of C, the new profit and loss sharing ratio of A and B will be 2 : 3.
Answer:
Old profit-loss ratio of partners A and B = 1 : 1 (assuming equal share if not specified, usually for 2 partners)
Share in profit of new partner C = \(\frac{1}{6}\)
Remaining share of profit = Total profit – Share of new partner
= \(1 - \frac{1}{6} = \frac{5}{6}\)
New sharing ratio of A and B (from the remaining share) = 2 : 3 (as given in question)
A's new share = \(\frac{5}{6} \times \frac{2}{5} = \frac{10}{30}\)
B's new share = \(\frac{5}{6} \times \frac{3}{5} = \frac{15}{30}\)
C's new share = \(\frac{1}{6}\) (to make denominator equal, multiply by \(\frac{5}{5}\) i.e. \(\frac{5}{30}\))
Therefore, new profit-loss sharing ratio of A, B and C = 10 : 15 : 5 = 2 : 3 : 1.

Calculation of Sacrificing Ratio:

Name of Partner	Old share	New share	Sacrifice done by a partner = Old share - New share	Gain or Sacrifice of a partner
A	\(\frac{1}{2}\)	\(\frac{2}{6}\)	\(\frac{1}{2} - \frac{2}{6} = \frac{3-2}{6} = \frac{1}{6}\)	Sacrifice
B	\(\frac{1}{2}\)	\(\frac{3}{6}\)	\(\frac{1}{2} - \frac{3}{6} = \frac{3-3}{6} = 0\)	Nil

Thus, sacrificing ratio for partner A = \(\frac{1}{6}\). Partner B has no sacrifice or gain.
In simple words: A and B initially shared profits equally. C is admitted for a 1/6 share, and A and B decide to share the remaining profits in a 2:3 ratio. This leads to a new profit-sharing ratio of 2:3:1 for A, B, and C respectively. A sacrifices 1/6 of his share, while B neither gains nor sacrifices any share.

🎯 Exam Tip: When the new profit-sharing ratio of old partners is given *after* the new partner's admission, calculate their new shares from the remaining profit *before* determining individual sacrifices.

 

Question 3.

(4) A and B are partners in a firm sharing profit and loss in the ratio of 2 : 1. They admitted C as a new partner for \(\frac{1}{5}\) th share in the profit. C will acquire \(\frac{1}{10}\) th share from A and \(\frac{1}{10}\) th share from B.
Answer:
Old profit-loss sharing ratio of A and B = 2 : 1 = \(\frac{2}{3} : \frac{1}{3}\)
C's share = \(\frac{1}{5}\). C acquires \(\frac{1}{10}\) part from A and \(\frac{1}{10}\) part from B.

A's sacrifice = \(\frac{1}{10}\)
B's sacrifice = \(\frac{1}{10}\)

New share = Old share - Sacrifice
A's new share = \(\frac{2}{3} - \frac{1}{10} = \frac{20-3}{30} = \frac{17}{30}\)
B's new share = \(\frac{1}{3} - \frac{1}{10} = \frac{10-3}{30} = \frac{7}{30}\)
C's share of profit = \(\frac{1}{5}\) (to make denominator equal, multiply by \(\frac{6}{6}\) i.e. \(\frac{6}{30}\))
Therefore, new profit and loss sharing ratio of A, B and C = 17 : 7 : 6.

Sacrificing Ratio :

Name of Partner	Old share	New share	Sacrifice done by a partner = Old share – New share	Gain or Sacrifice of a partner
A	\(\frac{2}{3}\)	\(\frac{17}{30}\)	\(\frac{2}{3} - \frac{17}{30} = \frac{20-17}{30} = \frac{3}{30}\)	Sacrifice
B	\(\frac{1}{3}\)	\(\frac{7}{30}\)	\(\frac{1}{3} - \frac{7}{30} = \frac{10-7}{30} = \frac{3}{30}\)	Sacrifice

The sacrificing ratio of partners A and B = \(\frac{1}{10} : \frac{1}{10}\) = 1 : 1. (Note: The calculation in the table for sacrifice is consistent with the direct sacrifice mentioned in the question).
In simple words: A and B share profits in a 2:1 ratio. C is admitted for a 1/5 share, taking 1/10 from A and 1/10 from B. This results in A's new share being 17/30, B's 7/30, and C's 6/30. The sacrificing ratio for A and B is 1:1, as they both gave up an equal portion of their profit share.

🎯 Exam Tip: When the exact amount sacrificed by each old partner is given, simply use those amounts to determine the sacrificing ratio, as it's often more straightforward than calculating it from old and new shares.

 

Question 3.

(5) A, B and C are the partners sharing profit and loss in the ratio of 5 : 3 : 2. They admitted D as a new partner. 'A' sacrifices \(\frac{1}{20}\) th from his share and 'B' sacrifices \(\frac{3}{40}\) th from his share in favour of D.
Answer:
The sacrificing ratio is determined by the direct sacrifices made:
A's sacrifice = \(\frac{1}{20}\) from his share.
B's sacrifice = \(\frac{3}{40}\) from his share in favor of D.
To compare sacrifices, make denominators equal: A's sacrifice = \(\frac{1}{20} = \frac{2}{40}\).
Therefore, Sacrifice of A = \(\frac{2}{40}\) and B = \(\frac{3}{40}\).
The sacrificing ratio for A and B = \(\frac{2}{40} : \frac{3}{40}\) = 2 : 3.

Share of D = Sacrifice of A + Sacrifice of B = \(\frac{2}{40} + \frac{3}{40} = \frac{5}{40}\).

New Profit and Loss sharing ratio:
New share = Old share - Sacrifice
Old ratio of A, B and C = 5 : 3 : 2 = \(\frac{5}{10} : \frac{3}{10} : \frac{2}{10}\)
A's New Share = \(\frac{5}{10} - \frac{2}{40} = \frac{20-2}{40} = \frac{18}{40}\)
B's New Share = \(\frac{3}{10} - \frac{3}{40} = \frac{12-3}{40} = \frac{9}{40}\)
C's New Share = \(\frac{2}{10}\) (C made no sacrifice, so share remains unchanged. To make denominator equal, multiply by \(\frac{4}{4}\) i.e. \(\frac{8}{40}\))
D's New Share = \(\frac{5}{40}\)
Therefore, new Profit and Loss sharing ratio of A, B, C and D = 18 : 9 : 8 : 5.
In simple words: A, B, and C share profits in a 5:3:2 ratio. When D joins, A gives up 2/40 of his share, and B gives up 3/40. Their sacrificing ratio is 2:3. D's total share becomes 5/40. This changes the new profit-sharing ratio for A, B, C, and D to 18:9:8:5 respectively, with C's share remaining unchanged.

🎯 Exam Tip: When sacrifices are explicitly stated "from his share," these amounts directly contribute to the new partner's share and define the sacrificing ratio. Ensure all shares are expressed with a common denominator for clarity.

 

Question 3.

(6) A and B share the partners sharing profits in the ratio of 3 : 2. They admitted C as a new partner for \(\frac{1}{10}\) th share of profit which he will acquire from A and B in equal proportion.
Answer:
Old sharing ratio of A and B = 3 : 2 = \(\frac{3}{5} : \frac{2}{5}\)
New partner C is admitted for \(\frac{1}{10}\) th share of profit.
C acquires his share from A and B in equal proportion, which means 1 : 1.

Sacrifice of old partners:
A's sacrifice = C's share \(\times\) A's sacrificing proportion = \(\frac{1}{10} \times \frac{1}{2} = \frac{1}{20}\)
B's sacrifice = C's share \(\times\) B's sacrificing proportion = \(\frac{1}{10} \times \frac{1}{2} = \frac{1}{20}\)

New share = Old share - Sacrifice
A's new share = \(\frac{3}{5} - \frac{1}{20} = \frac{12-1}{20} = \frac{11}{20}\)
B's new share = \(\frac{2}{5} - \frac{1}{20} = \frac{8-1}{20} = \frac{7}{20}\)
C's new share = \(\frac{1}{10}\) (to make denominator equal, multiply by \(\frac{2}{2}\) i.e. \(\frac{2}{20}\))
Therefore, new profit and loss sharing ratio of partners A, B and C = 11 : 7 : 2.

The sacrificing ratio for A and B = \(\frac{1}{20} : \frac{1}{20}\) = 1 : 1.
In simple words: A and B share profits 3:2. When C joins for a 1/10 share, he takes an equal part from A and B. Both A and B sacrifice 1/20 of their share, leading to a new profit ratio of 11:7:2. The sacrificing ratio is 1:1.

🎯 Exam Tip: When a new partner acquires their share from old partners in a specific ratio, calculate the exact sacrifice made by each old partner first, then derive the new profit-sharing ratio and sacrificing ratio.

 

Question 3.

(7) A, B and C are the partners sharing profit in the ratio of 20 %, 40 % and 40 % respectively. They admitted D as a new partner for \(\frac{1}{8}\) th share in profit. D is to receive his share from B and C in the ratio of 3:2.
Answer:
Old sharing ratio of A, B and C = 20% : 40% : 40% = 2 : 4 : 4. Simplifying this to 1 : 2 : 2. So, old shares are \(\frac{1}{5} : \frac{2}{5} : \frac{2}{5}\).
New partner D is admitted for \(\frac{1}{8}\) th share in profit.
D receives his share from B and C in the ratio of 3:2. So, B's sacrificing proportion for D is \(\frac{3}{5}\) and C's sacrificing proportion for D is \(\frac{2}{5}\).

Sacrifice of old partners:
B's sacrifice = D's share \(\times\) B's sacrificing proportion = \(\frac{1}{8} \times \frac{3}{5} = \frac{3}{40}\)
C's sacrifice = D's share \(\times\) C's sacrificing proportion = \(\frac{1}{8} \times \frac{2}{5} = \frac{2}{40}\)

New share = Old share - Sacrifice
A's new share = \(\frac{1}{5}\) (A makes no sacrifice, so share remains unchanged. To make denominator equal, multiply by \(\frac{8}{8}\) i.e. \(\frac{8}{40}\))
B's new share = \(\frac{2}{5} - \frac{3}{40} = \frac{16-3}{40} = \frac{13}{40}\)
C's new share = \(\frac{2}{5} - \frac{2}{40} = \frac{16-2}{40} = \frac{14}{40}\)
D's new share = \(\frac{1}{8}\) (to make denominator equal, multiply by \(\frac{5}{5}\) i.e. \(\frac{5}{40}\))
Therefore, new profit and loss sharing ratio of partners A, B, C and D = \(\frac{1}{5} : \frac{13}{40} : \frac{14}{40} : \frac{1}{8}\) = 8 : 13 : 14 : 5.
In simple words: A, B, and C share profits in a 1:2:2 ratio. D joins for a 1/8 share, which he receives from B and C in a 3:2 ratio. B sacrifices 3/40 and C sacrifices 2/40. A's share stays the same. The new profit-sharing ratio for A, B, C, and D becomes 8:13:14:5.

🎯 Exam Tip: Always convert percentages to fractions for easier calculations. When a new partner takes a share from existing partners in a specific ratio, calculate each old partner's individual sacrifice before computing new shares.

 

Question 3.

(8) A and B are the partners in a firm. They admitted C as a new partner for \(\frac{1}{5}\) th share in profit. Out of which C takes \(\frac{1}{15}\) th share from A and remaining share from B.
Answer:
Old ratio of A and B = 1 : 1 = \(\frac{1}{2} : \frac{1}{2}\) (assuming equal if not specified for two partners)
New partner C is admitted for \(\frac{1}{5}\) th share in profit.
C takes \(\frac{1}{15}\) th share from A.
Remaining share C takes from B = C's total share - Share taken from A = \(\frac{1}{5} - \frac{1}{15} = \frac{3-1}{15} = \frac{2}{15}\)

A's sacrifice = \(\frac{1}{15}\)
B's sacrifice = \(\frac{2}{15}\)

New share = Old share - Sacrifice
A's new share = \(\frac{1}{2} - \frac{1}{15} = \frac{15-2}{30} = \frac{13}{30}\)
B's new share = \(\frac{1}{2} - \frac{2}{15} = \frac{15-4}{30} = \frac{11}{30}\)
C's new share = \(\frac{1}{5}\) (to make denominator equal, multiply by \(\frac{6}{6}\) i.e. \(\frac{6}{30}\))
Therefore, new profit and loss sharing ratio of A, B and C = 13 : 11 : 6.

Sacrificing Ratio :

Name of Partner	Old share	New share	Sacrifice done by a partner = Old share - New share	Gain or Sacrifice of a partner
A	\(\frac{1}{2}\)	\(\frac{13}{30}\)	\(\frac{1}{2} - \frac{13}{30} = \frac{15-13}{30} = \frac{2}{30} = \frac{1}{15}\)	Sacrifice
B	\(\frac{1}{2}\)	\(\frac{11}{30}\)	\(\frac{1}{2} - \frac{11}{30} = \frac{15-11}{30} = \frac{4}{30} = \frac{2}{15}\)	Sacrifice

Thus, the sacrificing ratio of partners A and B = \(\frac{1}{15} : \frac{2}{15}\) = 1 : 2.
In simple words: A and B share profits equally. C joins for a 1/5 share, taking 1/15 from A and the rest (2/15) from B. This leads to new shares for A, B, and C as 13/30, 11/30, and 6/30, respectively. The sacrificing ratio for A and B is 1:2.

🎯 Exam Tip: When a new partner's total share and the amount acquired from one partner are given, subtract to find the amount acquired from the other partner. This directly gives the individual sacrifices.

 

Question 3.

(9) A, B and C are the partners sharing profit and loss in the ratio of 4 : 3 : 3. They admitted D as a new partner for \(\frac{1}{20}\) th share of profit, out of which he takes \(\frac{1}{40}\) th from A and remaining share from B and C equally.
Answer:
Old profit-loss sharing ratio of A, B and C = 4 : 3 : 3 = \(\frac{4}{10} : \frac{3}{10} : \frac{3}{10}\)
New partner D is admitted for \(\frac{1}{20}\) th share of profit.
D takes \(\frac{1}{40}\) th share from A.
Remaining share D takes from B and C = D's total share - Share taken from A = \(\frac{1}{20} - \frac{1}{40} = \frac{2-1}{40} = \frac{1}{40}\)
This remaining \(\frac{1}{40}\) share is taken from B and C equally. So, B's sacrifice = \(\frac{1}{40} \times \frac{1}{2} = \frac{1}{80}\) and C's sacrifice = \(\frac{1}{40} \times \frac{1}{2} = \frac{1}{80}\).

Sacrifices made:
A's sacrifice = \(\frac{1}{40}\)
B's sacrifice = \(\frac{1}{80}\)
C's sacrifice = \(\frac{1}{80}\)

New share = Old share - Sacrifice
A's new share = \(\frac{4}{10} - \frac{1}{40} = \frac{32-1}{80} = \frac{31}{80}\)
B's new share = \(\frac{3}{10} - \frac{1}{80} = \frac{24-1}{80} = \frac{23}{80}\)
C's new share = \(\frac{3}{10} - \frac{1}{80} = \frac{24-1}{80} = \frac{23}{80}\)
D's new share = \(\frac{1}{20}\) (to make denominator equal, multiply by \(\frac{4}{4}\) i.e. \(\frac{4}{80}\))
Therefore, new profit-loss sharing ratio of partners A, B, C and D = 31 : 23 : 23 : 4.

Sacrificing Ratio :

Name of Partner	Old share	New share	Sacrifice done by a partner = Old share - New share	Gain or Sacrifice of a partner
A	\(\frac{4}{10}\)	\(\frac{31}{80}\)	\(\frac{4}{10} - \frac{31}{80} = \frac{32-31}{80} = \frac{1}{80}\)	Sacrifice
B	\(\frac{3}{10}\)	\(\frac{23}{80}\)	\(\frac{3}{10} - \frac{23}{80} = \frac{24-23}{80} = \frac{1}{80}\)	Sacrifice
C	\(\frac{3}{10}\)	\(\frac{23}{80}\)	\(\frac{3}{10} - \frac{23}{80} = \frac{24-23}{80} = \frac{1}{80}\)	Sacrifice

The sacrificing ratio of partners A, B and C = \(\frac{1}{40} : \frac{1}{80} : \frac{1}{80}\) = 2 : 1 : 1.
In simple words: A, B, and C share profits 4:3:3. D is admitted for 1/20 share, taking 1/40 from A and the remaining 1/40 equally from B and C (1/80 each). This results in new profit shares of 31/80 for A, 23/80 for B, 23/80 for C, and 4/80 for D. The sacrificing ratio is 2:1:1 for A, B, and C, respectively.

🎯 Exam Tip: When a new partner's share is acquired from multiple old partners in varying proportions, calculate each old partner's exact sacrifice first. This ensures accuracy in both the new profit-sharing ratio and the sacrificing ratio.

 

Question 3.

(10) A and B are the partners sharing profit and loss in the ratio of 3 : 1. They admitted C as a new partner. 'A' sacrifices \(\frac{1}{3}\)rd of his share and 'B' sacrifices \(\frac{1}{4}\)th of his share in favour of C.
Answer:
Old profit-loss ratio of A and B = 3 : 1 = \(\frac{3}{4} : \frac{1}{4}\)
A sacrifices \(\frac{1}{3}\)rd of his share.
B sacrifices \(\frac{1}{4}\)th of his share.

Sacrifice by A = Old share of A \(\times\) fraction sacrificed = \(\frac{3}{4} \times \frac{1}{3} = \frac{1}{4}\)
Sacrifice by B = Old share of B \(\times\) fraction sacrificed = \(\frac{1}{4} \times \frac{1}{4} = \frac{1}{16}\)

New share = Old share - Sacrifice
A's New Share = \(\frac{3}{4} - \frac{1}{4} = \frac{3-1}{4} = \frac{2}{4}\)
B's New Share = \(\frac{1}{4} - \frac{1}{16} = \frac{4-1}{16} = \frac{3}{16}\)
C's New Share = Sacrifice by A + Sacrifice by B = \(\frac{1}{4} + \frac{1}{16} = \frac{4+1}{16} = \frac{5}{16}\)
To make A's new share denominator equal to 16, multiply by \(\frac{4}{4}\) i.e. \(\frac{8}{16}\).
Therefore, new profit-loss ratio of partners A, B and C = \(\frac{8}{16} : \frac{3}{16} : \frac{5}{16}\) = 8 : 3 : 5.
In simple words: A and B share profits 3:1. When C joins, A sacrifices 1/3 of his share (which is 1/4 of the total profit), and B sacrifices 1/4 of his share (which is 1/16 of the total profit). C's total share becomes the sum of these sacrifices, 5/16. The new profit-sharing ratio for A, B, and C is 8:3:5.

🎯 Exam Tip: "Of his share" indicates a multiplication of the old share by the fraction sacrificed, while "from his share" indicates a direct subtraction. This distinction is vital for accurate calculations.

 

Question 3.

(11) A and B are the partners sharing profit and loss in the ratio of 5 : 3. They admitted C as a new partner. A sacrifices 30 % his share and 'B' sacrifices 20% of his share in favour of C.
Answer:
Old profit sharing ratio of A and B = 5 : 3 = \(\frac{5}{8} : \frac{3}{8}\)
A sacrifices 30% of his share.
B sacrifices 20% of his share.

A's sacrifice = A's old share \(\times\) percentage sacrificed = \(\frac{5}{8} \times \frac{30}{100} = \frac{15}{80}\)
B's sacrifice = B's old share \(\times\) percentage sacrificed = \(\frac{3}{8} \times \frac{20}{100} = \frac{6}{80}\)

New share = Old share - Sacrifice
A's New Share = \(\frac{5}{8} - \frac{15}{80} = \frac{50-15}{80} = \frac{35}{80}\)
B's New Share = \(\frac{3}{8} - \frac{6}{80} = \frac{30-6}{80} = \frac{24}{80}\)
C's New Share = Sacrifice of A + Sacrifice of B = \(\frac{15}{80} + \frac{6}{80} = \frac{21}{80}\)
Therefore, new profit-loss sharing ratio of A, B and C = 35 : 24 : 21. Simplifying this ratio by dividing by 7, we get 5 : 3.42 : 3. (Note: Original ratio is 35:24:21 which can be simplified by dividing by the common factor if any, in this case, it appears there isn't a common factor for all three to simplify to integers.)

Sacrificing ratio :
A's sacrifice = \(\frac{15}{80}\)
B's sacrifice = \(\frac{6}{80}\)
The sacrificing ratio of A and B = \(\frac{15}{80} : \frac{6}{80}\) = 15 : 6 = 5 : 2.
In simple words: A and B share profits in a 5:3 ratio. C is admitted, and A gives up 30% of his share, while B gives up 20% of his share. This means A sacrifices 15/80 and B sacrifices 6/80 of the total profit, contributing to C's 21/80 share. The new profit ratio is 35:24:21, and the sacrificing ratio for A and B is 5:2.

🎯 Exam Tip: Always convert percentages of "his share" into actual fractions of the total profit before calculating new shares. Ensure calculations are precise to avoid errors in the final ratio.

 

Question 3.

(12) X and Y are the partners sharing profit and loss in the ratio of 2 : 1. They admitted Z as a new partner. 'X' sacrifices \(\frac{1}{15}\)th from his share and 'Y' sacrifices \(\frac{1}{5}\) th of his share in favour of Z.
Answer:
Old profit and loss sharing ratio of X and Y = 2 : 1 = \(\frac{2}{3} : \frac{1}{3}\).
X sacrifices \(\frac{1}{15}\) from his share.
Y sacrifices \(\frac{1}{5}\) of his share. So, Y's sacrifice = \(\frac{1}{3} \times \frac{1}{5} = \frac{1}{15}\).

Sacrifices made:
X's sacrifice = \(\frac{1}{15}\)
Y's sacrifice = \(\frac{1}{15}\)

New share = Old share - Sacrifice
X's New Share = \(\frac{2}{3} - \frac{1}{15} = \frac{10-1}{15} = \frac{9}{15}\)
Y's New Share = \(\frac{1}{3} - \frac{1}{15} = \frac{5-1}{15} = \frac{4}{15}\)
Z's New Share = X's sacrifice + Y's sacrifice = \(\frac{1}{15} + \frac{1}{15} = \frac{2}{15}\)
Therefore, new profit-loss ratio of X, Y and Z = 9 : 4 : 2.

Sacrificing ratio of X and Y :
X's sacrifice = \(\frac{1}{15}\)
Y's sacrifice = \(\frac{1}{15}\)
The sacrificing ratio of X and Y = \(\frac{1}{15} : \frac{1}{15}\) = 1 : 1.
In simple words: X and Y share profits 2:1. When Z joins, X gives up 1/15 of the profit, and Y gives up 1/5 of *his* share (also 1/15 of the total profit). Both X and Y sacrifice 1/15, leading to a new profit ratio of 9:4:2. Their sacrificing ratio is 1:1.

🎯 Exam Tip: Pay close attention to the phrasing "from his share" versus "of his share" when calculating sacrifices. "From" means direct subtraction, while "of" means multiplication before subtraction.

 

Question 3.

(13) X, Y and Z are the partners sharing profit and loss in the ratio of 2 : 3 : 1. They admitted W as a new partner with \(\frac{1}{6}\) th share. Z will retain his original share in future also.
Answer:
Old ratio of X, Y and Z = 2 : 3 : 1 = \(\frac{2}{6} : \frac{3}{6} : \frac{1}{6}\).
New partner W's share = \(\frac{1}{6}\).
After admission of W, Z will maintain his original share of \(\frac{1}{6}\).

Remaining share for X and Y = Total share - Z's share – W's share
= \(1 - (\frac{1}{6} + \frac{1}{6}) = 1 - \frac{2}{6} = 1 - \frac{1}{3} = \frac{2}{3}\).
X and Y will acquire this remaining share in their relative ratio of 2 : 3.

New shares:
X's new share = Remaining share for X & Y \(\times\) X's relative ratio = \(\frac{2}{3} \times \frac{2}{5} = \frac{4}{15}\) (to make denominator 30, \(\frac{8}{30}\))
Y's new share = Remaining share for X & Y \(\times\) Y's relative ratio = \(\frac{2}{3} \times \frac{3}{5} = \frac{6}{15}\) (to make denominator 30, \(\frac{12}{30}\))
Z's new share = \(\frac{1}{6}\) (to make denominator 30, \(\frac{5}{30}\))
W's new share = \(\frac{1}{6}\) (to make denominator 30, \(\frac{5}{30}\))
Therefore, new profit-loss sharing ratio of X : Y : Z : W = 8 : 12 : 5 : 5.

Sacrificing Ratio :

Name of Partner	Old share	New share	Sacrifice done by a partner = Old share - New share	Gain or Sacrifice of a partner
X	\(\frac{2}{6}\)	\(\frac{8}{30}\)	\(\frac{2}{6} - \frac{8}{30} = \frac{10-8}{30} = \frac{2}{30}\)	Sacrifice
Y	\(\frac{3}{6}\)	\(\frac{12}{30}\)	\(\frac{3}{6} - \frac{12}{30} = \frac{15-12}{30} = \frac{3}{30}\)	Sacrifice
Z	\(\frac{1}{6}\)	\(\frac{5}{30}\)	\(\frac{1}{6} - \frac{5}{30} = \frac{5-5}{30} = 0\)	Nil

The sacrificing ratio of partner X and Y = \(\frac{2}{30} : \frac{3}{30}\) = 2 : 3.
In simple words: X, Y, and Z share profits 2:3:1. W is admitted for a 1/6 share, and Z decides to keep his original 1/6 share. The remaining profit (2/3) is shared by X and Y in their old relative ratio of 2:3. This leads to a new profit ratio of 8:12:5:5 for X, Y, Z, and W, and a sacrificing ratio of 2:3 for X and Y. Z makes no sacrifice.

🎯 Exam Tip: When a partner retains their original share despite a new admission, deduct both the new partner's and the retaining partner's shares from the total profit to find the remaining share for other old partners.

 

Question 3.

(14) X and Y are the partners sharing profit and loss in the ratio of 5 : 4. They admitted Z as a new partner. All the three partners will distribute future profit in equal proportion. (Calculate only sacrificing ratio)
Answer:
Old ratio of X and Y = 5 : 4 = \(\frac{5}{9} : \frac{4}{9}\)
New ratio of X, Y and Z = 1 : 1 : 1 = \(\frac{1}{3} : \frac{1}{3} : \frac{1}{3}\)

Sacrifice of partner = Old share – New share
X's sacrifice = \(\frac{5}{9} - \frac{1}{3} = \frac{5-3}{9} = \frac{2}{9}\)
Y's sacrifice = \(\frac{4}{9} - \frac{1}{3} = \frac{4-3}{9} = \frac{1}{9}\)

Sacrificing Ratio :

Name of Partner	Old share	New share	Sacrifice done by a partner = Old share - New share	Gain or Sacrifice of a partner
X	\(\frac{5}{9}\)	\(\frac{1}{3}\)	\(\frac{5}{9} - \frac{1}{3} = \frac{5-3}{9} = \frac{2}{9}\)	Sacrifice
Y	\(\frac{4}{9}\)	\(\frac{1}{3}\)	\(\frac{4}{9} - \frac{1}{3} = \frac{4-3}{9} = \frac{1}{9}\)	Sacrifice

The sacrificing ratio of partner X and Y = \(\frac{2}{9} : \frac{1}{9}\) = 2 : 1.
In simple words: X and Y shared profits 5:4. Upon Z's admission, all three partners decided to share profits equally (1:1:1). X's sacrifice is 2/9, and Y's sacrifice is 1/9. Therefore, their sacrificing ratio is 2:1.

🎯 Exam Tip: When calculating sacrificing ratio, ensure you convert all shares to a common denominator to accurately compare old and new shares.

 

Question 3.

(15) X, Y and Z are the partners sharing profit and loss in the ratio of 3 : 2 : 1. They admitted W as a new partner. Their new profit-loss sharing ratio is to be 4 : 3 : 2 : 3. (Calculate only sacrificing ratio).
Answer:
Old ratio of X, Y and Z = 3 : 2 : 1 = \(\frac{3}{6} : \frac{2}{6} : \frac{1}{6}\).
New ratio of X, Y and W = 4 : 3 : 2 : 3 = \(\frac{4}{12} : \frac{3}{12} : \frac{2}{12} : \frac{3}{12}\).

Sacrifice done by a partner = Old share - New share
X's sacrifice = \(\frac{3}{6} - \frac{4}{12} = \frac{6-4}{12} = \frac{2}{12}\)
Y's sacrifice = \(\frac{2}{6} - \frac{3}{12} = \frac{4-3}{12} = \frac{1}{12}\)
Z's sacrifice = \(\frac{1}{6} - \frac{2}{12} = \frac{2-2}{12} = 0\)

Sacrificing Ratio :

Name of Partner	Old share	New share	Sacrifice done by a partner = Old share - New share	Gain or Sacrifice of a partner
X	\(\frac{3}{6}\)	\(\frac{4}{12}\)	\(\frac{3}{6} - \frac{4}{12} = \frac{6-4}{12} = \frac{2}{12}\)	Sacrifice
Y	\(\frac{2}{6}\)	\(\frac{3}{12}\)	\(\frac{2}{6} - \frac{3}{12} = \frac{4-3}{12} = \frac{1}{12}\)	Sacrifice
Z	\(\frac{1}{6}\)	\(\frac{2}{12}\)	\(\frac{1}{6} - \frac{2}{12} = \frac{2-2}{12} = 0\)	Nil

The sacrificing ratio of X and Y = \(\frac{2}{12} : \frac{1}{12}\) = 2 : 1.
In simple words: X, Y, and Z share profits 3:2:1. After W's admission, the new profit ratio is 4:3:2:3. X sacrifices 2/12 of his share, Y sacrifices 1/12, and Z makes no sacrifice. Their sacrificing ratio is 2:1.

🎯 Exam Tip: Always compare old and new shares after putting them on a common denominator. A zero sacrifice means the partner neither gains nor loses profit share.

 

Question 4. Pass necessary journals for the following transactions :

(1) A and B are the partners sharing profit and loss in the ratio of 3 : 2. They admitted C as a new partner for \(\frac{1}{5}\) th share of profit. C brings Rs. 80,000 as his capital in cash. C gave his share of goodwill personally to A and B. There was a balance of goodwill Rs. 25,000 in the books of firm before C's admission.
Answer:
Entries in the books of A, B and C's Firm

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
(1)	Cash A/c    To C's Capital A/c (Being capital brought in cash by C)	Dr.	8,000	8,000
(2)	A's Capital A/c B's Capital A/c    To Goodwill A/c (Being old goodwill amount distributed among old partners in their old profit-loss sharing ratio)	Dr. Dr.	15,000 10,000	25,000

Note : C gives his share in goodwill to A and B privately, therefore no entry will be passed in the books of the firm for this goodwill.
Old profit-loss sharing ratio of A and B = 3 : 2. Goodwill appearing in books = Rs. 25,000.
A's share of old goodwill = \(25,000 \times \frac{3}{5} = Rs. 15,000\).
B's share of old goodwill = \(25,000 \times \frac{2}{5} = Rs. 10,000\).
In simple words: C brings Rs. 80,000 as capital. The existing goodwill of Rs. 25,000 is written off by debiting A's capital (Rs. 15,000) and B's capital (Rs. 10,000) in their old 3:2 ratio. Since C paid his goodwill share privately, no journal entry is recorded for that specific transaction.

🎯 Exam Tip: Private payment of goodwill means no entry is required in the firm's books. Existing goodwill, however, must always be written off among old partners in their old profit-sharing ratio upon admission of a new partner.

 

Question 4. (2)
Answer: The provided journal entries accurately record the transactions related to C's admission, including the receipt of capital and goodwill premium, and its subsequent distribution. The goodwill of partner C is calculated as Rs. 25,000 (Rs. 1,00,000 firm goodwill multiplied by C's \( \frac{1}{4} \) share). Since no new profit-sharing ratio is specified, the sacrificing ratio is assumed to be the old ratio, leading to an equal distribution of goodwill between the existing partners, A and B.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
(1)	Cash A/c Dr.		1,05,000
	To C's capital A/c			80,000
	To Premium for goodwill A/c			25,000
	(Being C brought his share of capital and goodwill in cash)
(2)	Premium for goodwill A/c Dr.		25,000
	To A's capital A/c			12,500
	To B's capital A/c			12,500
	(Being premium for goodwill amount distributed among partners in their sacrifice ratio)

In simple words: When a new partner joins, their share of the firm's goodwill is calculated. If no new profit-sharing rule is given, old partners share this goodwill based on their original profit ratio.

🎯 Exam Tip: Crucial marks are awarded for the correct calculation of the new partner's goodwill share and its accurate distribution among old partners in their sacrificing ratio.

Question 4. (3) A and B are the partners sharing profit and loss in the ratio of 2 : 3. They admitted C as a new partner. C brought his share in capital and goodwill Rs. 40,000 and Rs. 60,000 in cash respectively. At the time of C's admission the balance of goodwill in balance sheet of the firm was 30,000. New profit and loss sharing ratio of all the partners is decided at 3 : 5 : 2.
Answer: The provided journal entries detail the financial impact of C's admission into the partnership. The entries reflect the distribution of existing goodwill, the capital brought in by C, and the premium for goodwill contributed by C, which is then allocated to the old partners.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
(1)	A's capital A/c Dr.		12,000
	B's capital A/c Dr.		18,000
	To Goodwill A/c			30,000
	(Existing goodwill in balance sheet distributed among old partners in their old profit-loss sharing ratio)
(2)	Cash A/c Dr.		1,00,000
	To C's capital A/c			40,000
	To Premium for goodwill A/c			60,000
	(C's capital and goodwill share brought in cash)
(3)	Premium for goodwill A/c Dr.		60,000
	To A's capital A/c			30,000
	To B's capital A/c			30,000
	(Premium for goodwill distributed among partners in their sacrifice ratio)

In simple words: When a new partner joins, existing goodwill in the books is first distributed among old partners based on their old ratio. Then, the new partner's cash contribution for capital and goodwill is recorded, and the goodwill premium is distributed among the old partners according to their sacrifice ratio.

🎯 Exam Tip: Remember to always first write off existing goodwill from the balance sheet among old partners in their old profit-sharing ratio before dealing with the new partner's goodwill contribution. Calculating the sacrificing ratio accurately is essential for distributing the goodwill premium.

Question 4. (4) P, Q and R are the partners sharing profit and loss in the ratio of 3 : 2 : 1. They maintain their capital account by fixed capital method. They admitted S as a new partner. S brought cash Rs. 50,000, Furniture Rs. 40,000 and Motor car Rs. 60,000 as his capital and share of goodwill. Goodwill is valued at Rs. 2,40,000. At the time of S's admission goodwill appeared in the books of the firm at Rs. 90,000. New profit-loss sharing ratio of all the partners is decided at 4 : 3 : 2 : 3. Old partners withdrew 50 % goodwill of their share in cash.
Answer: The journal entries provided record the transactions relating to the admission of new partner S. This includes writing off existing goodwill, S's capital contribution in both cash and assets, the distribution of S's goodwill premium, and the withdrawal of a portion of this goodwill by the old partners.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
(1)	P's capital A/c Dr.		45,000
	Q's capital A/c Dr.		30,000
	R's capital A/c Dr.		15,000
	To Goodwill A/c			90,000
	(Existing goodwill distributed among old partners in their old profit-loss sharing ratio)
(2)	Cash A/c Dr.		50,000
	Furniture A/c Dr.		40,000
	Motorcar Dr.		60,000
	To S's capital A/c			90,000
	To Premium for goodwill A/c			60,000
	(S brought capital and goodwill in cash, furniture, and motor car)
(3)	Premium for goodwill A/c Dr.		60,000
	To P's capital A/c			40,000
	To Q's capital A/c			20,000
	(Premium for goodwill distributed among old partners P and Q in their sacrifice ratio)
(4)	P's current A/c Dr.		20,000
	Q's current A/c Dr.		10,000
	To Cash A/c			30,000
	(P and Q withdraw 50% of the goodwill amount they received in cash)

**Note:** 1. **S's Goodwill Share:** The goodwill for new partner S is calculated as Rs. 60,000 (Rs. 2,40,000 firm goodwill multiplied by S's share of \( \frac{3}{12} \)). 2. **S's Capital:** S's capital contribution amounts to Rs. 90,000, comprising cash (Rs. 50,000), furniture (Rs. 40,000), and a motorcar (Rs. 60,000), less the goodwill share. 3. **Sacrificing Ratio:** * The old profit-sharing ratio for P, Q, and R was 3:2:1, or \( \frac{3}{6} : \frac{2}{6} : \frac{1}{6} \). * The new profit-sharing ratio for P, Q, R, and S is 4:3:2:3, or \( \frac{4}{12} : \frac{3}{12} : \frac{2}{12} : \frac{3}{12} \). * **P's Sacrifice:** Old share \( \frac{3}{6} \) minus new share \( \frac{4}{12} \) equals \( \frac{2}{12} \). * **Q's Sacrifice:** Old share \( \frac{2}{6} \) minus new share \( \frac{3}{12} \) equals \( \frac{1}{12} \). * **R's Sacrifice:** Old share \( \frac{1}{6} \) minus new share \( \frac{2}{12} \) equals 0. R makes no sacrifice. * Therefore, the sacrificing ratio between P and Q is \( \frac{2}{12} : \frac{1}{12} \), simplifying to 2:1. The goodwill premium will be distributed to P and Q in this 2:1 ratio.In simple words: When a new partner joins, existing goodwill is written off. The new partner brings in capital and their share of goodwill (which can be in cash or assets). This goodwill share is then given to the old partners who sacrificed their profit share, and if agreed, old partners might withdraw some of this cash.

🎯 Exam Tip: For fixed capital accounts, goodwill adjustments and withdrawals are recorded through current accounts, not capital accounts. Always calculate the sacrificing ratio meticulously when a new profit-sharing ratio is provided.

Question 4. (5) X and Y are the partners sharing profit and loss in the ratio of 1 : 3. Z admitted as a new partner. Z brought Rs. 65,000 as a capital and Rs. 36,000 as his share of goodwill in cash. After Z's admission, all partners decided to distribute the profit equally in future.
Answer: The provided journal entries reflect the financial impact of Z's admission into the partnership, including Z's capital contribution and the treatment of goodwill when one existing partner gains instead of sacrifices.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
(1)	Cash A/c Dr.		1,01,000
	To Z's capital A/c			65,000
	To Premium for goodwill A/c			36,000
	(Z brought his share of capital and goodwill in cash)
(2)	Premium for goodwill A/c Dr.		36,000
	X's capital A/c Dr.		9,000
	To Y's capital A/c			45,000
	(Premium for goodwill and gain part of goodwill given to Y)

**Note:** 1. **Sacrificing Ratio:** * The old profit-sharing ratio for X and Y was 1:3, or \( \frac{1}{4} : \frac{3}{4} \). * The new profit-sharing ratio for X, Y, and Z is 1:1:1, or \( \frac{1}{3} : \frac{1}{3} : \frac{1}{3} \). * **X's Sacrifice:** Old share \( \frac{1}{4} \) minus new share \( \frac{1}{3} \) results in \( \frac{-1}{12} \), indicating a gain for X. * **Y's Sacrifice:** Old share \( \frac{3}{4} \) minus new share \( \frac{1}{3} \) results in \( \frac{5}{12} \), indicating a sacrifice for Y. 2. **Goodwill Calculation:** * Z's share of goodwill is Rs. 36,000, representing \( \frac{1}{3} \) of the firm's total goodwill. * Therefore, the firm's total goodwill is Rs. 1,08,000 (Rs. 36,000 multiplied by \( \frac{3}{1} \)). * Since X gained, X's share of goodwill (gain) is Rs. 9,000 (Rs. 1,08,000 multiplied by \( \frac{1}{12} \)).In simple words: When a new partner joins and old partners change their profit shares, some might gain and some might sacrifice. The goodwill brought by the new partner is distributed, and any partner who gains from the new ratio also contributes their share of goodwill.

🎯 Exam Tip: When calculating sacrificing ratios, a negative result indicates a gaining partner. This gaining partner must then compensate the sacrificing partners for their share of goodwill. Ensure goodwill entries for gaining partners are correctly debited to their capital or current accounts.

Question 4. (6) M, N and O are the partners sharing profit and loss in the ratio of 4 : 3 : 3, They admitted P as a new partner. P brought Rs. 40,000 as goodwill in cash. New profit sharing ratio of all the partners is decided at 1 : 1 : 2 : 1. Balance of goodwill in old firm was 50,000.
Answer: The journal entries provided illustrate the accounting treatment upon P's admission, covering the prior goodwill balance, P's premium for goodwill, and its subsequent distribution, considering one old partner's gain.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
(1)	M's capital A/c Dr.		20,000
	N's capital A/c Dr.		15,000
	O's capital A/c Dr.		15,000
	To Goodwill A/c			50,000
	(Existing goodwill distributed among old partners in their old profit and loss ratio)
(2)	Cash A/c Dr.		40,000
	To Premium for goodwill A/c			40,000
	(P brought premium for goodwill in cash)
(3)	Premium for goodwill A/c Dr.		40,000
	O's capital A/c Dr.		20,000
	To M's capital A/c			40,000
	To N's capital A/c			20,000
	(Premium for goodwill and gain part of goodwill of O distributed among M and N in their sacrifice ratio)

**Note:** 1. **Sacrificing Ratio:** * The old profit-sharing ratio for M, N, and O was 4:3:3, or \( \frac{4}{10} : \frac{3}{10} : \frac{3}{10} \). * The new profit-sharing ratio for M, N, O, and P is 1:1:2:1, or \( \frac{1}{5} : \frac{1}{5} : \frac{2}{5} : \frac{1}{5} \). * **M's Sacrifice:** Old share \( \frac{4}{10} \) minus new share \( \frac{1}{5} \) equals \( \frac{2}{10} \). * **N's Sacrifice:** Old share \( \frac{3}{10} \) minus new share \( \frac{1}{5} \) equals \( \frac{1}{10} \). * **O's Sacrifice/Gain:** Old share \( \frac{3}{10} \) minus new share \( \frac{2}{5} \) equals \( \frac{-1}{10} \), indicating a gain for O. * The sacrificing ratio for partners M and N is \( \frac{2}{10} : \frac{1}{10} \), simplifying to 2:1. 2. **Firm's Goodwill and O's Gain:** * P's goodwill share is Rs. 40,000, which represents \( \frac{1}{5} \) of the firm's total goodwill. * Based on this, the firm's total goodwill is calculated as Rs. 2,00,000 (Rs. 40,000 multiplied by 5). * Since O gained \( \frac{1}{10} \) share, O's goodwill contribution is Rs. 20,000 (Rs. 2,00,000 multiplied by \( \frac{1}{10} \)), which is debited to O's capital account. 3. **Total Goodwill Distributed:** The total goodwill amount to be distributed to sacrificing partners M and N is Rs. 60,000 (Rs. 40,000 from P + Rs. 20,000 from O), distributed in their 2:1 sacrificing ratio.In simple words: When a new partner joins, any existing goodwill in the books is removed by distributing it among old partners. The new partner brings their share of goodwill, which is then distributed to the old partners who gave up their share of profits. If an old partner gains from the new ratio, they also contribute to the goodwill.

🎯 Exam Tip: Be vigilant when the new profit-sharing ratio changes the positions of existing partners from sacrificers to gainers. Gaining partners must always compensate sacrificing partners for their share of goodwill.

Question 4. (7) B and C are the partners. D admitted as a new partner in the firm. D brought Rs. 50,000 as a capital and Rs. 14,000 in cash out of his share in goodwill Rs. 20,000.
Answer: The journal entries provided record D's admission into the partnership, including D's capital contribution and the treatment of goodwill, specifically noting that D only partially brought in their share of goodwill in cash.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
(1)	Cash A/c Dr.		64,000
	To D's capital A/c			50,000
	To Premium for goodwill A/c			14,000
	(D brought premium for goodwill and his share of capital in cash)
(2)	Premium for goodwill A/c Dr.		14,000
	D's capital A/c Dr.		6,000
	To B's capital A/c			10,000
	To C's capital A/c			10,000
	(Premium for goodwill brought by D and not brought by D distributed among partners B and C in their sacrifice ratio)

**Note:** 1. **D's Total Goodwill Share:** D's full share of goodwill is Rs. 20,000. 2. **Goodwill Brought in Cash:** D brought Rs. 14,000 in cash as goodwill premium. 3. **Outstanding Goodwill:** The remaining Rs. 6,000 (Rs. 20,000 - Rs. 14,000) of D's goodwill share, not brought in cash, is debited from D's capital account. 4. **Distribution to Sacrificing Partners:** The total goodwill (Rs. 14,000 cash premium + Rs. 6,000 debited from D's capital) is distributed to the sacrificing partners, B and C, in their sacrifice ratio (implied as 1:1, leading to Rs. 10,000 each).In simple words: When a new partner joins, they bring capital and their share of goodwill. If they don't bring the full goodwill amount in cash, the remaining part is adjusted through their capital account. The total goodwill is then given to the old partners who sacrificed their profit share.

🎯 Exam Tip: Distinguish clearly between the goodwill brought in cash (premium for goodwill) and the goodwill not brought in cash (adjusted through the new partner's capital/current account). The total goodwill amount due from the new partner is distributed among the sacrificing old partners.

Question 4. (8) A, B and C are the partners sharing profit and loss in the ratio of 3 : 2 : 4. They maintain their capital accounts by fixed capital method. They admitted D as a new partner. D brought Rs. 70,000 as capital and Rs. 30,000 as share of goodwill in cash. At the time of admission of D, the balance of goodwill was Rs. 45,000 in the balance sheet of the firm. At the time of admission, goodwill is valued of Rs. 1,80,000. New ratio of A, B, C and D decided at 1:1:1:1.
Answer: The journal entries provided meticulously record the transactions stemming from D's admission, including the distribution of existing goodwill, D's capital and partial goodwill contributions, and the subsequent reallocation of goodwill among old partners, considering that one partner (B) recorded a gain.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
(1)	A's current A/c Dr.		15,000
	B's current A/c Dr.		10,000
	C's current A/c Dr.		20,000
	To Goodwill A/c			45,000
	(Existing goodwill distributed among old partners in their old profit and loss ratio)
(2)	Cash A/c Dr.		1,00,000
	To D's capital A/c			70,000
	To Premium for goodwill A/c			30,000
	(D brought premium for goodwill and his share of capital in cash)
(3)	Premium for goodwill A/c Dr.		30,000
	D's current A/c Dr.		15,000
	B's current A/c Dr.		5,000
	To A's capital A/c			15,000
	To C's capital A/c			35,000
	(Premium for goodwill and gain part of goodwill of B distributed among A and C in their sacrifice ratio)

**Note:** 1. **Sacrificing Ratio:** * The old profit-sharing ratio for A, B, and C was 3:2:4, or \( \frac{3}{9} : \frac{2}{9} : \frac{4}{9} \). * The new profit-sharing ratio for A, B, C, and D is 1:1:1:1, or \( \frac{1}{4} : \frac{1}{4} : \frac{1}{4} : \frac{1}{4} \). * **A's Sacrifice:** Old share \( \frac{3}{9} \) minus new share \( \frac{1}{4} \) equals \( \frac{3}{36} \). * **C's Sacrifice:** Old share \( \frac{4}{9} \) minus new share \( \frac{1}{4} \) equals \( \frac{7}{36} \). * **B's Sacrifice/Gain:** Old share \( \frac{2}{9} \) minus new share \( \frac{1}{4} \) equals \( \frac{-1}{36} \), indicating a gain for B. * The sacrificing ratio for partners A and C is \( \frac{3}{36} : \frac{7}{36} \), which simplifies to 3:7. Partner B records a gain of \( \frac{1}{36} \). 2. **Goodwill Adjustments:** * Goodwill brought by B (due to gain) is Rs. 5,000 (Rs. 1,80,000 firm goodwill multiplied by B's gain of \( \frac{1}{36} \)), which is debited to B's current account. * D's total share in goodwill is Rs. 45,000 (Rs. 1,80,000 firm goodwill multiplied by D's \( \frac{1}{4} \) share). Since D only brought Rs. 30,000 in cash, the remaining Rs. 15,000 (Rs. 45,000 - Rs. 30,000) is debited to D's current account. 3. **Total Goodwill Distribution:** The total premium for goodwill of D's share (Rs. 30,000 cash + Rs. 15,000 from D's current account = Rs. 45,000) combined with B's gain (Rs. 5,000) results in a total of Rs. 50,000. This Rs. 50,000 is distributed to sacrificing partners A and C in their 3:7 ratio.In simple words: When a new partner joins, existing goodwill is first removed. The new partner contributes capital and goodwill. If some old partners gain profit share after the new partner joins, they also bring in their share of goodwill, which, along with the new partner's goodwill, is distributed to the old partners who sacrificed.

🎯 Exam Tip: When capital accounts are fixed, all adjustments related to goodwill and revaluation gains/losses, and partner's share adjustments are routed through current accounts. Carefully calculate the individual sacrifices or gains for each old partner.

Question 4. (9) A and B are the partners sharing profit and loss in the ratio of 3 : 2. They admitted C as a new partner for \( \frac{1}{5} \) th share. C brought Rs. 30,000 as capital in cash, but he could not bring his share of goodwill Rs. 10,000 in cash.
Answer: The provided journal entries document the admission of C as a new partner. The entries cover C's capital contribution in cash and the adjustment for C's share of goodwill that was not brought in cash, which is debited to C's capital account and then distributed to the sacrificing partners, A and B.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
(1)	Cash A/c Dr.		30,000
	To C's capital A/c			30,000
	(C brought his share of capital in cash)
(2)	C's capital A/c Dr.		10,000
	To A's capital A/c			6,000
	To B's capital A/c			4,000
	(Share of goodwill of C debited to his capital account and distributed among A and B in their sacrifice ratio)

**Note:** 1. **C's Capital Contribution:** C brings Rs. 30,000 in cash as capital. 2. **C's Goodwill Share:** C's total share of goodwill is Rs. 10,000, which C could not bring in cash. 3. **Goodwill Adjustment:** Since C did not bring goodwill in cash, C's capital account is debited by Rs. 10,000. 4. **Sacrificing Ratio:** The old profit-sharing ratio of A and B is 3:2. Assuming this is also the sacrificing ratio (as no new ratio is given), the Rs. 10,000 goodwill is distributed to A and B in this ratio: * A's share: Rs. 10,000 x \( \frac{3}{5} \) = Rs. 6,000. * B's share: Rs. 10,000 x \( \frac{2}{5} \) = Rs. 4,000.In simple words: When a new partner joins and can't bring their share of goodwill in cash, that goodwill amount is taken directly from their capital account and given to the old partners who sacrificed their profit share.

🎯 Exam Tip: If a new partner cannot bring their goodwill share in cash, their capital account is debited. This is a common adjustment when goodwill premium is not fully received. The distribution to old partners still follows the sacrificing ratio.

Question 4. (10) P and Q are the partners sharing profit and loss in the equal proportion. They maintain their capital accounts by fixed capital method. They admitted R as a new partner. At the time of R's admission goodwill Rs. 70,000 was appearing in the balance sheet. R brought 40,000 as his capital in cash. Goodwill is valued at Rs. 1,60,000. New profit sharing ratio of P, Q and R is decided at 5 : 2 : 1.
Answer: The provided journal entries detail the financial transactions upon R's admission to the partnership. This includes the elimination of existing goodwill, R's capital contribution, and the intricate adjustment of goodwill recognizing R's contribution and P's unexpected gain.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
(1)	P's capital A/c Dr.		35,000
	Q's capital A/c Dr.		35,000
	To Goodwill A/c			70,000
	(Existing goodwill distributed among old partners in their old profit and loss ratio)
(2)	Cash A/c Dr.		40,000
	To R's capital A/c			40,000
	(R brought his share of capital in cash)
(3)	R's current A/c Dr.		20,000
	P's current A/c Dr.		20,000
	To Q's current A/c			40,000
	(R's share of goodwill and P's share of gain of premium for goodwill, debited to their current account and credited to Q's current account)

**Note:** 1. **R's Goodwill Share:** R's share of goodwill is Rs. 20,000, calculated as \( \frac{1}{8} \) of the firm's total goodwill of Rs. 1,60,000. 2. **Sacrificing Ratio:** * The old profit-sharing ratio for P and Q was 1:1, or \( \frac{1}{2} : \frac{1}{2} \). * The new profit-sharing ratio for P, Q, and R is 5:2:1, or \( \frac{5}{8} : \frac{2}{8} : \frac{1}{8} \). * **P's Sacrifice/Gain:** Old share \( \frac{1}{2} \) minus new share \( \frac{5}{8} \) equals \( \frac{-1}{8} \), indicating P has gained. * **Q's Sacrifice:** Old share \( \frac{1}{2} \) minus new share \( \frac{2}{8} \) equals \( \frac{2}{8} \), indicating Q has sacrificed. 3. **Goodwill Adjustment for P (Gainer):** Since P gained \( \frac{1}{8} \) share, P must bring in goodwill of Rs. 20,000 (Rs. 1,60,000 firm goodwill multiplied by \( \frac{1}{8} \)), which is debited to P's current account. 4. **Distribution to Q (Sacrificer):** Partner Q is the sole sacrificer, and thus the total goodwill amount (R's share of Rs. 20,000 + P's gain share of Rs. 20,000 = Rs. 40,000) is credited to Q's current account.In simple words: When a new partner joins and the profit-sharing ratio changes, an existing partner might gain a share of profits instead of sacrificing. In such a case, both the new partner and the gaining old partner contribute their respective goodwill amounts, which are then given to the old partner(s) who actually sacrificed.

🎯 Exam Tip: In fixed capital method, use current accounts for all goodwill adjustments. When an old partner gains, they are debited for their share of the firm's goodwill, just like a new partner not bringing cash goodwill.

Question 4. (11) Capital of G and E is Rs. 80,000 and Rs. 60,000 respectively. They admitted B as a new partner for \( \frac{1}{4} \)th share in profit B brought Rs. 50,000 as his capital. Calculate goodwill and pass necessary journal entries for goodwill.
Answer: The provided journal entries record B's capital contribution and the subsequent adjustment for goodwill, which is calculated based on the new partner's capital and share.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
(1)	Cash A/c Dr.		50,000
	To B's capital A/c			50,000
	(B brought his share of capital in cash)
(2)	B's capital A/c Dr.		2,500
	To G's capital A/c			1,250
	To E's capital A/c			1,250
	(Goodwill share of B debited to his capital account and credited to G and E's capital account in their sacrifice ratio)

**Note:** 1. **Sacrifice Ratio:** The old profit-sharing ratio between G and E is 1:1, and in the absence of a new ratio for the old partners, this is also considered their sacrificing ratio. 2. **Calculation of Firm's Goodwill:** * B's capital of Rs. 50,000 represents \( \frac{1}{4} \) share of the firm's total capital. *
\( \implies \) Therefore, the total capital of the firm based on B's admission is Rs. 2,00,000 (Rs. 50,000 \( \times \frac{4}{1} \)). * The net worth of the new firm (excluding goodwill) is Rs. 1,90,000 (G's capital Rs. 80,000 + E's capital Rs. 60,000 + B's capital Rs. 50,000). * The firm's goodwill is calculated as the total capital based on B's share minus the net worth, which is Rs. 10,000 (Rs. 2,00,000 - Rs. 1,90,000). * B's share of this goodwill is Rs. 2,500 (Rs. 10,000 \( \times \frac{1}{4} \)).In simple words: When a new partner joins, and goodwill isn't explicitly given, it can be calculated using the new partner's capital and their profit share. This calculated goodwill is then adjusted through the new partner's capital account and given to the old partners who sacrificed their profit share.

🎯 Exam Tip: When goodwill needs to be inferred (hidden goodwill), use the new partner's capital and share to determine the total capital of the firm, then subtract the actual combined capital of all partners to find the implied goodwill.

Question 4. (12) R, C and B are the partners sharing profit and loss in the ratio of 3 : 2 : 1. Their capital as on 1-4-2016 is Rs. 1,00,000, Rs. 60,000 and Rs. 50,000 respectively. On that date the-balance of general reserve was Rs. 90,000. They admitted P as a new partner. P brought Rs. 1,80,000 as his capital. New profit and loss sharing ratio of all the partners is decided to 2 : 1 : 1 : 2. Calculate goodwill and pass necessary journal entries.
Answer: The journal entries provided illustrate the financial adjustments required for P's admission, including the distribution of general reserves, P's capital contribution, and the calculation and distribution of hidden goodwill among sacrificing partners.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
(1)	General Reserve A/c Dr.		90,000
	To R's capital A/c			45,000
	To C's capital A/c			30,000
	To B's capital A/c			15,000
	(General reserve distributed among old partners in their old profit and loss ratio)
(2)	Cash A/c Dr.		1,80,000
	To P's capital A/c			1,80,000
	(P brought his share of capital in cash)
(3)	P's capital A/c Dr.		20,000
	To R's capital A/c			10,000
	To C's capital A/c			10,000
	(Share of goodwill of P distributed among R and C in their sacrifice ratio)

**Note:** 1. **Goodwill of New Partner (Hidden Goodwill):** * The new profit-sharing ratio for R, C, B, and P is 2:1:1:2. P's share is \( \frac{2}{6} \). * P's capital of Rs. 1,80,000 represents \( \frac{2}{6} \) share. *
\( \implies \) Therefore, the implied total capital of the firm is Rs. 5,40,000 (Rs. 1,80,000 \( \times \frac{6}{2} \)). * The firm's net worth (excluding goodwill) is the sum of old partners' capital (R: Rs. 1,00,000, C: Rs. 60,000, B: Rs. 50,000 = Rs. 2,10,000), general reserves (Rs. 90,000), and new partner's capital (P: Rs. 1,80,000), totaling Rs. 4,80,000. * The firm's goodwill is the difference between the implied total capital and the net worth, which is Rs. 60,000 (Rs. 5,40,000 - Rs. 4,80,000). * P's share of this goodwill is Rs. 20,000 (Rs. 60,000 \( \times \frac{2}{6} \)). 2. **Sacrificing Ratio:** * The old profit-sharing ratio for R, C, and B was 3:2:1, or \( \frac{3}{6} : \frac{2}{6} : \frac{1}{6} \). * The new profit-sharing ratio for R, C, B, and P is 2:1:1:2, or \( \frac{2}{6} : \frac{1}{6} : \frac{1}{6} : \frac{2}{6} \). * Sacrifice of R = \( \frac{3}{6} - \frac{2}{6} = \frac{1}{6} \) * Sacrifice of C = \( \frac{2}{6} - \frac{1}{6} = \frac{1}{6} \) * Sacrifice of B = \( \frac{1}{6} - \frac{1}{6} = 0 \) * The sacrificing ratio for partners R and C is 1:1. P's goodwill of Rs. 20,000 is credited to R and C's capital accounts in this 1:1 ratio (Rs. 10,000 each).In simple words: When a new partner joins, and the value of goodwill isn't directly given, you can figure it out by comparing the total capital implied by the new partner's investment with the actual total capital and reserves. This "hidden" goodwill is then shared by the old partners who gave up part of their profit share.

🎯 Exam Tip: Remember to distribute all accumulated profits, losses, and reserves (like General Reserve) to old partners in their old profit-sharing ratio before calculating goodwill adjustments for the new partner. Always calculate goodwill when it's not explicitly stated.

Question 4. (13) X and Y are the partners sharing profit and loss in the ratio of 2 : 3. They admitted Z as a new partner for \( \frac{1}{5} \) th share. Goodwill is valued at Rs. 20,000. Balance of goodwill appeared at 15,000 in the balance sheet. Z brought Rs. 50,000 as his capital and 80 % of his share of goodwill in cash. Old partners withdrew 40 % amount of goodwill in cash which is credited to their capital account After the admission of Z the profit of the first year of the new firm was Rs. 60,000. Pass necessary journal entries.
Answer: The provided journal entries detail the accounting adjustments required upon Z's admission. This includes writing off existing goodwill, recording Z's capital and partial goodwill contributions, distributing the total goodwill to sacrificing partners, accounting for old partners' goodwill withdrawal, and finally, distributing the first year's profit.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
(1)	X's capital A/c Dr.		6,000
	Y's capital A/c Dr.		9,000
	To Goodwill A/c			15,000
	(Existing goodwill distributed among old partners in their old profit and loss ratio)
(2)	Cash A/c Dr.		53,200
	To Z's capital A/c			50,000
	To Premium for goodwill A/c			3,200
	(Z brought his share of capital and goodwill amount in cash)
(3)	Premium for goodwill A/c Dr.		3,200
	Z's capital A/c Dr.		800
	To X's capital A/c			1,600
	To Y's capital A/c			2,400
	(Premium for goodwill amount brought by Z and not brought by Z distributed among partners X and Y in their sacrifice ratio)
(4)	X's capital A/c Dr.		640
	Y's capital A/c Dr.		960
	To Cash A/c			1,600
	(40% of goodwill withdrawn by old partners in cash)
(5)	Profit and Loss A/c Dr.		60,000
	To X's capital A/c			19,200
	To Y's capital A/c			28,800
	To Z's capital A/c			12,000
	(Profit after admission of Z distributed among all three partners in their new profit and loss ratio)

**Note:** 1. **Old Goodwill Write-off:** The existing goodwill of Rs. 15,000 is written off in the old profit-sharing ratio of 2:3 between X and Y. (X: Rs. 6,000, Y: Rs. 9,000). 2. **Z's Goodwill Share:** * Goodwill of the firm is valued at Rs. 20,000. Z's share is \( \frac{1}{5} \). * Z's total share of goodwill is Rs. 4,000 (Rs. 20,000 multiplied by \( \frac{1}{5} \)). * Z brought 80% of his goodwill in cash, which is Rs. 3,200 (80% of Rs. 4,000). * The remaining Rs. 800 (20% of Rs. 4,000) not brought in cash is debited to Z's capital account. 3. **New Profit-Loss Sharing Ratio and Sacrificing Ratio:** * Old ratio of X and Y = 2:3. Z admitted for \( \frac{1}{5} \) share. * Remaining share for X and Y = \( 1 - \frac{1}{5} = \frac{4}{5} \). * New share of X = \( \frac{4}{5} \times \frac{2}{5} = \frac{8}{25} \). * New share of Y = \( \frac{4}{5} \times \frac{3}{5} = \frac{12}{25} \). * New share of Z = \( \frac{1}{5} = \frac{5}{25} \) (after making denominator equal). * New Profit-Loss Sharing Ratio of X, Y, Z = 8:12:5. * Since no information is given on how Z acquires his share, the old ratio of X and Y (2:3) is considered the sacrificing ratio. 4. **Total Goodwill Distributed to Sacrificing Partners:** The total goodwill amount of Rs. 4,000 (Rs. 3,200 cash premium + Rs. 800 from Z's capital) is distributed to X and Y in their sacrificing ratio of 2:3. * X's share: Rs. 4,000 \( \times \frac{2}{5} \) = Rs. 1,600. * Y's share: Rs. 4,000 \( \times \frac{3}{5} \) = Rs. 2,400. 5. **Withdrawal of Goodwill by Old Partners:** Old partners withdrew 40% of the goodwill credited to their capital accounts. * X's withdrawal: 40% of Rs. 1,600 = Rs. 640. * Y's withdrawal: 40% of Rs. 2,400 = Rs. 960. 6. **Profit Distribution:** The firm's profit of Rs. 60,000 for the first year after Z's admission is distributed among X, Y, and Z in their new profit-sharing ratio of 8:12:5. * X's share: Rs. 60,000 \( \times \frac{8}{25} \) = Rs. 19,200. * Y's share: Rs. 60,000 \( \times \frac{12}{25} \) = Rs. 28,800. * Z's share: Rs. 60,000 \( \times \frac{5}{25} \) = Rs. 12,000.In simple words: When a new partner joins, existing goodwill is removed. The new partner contributes capital and goodwill (partially in cash, the rest from their capital). This goodwill is given to old partners who sacrificed. A portion of this goodwill can also be withdrawn by old partners. Finally, future profits are shared as per the new ratio.

🎯 Exam Tip: Carefully track the different components of goodwill (existing, new partner's cash, new partner's non-cash portion, and old partner withdrawals). Ensure the new profit-sharing ratio is calculated correctly before distributing post-admission profits.

Question 5. R and J are the partners sharing profit and loss in the ratio of 2 : 3. They admitted B as a new partner for \( \frac{1}{6} \)th share of profit. Following balances appeared in the books of R and J at the time of the admission of B :
General reserve Rs. 7,000
Workmen compensation reserve Rs. 6,000
Investment fluctuation reserve Rs. 1,900
Profit-loss A/c (Debit balance) Rs. 1,600
Contingency reserve Rs. 5,100
Bad debt reserve Rs. 4,200
Advertisement campaign expenditure Rs. 3,400
Pass necessary journal entries.
Answer: The journal entries provided record the distribution of accumulated reserves and profits, and the write-off of accumulated losses and fictitious assets among the old partners, R and J, at the time of B's admission.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
1.	General Reserve A/c Dr.		7,000
	Workmen compensation reserve A/c. Dr.		6,000
	Investment fluctuation reserve A/c. Dr.		1,900
	Contingency reserve A/c. Dr.		5,100
	To R's capital A/c			8,000
	To J's capital A/c			12,000
	(Balance of general reserve, workmen accident compensation reserve, Investment fluctuation Reserve and contingency reserve of the firm distributed between old partners in their old profit sharing ratio)
2.	R's capital A/c Dr.		2,000
	J's capital A/c. Dr.		3,000
	To Profit and loss A/c			1,600
	To Advertisement campaign expenditure A/c			3,400
	(Debit balances of profit and loss A/c and Advertisement campaign exp. written off in old partners' old profit and loss ratio)

**Note:** 1. **Distribution of Reserves and Profits (Old Ratio 2:3):** * Total distributable credit balances: General Reserve (Rs. 7,000) + Workmen Compensation Reserve (Rs. 6,000) + Investment Fluctuation Reserve (Rs. 1,900) + Contingency Reserve (Rs. 5,100) = Rs. 20,000. * R's share: Rs. 20,000 \( \times \frac{2}{5} \) = Rs. 8,000. * J's share: Rs. 20,000 \( \times \frac{3}{5} \) = Rs. 12,000. * Bad Debt Reserve (Rs. 4,200) is a provision and not distributed as profit. 2. **Write-off of Losses and Fictitious Assets (Old Ratio 2:3):** * Total debit balances to be written off: Profit and Loss A/c (debit balance Rs. 1,600) + Advertisement Campaign Expenditure (Rs. 3,400) = Rs. 5,000. * R's share: Rs. 5,000 \( \times \frac{2}{5} \) = Rs. 2,000. * J's share: Rs. 5,000 \( \times \frac{3}{5} \) = Rs. 3,000.In simple words: Before a new partner joins, all old accumulated profits, reserves, and losses are distributed or written off among the existing partners in their old profit-sharing ratio. This ensures the new partner starts with a clean slate.

🎯 Exam Tip: Always address accumulated profits/losses and reserves before any other adjustments during partner admission. Clearly distinguish between credit balances (reserves/profits to be distributed) and debit balances (losses/fictitious assets to be written off).

Question 6. K and R are the partners sharing profit and loss in the ratio of 4 : 1. They admitted P as a new partner for \( \frac{1}{5} \)th share. Following balances were appearing in the books of K and R at the time of admission of P.
Investment Fluctuation Reserve Rs. 7,000
Workmen compensation reserve Rs. 7,000
Bad debt reserve Rs. 3,000
Investment Rs. 20,000
Debtors Rs. 70,000
Pass necessary journal entries in the following-cases :
(1) If market value of investment is as under :
(i) Rs. 19,500
(ii) Rs. 22,000
(2) If following claim of workmen compensation is accepted :
(i) Rs. 6,000
(ii) Rs. 8,500
(3) If bad debt reserve is to be maintained on debtors :
(i) Rs. 4,000
(ii) Rs. 2,500
(iii) 10% bad debt reserve is to be maintained after writing off bad debt Rs. 2,000.
Answer: The journal entries provided detail various accounting adjustments required during partner admission, specifically focusing on the treatment of reserves related to investments, workmen's compensation, and bad debts, under different scenarios for market values and claims.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
1. (i)	When market value of investment is Rs. 19,500 :
	Investment fluctuation reserve A/c. Dr.		2,500
	To Investments A/c			500
	To K's capital A/c			1,600
	To R's capital A/c			400
	(Loss due to fall in investment value adjusted against IFR, remaining surplus distributed to old partners in old sharing ratio)
(ii)	When market value of investment is Rs. 22,000 :
(A)	Investments A/c. Dr.		2,000
	To Revaluation A/c			2,000
	(Profit due to revaluation of investment recorded)
(B)	Investment fluctuation reserve A/c. Dr.		2,500
	To K's capital A/c			2,000
	To R's capital A/c			500
	(IFR amount distributed among old partners in their old profit and loss ratio)
2. (i)	When claim of workmen compensation Rs. 6,000 is accepted :
	Workmen compensation reserve A/c Dr.		7,000
	To Claim provision for workmen compensation A/c			6,000
	To K's capital A/c			800
	To R's capital A/c			200
	(Claim accepted, surplus from reserve distributed between old partners K and R in their old ratio)
(ii)	When claim of workmen compensation Rs. 8,500 is accepted :
	Workmen's compensation reserve A/c. Dr.		7,000
	Revaluation A/c Dr.		1,500
	To Claim for workmen compensation A/c			8,500
	(Excess claim accepted, loss from Revaluation A/c created)
3. (i)	If bad debts reserve Rs. 4,000 is to be maintained on debtors:
	Revaluation A/c. Dr.		1,000
	To Bad debts reserve A/c			1,000
	(Additional bad debt reserve debited to revaluation account)
(ii)	If bad debts reserve Rs. 2,500 to be maintained on debtors:
	Bad debts reserve A/c Dr.		500
	To Revaluation A/c			500
	(Surplus of bad debts reserve credited to revaluation account)
(iii)	10% bad debts reserve is to be maintained after writing off bad debt Rs. 2,000 :
(A)	Bad debts A/c Dr.		2,000
	To Debtors A/c			2,000
	(Bad debts written off)
(B)	Bad debts reserve A/c Dr.		2,000
	To Bad debts A/c			2,000
	(Bad debts written off against the balance of B.D.R.)
(C)	Revaluation A/c Dr.		5,800
	To Bad debts reserve A/c			5,800
	(New provision made for bad debt reserve on debtors after deducting bad debts)

**Note:** * **Scenario (ii) - BDR at Rs. 2,500:** If the required BDR is Rs. 2,500 (lower than the existing Rs. 3,000), the surplus of Rs. 500 (Rs. 3,000 - Rs. 2,500) is credited to the Revaluation Account. * **Scenario (iii) - 10% BDR after writing off Rs. 2,000 bad debt:** * **Step A: Bad Debts Written Off:** First, Rs. 2,000 of bad debts are written off by debiting Bad Debts A/c and crediting Debtors A/c. * **Step B: Bad Debts Adjusted Against Reserve:** The Rs. 2,000 bad debt is then adjusted against the existing Bad Debt Reserve of Rs. 3,000 by debiting Bad Debt Reserve A/c and crediting Bad Debts A/c. This leaves a balance of Rs. 1,000 (Rs. 3,000 - Rs. 2,000) in the BDR. * **Step C: New Provision for BDR:** The debtors (Rs. 70,000 - Rs. 2,000 bad debts) are now Rs. 68,000. A 10% BDR on this amount is Rs. 6,800. Since Rs. 1,000 remains in BDR, an additional Rs. 5,800 (Rs. 6,800 - Rs. 1,000) is required. This additional provision is debited to Revaluation A/c and credited to Bad Debt Reserve A/c.In simple words: Bad debt reserves are adjusted to match the required level. If the reserve is higher than needed, the extra is a profit. If there are actual bad debts, they are first removed from the debtors, then from the reserve. If more reserve is still needed, it's treated as a revaluation loss.

🎯 Exam Tip: When a bad debt is written off, it directly reduces debtors. Then, the existing provision is utilized. Any remaining provision is distributed, or any deficit is charged to the revaluation account.

Question 7. A and B are the partners sharing profit and loss in equal proportion. They admitted C as a new partner for \( \frac{1}{4} \) th share. Following balances were appearing in the balance sheet of A and B at the time of the admission of C.
Patents Rs. 30,000
Land-Building Rs. 1,80,000
Stock Rs. 35,000
Goodwill Rs. 20,000
Machinery Rs. 60,000
Creditors Rs. 40,000
On C's admission, they decided that,
(i) Patents are to be written off fully,
(ii) Value of land and building is to be increased by 20%.
(iii) Value of machinery is to be decreased upto 60%.
(iv) Stock was overvalued by Rs. 4,000 than its cost price,
(v) Creditors of Rs. 6,000 are not to be paid.
Pass necessary journal entries and prepare the revaluation account.
Answer: The journal entries and the revaluation account demonstrate the adjustments made to asset and liability values at the time of C's admission. These revaluations lead to a loss, which is then distributed among the existing partners, A and B.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
1.	Revaluation A/c Dr.		58,000
	To Patent A/c			30,000
	To Machinery A/c			24,000
	To Stock A/c			4,000
	(Decrease in value of patents, machinery and stock transferred to Revaluation A/c)
2.	Land-Building A/c Dr.		36,000
	Creditors A/c Dr.		6,000
	To Revaluation A/c			42,000
	(Increase in value of land & building and decrease in value of creditors transferred to Revaluation A/c)
3.	A's capital A/c Dr.		8,000
	B's capital A/c Dr.		8,000
	To Revaluation A/c			16,000
	(Loss of Revaluation A/c distributed among old partners in old profit-loss ratio)

**Revaluation Account**<

 

**Question 7. A and B are the partners sharing profit and loss in equal proportion. They admitted C as a new partner for \(\frac{1}{4}\)th share. Following balances were appearing in the balance sheet of A and B at the time of the admission of C.**
**Patents Rs. 30,000**
**Land-Building Rs. 1,80,000**
**Stock Rs. 35,000**
**Goodwill Rs. 20,000**
**Machinery Rs. 60,000**
**Creditors Rs. 40,000**
**On C's admission, they decided that, (i) Patents are to be written off fully, (ii) Value of land and building is to be increased by 20%. (iii) Value of machinery is to be decreased upto 60%. (iv) Stock was overvalued by Rs. 4,000 than its cost price, (v) Creditors of Rs. 6,000 are not to be paid.**
**Pass necessary journal entries and prepare the revaluation account.**
Answer:

Debit	Particulars	Amt. (Rs.)	Credit

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
1.	Revaluation A/c To Patent A/c To Machinery A/c To Stock A/c (Being decrease in the value of plant, machinery and stock is transferred to Revaluation A/c)	Dr.	58,000	30,000 24,000 4,000
2.	Land-Building A/c Creditors A/c To Revaluation A/c (Being increase in the value of land & building and decrease in value of creditors is transferred to Revaluation A/c)	Dr. Dr.	36,000 6,000	42,000
3.	A's capital A/c B's capital A/c To Revaluation A/c (Being loss of Revaluation A/c is distributed among old partners in old profit-loss ratio)	Dr. Dr.	8,000 8,000	16,000
Total			1,16,000	1,16,000

Revaluation Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Patent A/c	30,000	By Land-Building A/c	36,000
To Machinery A/c	24,000	By Creditors A/c	6,000
To Stock A/c	4,000	By Loss : Transferred to old partners' capital A/c A B	8,000 8,000
			16,000
Total	58,000	Total	58,000

In simple words: This question requires recording changes in asset and liability values when a new partner joins. Patents are fully written off, land and building increase, machinery decreases, stock is adjusted for overvaluation, and some creditors are no longer payable. The resulting revaluation loss is then distributed among the existing partners.

🎯 Exam Tip: When revaluing assets and liabilities during partner admission, ensure you correctly identify increases and decreases to record gains/losses in the Revaluation Account. Also, remember to distribute any revaluation profit or loss among the old partners in their old profit-sharing ratio.

 

**Question 8. Aabha and Beena are partners in a firm sharing profit and loss in the ratio of 2 : 1. Their balance sheet as on 31-3-2017 was as under:**
Balance Sheet

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital account:		Goodwill	18,000
Aabha	80,000	Land-building	72,000
Beena	60,000	1,40,000	Machinery	40,000
General reserve	18,000	Stock	36,000
Workmen compensation reserve	4,500	Debtors	24,000
Investment fluctuation reserve	1,500	- Bad debt reserve	2,000
Creditors	28,000		22,000
Bills payable	12,000	Investment	8,000
		Cash-Bank	2,000
		Advertisement campaign expenditure	6,000
	2,04,000		2,04,000

**They admitted Rushil as a new partner from 1-4-2017 on the following conditions:**
**(1) Rushil will bring Rs. 1,00,000 as his capital and Rs. 24,000 as goodwill in cash.**
**(2) Value of land and building is to be increased by Rs. 17,000.**
**(3) Value of machinery is to be decreased upto Rs. 32,000.**
**(4) Provision for bad debt is to be kept at 10% on debtors.**
**(5) Provision for outstanding electricity bill is to be made at Rs. 1,100.**
**(6) New profit sharing ratio of all three partners is to be kept at 2 : 1 : 2.**
**Pass necessary journal entries and prepare revaluation account, partners' capital account, cash-bank account and balance sheet after admission.**
Answer:
Journal Entries

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
(1)	General reserve A/c To Aabha's capital A/c To Beena's capital A/c (Being general reserve distributed between old partners in their old profit-loss ratio)	Dr.	18,000	12,000 6,000
(2)	Workmen compensation reserve A/c To Aabha's capital A/c To Beena's capital A/c (Being workmen compensation reserve distributed between old partners in their old profit-loss sharing ratio)	Dr.	4,500	3,000 1,500
(3)	Investment reserve A/c To Aabha's capital A/c To Beena's capital A/c (Being investment reserve distributed between old partners in their old profit-loss sharing ratio)	Dr.	1,500	1,000 500
(4)	Aabha's capital A/c Beena's capital A/c To Advertisement campaign exp. A/c (Being Adv. campaign exp. written off between old partners in their old profit-loss sharing ratio)	Dr. Dr.	4,000 2,000	6,000
(5)	Aabha's capital A/c Beena's capital A/c To Goodwill A/c (Being old goodwill written-off between old partners in their old profit-loss sharing ratio)	Dr. Dr.	12,000 6,000	18,000
(6)	Cash A/c To Rushil's capital A/c To Premium for goodwill A/c (Being capital and goodwill brought by Rushil in cash)	Dr.	1,24,000	1,00,000 24,000

 

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
(7)	Premium for goodwill A/c To Aabha's capital A/c To Beena's capital A/c (Being premium for goodwill distributed between old partners in their sacrificing ratio)	Dr.	24,000	16,000 8,000
(8)	Revaluation A/c To Machinery A/c To Bad debts reserve A/c To Outstanding electricity exp. A/c (Being decrease in machinery value, increase in bad debts reserve and o/s electricity exp. debited to revaluation A/c)	Dr.	9,500	8,000 400 1,100
(9)	Land-Building A/c To Revaluation A/c (Being increase in land building credited to revaluation A/c)	Dr.	17,000	17,000
(10)	Revaluation A/c To Aabha's capital A/c To Beena's capital A/c (Being profit of revaluation account distributed among old partners in old ratio)	Dr.	7,500	5,000 2,500
Total			2,30,000	2,30,000

Revaluation Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Machinery A/c	8,000	By Land-Building A/c	17,000
To Bad debts reserve A/c	400
To O/s electricity exp. A/c	1,100
To Profit: Old Partners' Capital A/c Aabha Beena	5,000 2,500
	7,500
Total	17,000	Total	17,000

Partners' Capital Account

Debit Particulars	Abha (Rs.)	Beena (Rs.)	Rushil (Rs.)	Credit Particulars	Abha (Rs.)	Beena (Rs.)	Rushil (Rs.)
To Adv. campaign exp. A/c	4,000	2,000	-	By Balance b/f	80,000	60,000	-
To Goodwill A/c	12,000	6,000	-	By Cash A/c	-	-	1,00,000
				By Premium for goodwill	16,000	8,000	-
				By General reserve A/c	12,000	6,000	-
				By Workmen's compensation reserve A/c	3,000	1,500	-
To Balance c/f	1,01,000	70,500	1,00,000	By Investment reserve A/c	1,000	500	-
				By Revaluation A/c	5,000	2,500	-
Total	1,17,000	78,500	1,00,000	Total	1,17,000	78,500	1,00,000

Cash/Bank Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Balance b/f	2,000	By Balance c/f	1,26,000
To Rushil's capital A/c	1,00,000
To Premium for goodwill A/c	24,000
Total	1,26,000	Total	1,26,000

Balance Sheet as on 1-4-2017 after admission

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital Accounts :		Land-Building	72,000
Aabha	1,01,000	+ Increase	17,000	89,000
Beena	70,500	Machinery	40,000
Rushil	1,00,000	2,71,500	- Decrease	8,000	32,000
Creditors	28,000	Stock	36,000
Bills payable	12,000	Debtors	24,000
Outstanding electric exp. (bill)	1,100	- Bad debts reserve	2,400	21,600
		Investments	8,000
		Cash-Bank balance	1,26,000
	3,12,600		3,12,600

Note:
(1) Sacrificing Ratio :
Old ratio of Aabha and Beena = 2:1
New ratio of Aabha, Beena and Rushil = 2 : 1 : 2
Sacrifice of partner = Old share - New Share

Sacrifice of Aabha = \(\frac{2}{3}-\frac{2}{5}=\frac{10-6}{15}=\frac{4}{15}\)

Sacrifice of Beena = \(\frac{1}{3}-\frac{1}{5}=\frac{5-3}{15}=\frac{2}{15}\)

Sacrifice Ratio = \(\frac{4}{15}: \frac{2}{15} = 4 : 2 = 2:1\)

(2) Goodwill will be distributed between Aabha and Beena in sacrificing ratio.
Goodwill of Aabha = Rs. 24,000 \(\times \frac{2}{3}\) = Rs. 16,000
Goodwill of Beena = Rs. 24,000 \(\times \frac{1}{3}\) = Rs. 8,000

In simple words: This comprehensive problem involves admitting a new partner, Rushil, into the firm of Aabha and Beena. It necessitates several accounting adjustments, including distributing existing reserves and goodwill, revaluing assets like land, building, and machinery, and creating provisions for bad debts and outstanding expenses. All these changes are meticulously recorded through journal entries, and new capital, revaluation, and cash accounts are prepared, culminating in an updated balance sheet.

🎯 Exam Tip: For complex admission problems, always calculate the sacrificing ratio accurately first, as it dictates goodwill distribution. Pay close attention to revaluation adjustments, ensuring all asset and liability changes are correctly reflected in the Revaluation Account before transferring its balance to partners' capital accounts.

 

**Question 9. Aashtha and Aahna are partners in a firm. The balance sheet of the firm as on 31-3-2017 was as under:**
Balance Sheet

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital account:		Goodwill	8,400
Aashtha	76,000	Land-Building	40,000
Aahna	48,400	1,24,400	Machinery	32,000
Workmen compensation fund	4,800	Investment	20,000
Investment fluctuation fund	1,600	Debtors	25,200
Providend fund	6,400	Stock	14,400
Bad debt reserve	8,000	Cash	16,000
Creditors	12,000	Advertisement campaign expenditure	3,200
Bills payable	6,000	Profit-loss A/c	4,000
	1,63,200		1,63,200

**They admitted Sonu as a new partner as on 1-4-2017 on the following condition :**
**(1) Sonu will bring Rs. 80,000 as her capital and Rs. 7,200 as her share of goodwill in cash.**
**(2) New profit and loss sharing ratio will be 4 : 3 : 3.**
**(3) Goodwill is to be valued at Rs. 40,000.**
**(4) The claim of workmen compensation is accepted at Rs. 3,200.**
**(5) Aahna will take over investments at Rs. 19,200.**
**(6) Accrued interest on investment Rs. 2,400 is not recorded.**
**(7) Accepted bills payable of Rs. 2,000 which was drawn by creditors is not recorded..**
**(8) Book value of land-building is 20 % less then its market value.**
**(9) Out of insurance premium paid, 4,800 is for next year. Prepare necessary accounts and balance sheet after admission.**
Answer:
Revaluation Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Profit: Old partners' capital A/c Aashtha Aahna	8,600 8,600	By Outstanding interest on investment A/c	2,400
	17,200	By Prepaid insurance premium A/c	4,800
		By Land-Building A/c	10,000
Total	17,200	Total	17,200

 

Partners' Capital Account

Debit Particulars	Aashtha (Rs.)	Aahna (Rs.)	Sonu (Rs.)	Credit Particulars	Aashtha (Rs.)	Aahna (Rs.)	Sonu (Rs.)
To Adv. campaign exp. A/c	1,600	1,600	-	By Balance b/f	76,000	48,400	-
To Profit-loss A/c	2,000	2,000	-	By Cash A/c	-	-	80,000
To Investments A/c	-	19,200	-	By Investment fluctuation reserve A/c	400	400	-
To Goodwill A/c	4,200	4,200	-	By Workmen compensation reserve A/c	800	800	-
To Aashtha's capital A/c (Goodwill)	-	-	1,600	By Premium for goodwill A/c	2,400	4,800	-
To Aahna's capital A/c (Goodwill)	-	-	3,200	By Revaluation A/c	8,600	8,600	-
To Balance c/f	82,000	39,200	75,200	By Sonu's capital A/c (Goodwill)	1,600	3,200	-
Total	89,800	66,200	80,000	Total	88,800	66,200	80,000

Cash/Bank Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Balance b/f	16,000	By Balance c/f	1,03,200
To Sonu's capital A/c	80,000
To Premium for Goodwill A/c	7,200
Total	1,03,200	Total	1,03,200

Balance Sheet as on 1-4-2017 after admission

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital Accounts :		Land-Building	50,000
Aashtha	86,000	Machinery	32,000
Aahna	43,200	Debtors	25,200
Sonu	75,200	2,04,400	Stock	14,400
Workmen compensation fund	3,200	Cash balance	1,03,200
Providend Fund	6,400	Prepaid insurance premium	4,800
Creditors	12,000	Outstanding interest on investments	2,400
Unrec. B.P.	2,000
Bills payable	6,000
+ Unrec. B.P.	2,000	8,000
	2,32,000		2,32,000

Note:
(1) Sacrificing Ratio :
Old profit-loss ratio of Aashtha and Aahna = 1 : 1
New profit-loss ratio of Aashtha, Aahna and Sona = 4 : 3 : 3
Sacrifice of partner = Old share - New Share
Aashtha's Sacrifice = \(\frac{1}{2}-\frac{4}{10}=\frac{10-8}{20}=\frac{2}{20}=\frac{1}{10}\)

Aahna's Sacrifice = \(\frac{1}{2}-\frac{3}{10}=\frac{10-6}{20}=\frac{4}{20}=\frac{2}{10}\)

Sacrifice ratio = \(\frac{1}{10}: \frac{2}{10} = 1 : 2\)

Amount of goodwill will be distributed between Aashtha and Aahna in their sacrifice ratio = 1:2.

(2) Sonu's share in goodwill :
Sonu's share in new goodwill = Rs. 40,000 \(\times \frac{3}{10}\) = Rs. 12,000.
Out of this Rs. 12,000, Sonu brought only Rs. 7,200, meaning Rs. 4,800 is still outstanding.

Journal entry for goodwill will be as under :

(1)	Cash A/c	Dr.	7,200
	To Premium for goodwill A/c			7,200
(2)	Premium for goodwill A/c	Dr.	7,200
	To Aashtha's capital A/c			2,400
	To Aahna's capital A/c			4,800
(3)	Sonu's capital A/c	Dr.	4,800
	To Aashth's capital A/c			1,600
	To Aahna's capital A/c			3,200

(3) Market value of Land-Building :
Book value of Land-Building is Rs. 40,000 which is 20% less than its market value.
Suppose market value = Rs. 100
Value less by 20% = - Rs. 20
Book value = Rs. 80

Book value = Rs. 80
Market Value = Rs. 100
Rs. 40,000 = Rs. 80
? = Rs. 100

\(\frac{40,000 \times 100}{80}\) = Rs. 50,000

In simple words: This question involves admitting Sonu as a new partner and requires a complete accounting overhaul. This includes valuing goodwill, adjusting for workmen's compensation claims, revaluing investments, recognizing unrecorded interest and bills payable, and calculating the market value of land and building. All these adjustments are crucial for drawing up accurate accounts and a revised balance sheet.

🎯 Exam Tip: When a new partner is admitted, always carefully analyze all given adjustments. Pay special attention to hidden adjustments, such as market value calculations or unrecorded items, as these often impact multiple accounts and can significantly affect the final balance sheet.

 

**Question 10. Vidit and Vishal are partners sharing profit and loss in the ratio of 2 : 3. The balance sheet of their firm as on 31-3-2016 was as under :**
Balance Sheet

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital Account :		Building	66,000
Vidit	48,000	Machinery	30,000
Vishal	60,000	1,08,000	Stock	18,000
Contigency reserve	9,000	Debtors	39,600
Workmen compensation reserve	24,000	Bank	8,400
Investment reserve	7,200	Investment	18,000
Creditors	30,000	Bad debt reserve	1,800
	1,80,000		1,80,000

**They admitted Bunty on 1-4-2016 as a new partner on the following terms :**
**(1) Vidit will sacrifice \(\frac{1}{4}\)th from his share and Vishal will sacrifice \(\frac{1}{8}\)th from his share in the favour of Bunty.**
**(2) Bunty will bring Rs. 72,000 as capital and his share of goodwill in cash.**
**(3) Goodwill of the firm is valued at Rs. 32,000.**
**(4) Vidit and Vishal withdrew 50% of goodwill received by them in cash.**
**(5) Provision for depreciation on machinery is to be made at 10%.**
**(6) Write off Rs. 3,600 as bad debt from debtors and provision for bad debt is to be maintained at 15%.**
**(7) Market value of investment is Rs. 9,000 which is to be recorded in the books.**
**(8) Claim of workmen compensation is accepted at Rs. 30,000.**
**(9) 10% of creditors are now not to be paid. Prepare necessary account and balance sheet of new firm.**
Answer:
Revaluation Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Machinery A/c	3,000	By Creditors A/c	3,000
To Bad debts A/c	3,600	By Loss: Old Partners Capital A/c Vidit Vishal	6,000 9,000
To Investments A/c	1,800		15,000
To Claim of workmen accident comp. A/c	6,000
To Bad debts reserve A/c (Rs. 5,400 - Rs. 1,800)	3,600
Total	18,000	Total	18,000

Partners' Capital Account

Debit Particulars	Vidit (Rs.)	Vishal (Rs.)	Bunty (Rs.)	Credit Particulars	Vidit (Rs.)	Vishal (Rs.)	Bunty (Rs.)
To Bank A/c (Goodwill)	4,000	2,000	-	By Balance b/f	48,000	60,000	-
To Revaluation - loss A/c	6,000	9,000	-	By Bank A/c	-	-	72,000
				By Contingency reserve A/c	3,600	5,400	-
To Balance c/f	49,600	58,400	72,000	By Premium for goodwill A/c	8,000	4,000	-
Total	59,600	69,400	72,000	Total	59,600	69,400	72,000

Bank Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Balance b/f	8,400	By Vidit's capital A/c(Goodwill)	4,000
To Bunty's capital A/c	72,000	By Vishal's capital A/c(Goodwill)	2,000
To Premium for Goodwill A/c	12,000	By Balance c/f	86,400
Total	92,400	Total	92,400

Balance Sheet as on 1-4-2016 after admission

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital Account :		Building	66,000
Vidit	49,600	Machinery	27,000
Vishal	58,400	Investments	9,000
Bunty	72,000	1,80,000	Stock	18,000
Claim towards workmen compensation fund	30,000	Debtors	39,600
Creditors	27,000	- Bad debts (A)	3,600
			36,000
		- Bad debts reserve (A)	5,400
			30,600
		Bank Balance	86,400
	2,37,000		2,37,000

Note :
(1) Vidit and Vishal sacrifice \(\frac{1}{4}\) and \(\frac{1}{8}\) respectively (making denominator equal); \(\frac{2}{8}\) and \(\frac{1}{8}\)

Sacrifice Ratio = 2 : 1
Sacrifice of Vidit + Sacrifice of Vishal = \(\frac{2}{8}+\frac{1}{8}=\frac{3}{8}\)

(2) Goodwill brought by new partner Bunty = Rs. 32,000 \(\times \frac{3}{8}\) = Rs. 12,000, which is distributed between Vidit and Vishal in sacrificing ratio 2 : 1.
(3) Claim for workmen's compensation accepted is Rs. 30,000 against the provision for workmen's compensation reserve Rs. 24,000. Additional claim of Rs. 6,000 is debited to the Revaluation A/c.
(4) There is decrease in the value of investments of Rs. 9,000 while investment fluctuation reserve is only Rs. 7,200. Additional loss Rs. 1,800 is debited to the Revaluation A/c.

In simple words: This question involves admitting a new partner, Bunty, with specific sacrifice ratios from existing partners. It requires recording Bunty's capital and goodwill, distributing goodwill among sacrificing partners, and adjusting for various revaluations like machinery depreciation, bad debts, investment value changes, workmen's compensation claims, and unpayable creditors. All these complex adjustments culminate in updated financial statements.

🎯 Exam Tip: When dealing with goodwill, always ascertain if it's existing goodwill to be written off or new goodwill to be distributed. Also, be mindful of specific instructions regarding claims (like workmen's compensation) which might exceed existing reserves, leading to a debit in the Revaluation Account.

 

**Question 11. Prerna and Piyush are partners in a firm sharing profit and loss in the ratio of their capital. Balance sheet of their firm was as under :**
Balance Sheet

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital account :		Building	90,000
Prerna	50,000	Furniture	17,500
Piyush	1,50,000	2,00,000	Machinery	1,07,500
Reserve fund	30,000	Stock	17,500
Creditors	40,000	Debtors	30,000
Outstanding expenses	1,500	Cash-Bank	8,250
		Accrued income	750
	2,71,500		2,71,500

**They admitted Poyani as a new partner for \(\frac{1}{5}\)th share of profit on 31-3-2016 on following terms:**
**(1) Poyani brought Rs. 62,500 as capital and 24,000 as her share of goodwill in cash. 60% amount of goodwill is withdrawn by the old partners.**
**(2) Market value of stock and machinery is Rs. 20,000 and Rs. 1,20,000 respectively.**
**(3) Provision for bad debt at 10% and 2% discount reserve on debtors is to be made.**
**(4) Creditors are to be paid Rs. 30,000.**
**(5) Value of building is to be increased by 15% and value of furniture is to be increased by 20%.**
**(6) Outstanding wages of Rs. 460 is not recorded in the books.**
**From the above information prepare necessary accounts and new balance sheet of the firm.**
Answer:
Revaluation Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Bad debts reserve A/c	3,000	By Stock A/c	2,500
To Discount reserve A/c	540	By Machinery A/c	12,500
To Unpaid wages A/c	460	By Creditors A/c	10,000
To Profit: Old partners capital A/c Prerna Piyush	9,500 28,500	By Building A/c	13,500
	38,000	By Furniture A/c	3,500
Total	42,000	Total	42,000

Partners' Capital Account

Debit Particulars	Prerna (Rs.)	Piyush (Rs.)	Poyani (Rs.)	Credit Particulars	Prerna (Rs.)	Piyush (Rs.)	Poyani (Rs.)
To Goodwill A/c	3,600	10,800	-	By Balance b/f	50,000	1,50,000	-
To Balance c/f	69,400	2,08,200	62,500	By Cash A/c	-	-	62,500
				By Reserve fund A/c	7,500	22,500	-
				By Premium for goodwill A/c	6,000	18,000	-
				By Revaluation A/c	9,500	28,500	-
Total	73,000	2,19,000	62,500	Total	73,000	2,19,000	62,500

Cash-Bank Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Balance b/f	8,250	By Prerna's capital A/c(Goodwill)	3,600
To Poyani's capital A/c	62,500	By Piyush's capital A/c (Goodwill)	10,800
To Premium for Goodwill A/c	24,000	By Balance c/f	80,350
To Prerna's capital A/c	6,000
To Piyush's capital A/c	18,000
Total	94,750	Total	94,750

Balance Sheet as on 1-4-2016 after admission

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital Account :		Building	1,03,500
Prerna	69,400	Furniture	21,000
Piyush	2,08,200	Machinery	1,20,000
Poyani	62,500	3,40,100	Stock	20,000
Creditors	30,000	Debtors	26,460
Unpaid expenses	1,500	Cash-Bank balance	80,350
Unpaid wages	460	Receivable income	750
	3,72,060		3,72,060

Note:
(1) Prerna and Piyush shared profit and loss in capital ratio. Their capital is Rs. 50,000 and Rs. 1,50,000 respectively.
(2) Premium for goodwill of Poyani will be distributed between Prerna and Piyush in the ratio of 1:3.

In simple words: This problem centers on the admission of Poyani as a new partner, requiring various adjustments to the firm's financial records. This includes new capital and goodwill contributions, revaluation of assets and liabilities, and the creation of specific reserves. The solution meticulously details journal entries, revaluation, capital, and cash-bank accounts, culminating in a revised balance sheet to reflect the new partnership structure.

🎯 Exam Tip: When capital sharing ratios are based on existing capital, ensure accurate calculations for profit distribution. Remember that withdrawals of goodwill by old partners directly impact the cash/bank account and their capital accounts.

 

**Question 12. P and O are partners sharing profit and loss in the ratio of 3 : 2. Balance sheet of their firm was as on 31-3-2016 was as under :**
Balance Sheet

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital account :		Land-Building	80,000
P	70,000	Debtors	22,000
Q	50,000	1,20,000	- Bad debt reserve	2,000
Providend fund	18,000		20,000
Creditors	22,000	Stock	36,000
		Cash	4,000
		Goodwill	20,000
	1,60,000		1,60,000

**On above date they admitted R as a new partner on the following terms :**
**(1) R will bring Rs. 60,000 as capital in cash. (2) Goodwill is valued at Rs. 30,000. (3) R cannot bring his share of goodwill in cash. (4) Value of land and building is Rs. 90,000. (5) Bad debt reserve is to be provided at 5% on debtors. (6) Value of stock is to be reduced by Rs. 400. (7) Creditors of Rs. 500 are not to be paid. (8) New profit and loss sharing ratio of all partners is decided at 5 : 2 : 3.**
**From the above information prepare necessary accounts and balance sheet after admission. Give necessary journal entries for goodwill.**
Answer:
Revaluation Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Stock A/c	400	By Land-Building A/c	10,000
To Profit - Old partners' capital A/c P Q	6,600 4,400	By Creditors A/c	500
	11,000	By Bad debts reserve A/c	900
Total	11,400	Total	11,400

Cash Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Balance b/f	4,000	By Balance c/f	64,000
To R's capital A/c	60,000
Total	64,000	Total	64,000

Balance Sheet as on 1-4-2016 after admission

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital Accounts :		Land-Building	90,000
P	67,600	Debtors	20,900
Q	52,400	Stock	35,600
R	51,000	1,71,000	Cash balance	64,000
Providend Fund	18,000
Creditors	21,500
	2,10,500		2,10,500

Journal entries for Goodwill

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
(1)	P's capital A/c Q's capital A/c To Goodwill A/c (Being at the time of admission of a new partner, goodwill amount (old) distributed among old partners in old profit-loss ratio)	Dr. Dr.	12,000 8,000	20,000
(2)	R's capital A/c To P's capital A/c To Q's capital A/c (Being goodwill part amount not brought by partner R in cash)	Dr.	9,000	3,000 6,000

Note:
(1) Sacrificing Ratio : Old ratio of P and Q = 3 : 2, New ratio of P, Q and R = 5 : 2 : 3
Sacrifice of partner = Old share - New share

Sacrifice of P = \(\frac{3}{5}-\frac{5}{10}=\frac{6-5}{10}=\frac{1}{10}\)

Sacrifice of Q = \(\frac{2}{5}-\frac{2}{10}=\frac{4-2}{10}=\frac{2}{10}\)

Sacrifice ratio = \(\frac{1}{10}: \frac{2}{10} = 1 : 2\)

(2) Goodwill of R = Rs. 30,000 \(\times \frac{3}{10}\) = Rs. 9,000

In simple words: This question covers the admission of a new partner, R, who brings capital but cannot bring his share of goodwill in cash. The firm undertakes asset and liability revaluations, adjusts the bad debt reserve, and reduces stock value. The solution presents revaluation and cash accounts, along with goodwill journal entries, and a post-admission balance sheet.

🎯 Exam Tip: When a new partner cannot bring goodwill in cash, their capital account is debited for their share of goodwill. Ensure the revaluation of assets (like land and building) and liabilities (like bad debt reserve and creditors) is accurately calculated and posted.

 

**Question 13. A and B are partners in a firm sharing profit and loss in the ratio of 4 : 1. Balance sheet of their firm as on 31-3-2017 was as under :**
Balance Sheet

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital accounts :		Land-Building	35,000
A	75,000	Furniture	30,000
B	25,000	1,00,000	Investments	25,000
Current accounts :		Stock	15,000
A	8,000	Debtors	5,500
B	2,000	10,000	- Bad debt reserve	500
Workmen accident compensation fund	5,000		5,000
Creditors	4,000	Bills receivable	2,000
Bills payable	1,000	Cash-Bank	3,000
		Goodwill	5,000
	1,20,000		1,20,000

**They admitted C as a new partner on above date on the following conditions. They decided to keep their new profit-loss sharing ratio at 3 : 1 : 1:**
**(1) C will bring Rs. 20,000 as capital for his \(\frac{1}{5}\)th share of profit and Rs. 5,000 as his goodwill in cash. Out of goodwill half amount is to be withdrawn by the old partners.**
**(2) Value of land and building is to be increased by 10%. While value of furniture and stock is to be decreased by 5%. (3) Market value of investment is Rs. 35,000. Which is to be shown in the books. (4) Provision for doubtfull debt is to be made at 10% on debtors. (5) Workmen accident compensation claim is accepted Rs. 1,000. (6) Dishonour expense of bills receivable Rs. 150 and bank charges Rs. 300 which are paid but not recorded in the books.**
Answer:
Revaluation Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Furniture A/c	1,500	By Land-Building A/c	3,500
To Stock A/c	750	By Investments A/c	10,000
To Bad debts reserve A/c	50
To Bills dishonoured charges A/c	150
To Bank charges A/c	300
To Profit: Old partners' capital A/c A B	8,600 2,150
	10,750
Total	13,500	Total	13,500

Partners' Capital Account

Debit Particulars	A (Rs.)	B (Rs.)	C (Rs.)	Credit Particulars	A (Rs.)	B (Rs.)	C (Rs.)
To Balance c/f	75,000	25,000	20,000	By Balance b/f	75,000	25,000	-
				By Cash A/c	-	-	20,000
Total	75,000	25,000	20,000	Total	75,000	25,000	20,000

Partners' Current Account

Debit Particulars	A (Rs.)	B (Rs.)	C (Rs.)	Credit Particulars	A (Rs.)	B (Rs.)	C (Rs.)
To Goodwill A/c	4,000	1,000	-	By Balance b/f	8,000	2,000	-
To Cash A/c (goodwill)	2,500	-	-	By Workmen's accident comp. fund A/c	3,200	800	-
To Balance c/f	18,300	3,950	-	By Premium for goodwill A/c	5,000	-	-
				By Revaluation A/c	8,600	2,150	-
Total	24,800	4,950	-	Total	24,800	4,950	-

Cash-Bank Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Balance b/f	3,000	By A's current A/c (goodwill)	2,500
To C's capital A/c	20,000	By Bills dishonoured charges A/c	150
To Premium for goodwill A/c	5,000	By Bank charges A/c	300
		By Balance c/f	25,050
Total	28,000	Total	28,000

 

Balance Sheet as on 1-4-2017 after admission

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital Accounts :		Land-Building	38,500
A	75,000	Furniture	28,500
B	25,000	Stock	14,250
C	20,000	1,20,000	Investments	35,000
Current Accounts :		Debtors	5,500
A	18,300	- B.D.R. (A)	550
B	3,950	22,250		4,950
Workmen's accident compensation fund	1,000	Bills receivable	2,000
Creditors	4,000	Cash-Bank balance	25,050
Bills Payable	1,000
	1,48,250		1,48,250

Note:
(1) Sacrificing Ratio : Old ratio of A and B = 4 : 1, New ratio of A, B and C = 3 : 1 : 1
Sacrifice of partner = Old share - New share

A's Sacrifice = \(\frac{4}{5}-\frac{3}{5}=\frac{1}{5}\)

B's Sacrifice = \(\frac{1}{5}-\frac{1}{5} = 0\)

Only A has sacrifice, so he will received the C's share of goodwill Rs. 5,000.
(2) From the amount of goodwill Rs. 5,000, half amount Rs. 2,500 will be withdrawn by partner A.

In simple words: This question deals with admitting a new partner, C, and requires adjusting for C's capital and goodwill contributions, including a partial withdrawal of goodwill by existing partners. It involves several revaluation tasks for assets like land, furniture, stock, and investments, as well as accounting for bad debts, workmen's compensation claims, and unrecorded expenses. The solution provides a detailed set of accounts, including revaluation, partners' capital and current accounts, and a cash-bank account, along with a final balance sheet.

🎯 Exam Tip: When goodwill is partially withdrawn by old partners, ensure the cash/bank account reflects this withdrawal. Also, calculate the bad debt provision carefully; if there's an existing reserve, only the additional required amount or the reduction in the existing amount should be posted to the Revaluation Account.

Question 14. Rutvi and Princy are partners sharing profit and loss in the ratio of 5 : 3. Their balance sheet as on 31-3-2017 was as under:

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital Account :		Building	66,000
Vidit	48,000	Machinery	30,000
Vishal	60,000	1,08,000	Stock	18,000
Contingency reserve	9,000	Debtors	39,600
Workmen compensation reserve	24,000	Bank	8,400
Investment reserve	7,200	Investment	18,000
Creditors	30,000
Bad debt reserve	1,800
	1,80,000		1,80,000

They admitted Manan as a new partner on 1-4-2017 on the following terms :
(1) Manan will bring his personal furniture of Rs. 75,000 as capital.
(2) Out of creditors payable to Manan which is to be transferred to his capital account.
(3) Manan will be given \( \frac{1}{5} \) th share in future.
(4) Manan will bring Rs. 45,000 as goodwill in cash.
(5) Goodwill of firm is valued at Rs. 3,00,000.
(6) Credit purchase of Rs. 15,000 which was not recorded in creditors account and purchase account but it is included in closing stock.
(7) Market value of stock of Rs. 45,000 is Rs. 36,000.
(8) Liability of workmen compensation is Rs. 28,000.
(9) Accrued interest on investment Rs. 24,000 is not recorded.
Prepare new balance sheet after admission.

Answer:

The solution involves recording all adjustments, including goodwill, revaluation of assets and liabilities, and the new partner's capital contributions. This requires passing various journal entries and then preparing the Revaluation Account, Partners' Capital Account, Partners' Current Account, Cash Account, and the final Balance Sheet to reflect the new partnership structure.

Journal entries for Goodwill

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
(1)	P's capital A/c Q's capital A/c To Goodwill A/c (Being at the time of admission of a new partner, goodwill amount (old) distributed among old partners in old profit-loss ratio)	Dr. Dr.	12,000 8,000	20,000
(2)	R's capital A/c To P's capital A/c To Q's capital A/c (Being goodwill part amount not brought by partner R in cash)	Dr.	9,000	3,000 6,000

Note:
(1) Sacrificing Ratio: The old profit-loss sharing ratio of P and Q was 3:2. The new profit-loss sharing ratio of P, Q and R is 5:2:3.
Sacrifice of partner = Old share - New share
Sacrifice of P = \( \frac{3}{5}-\frac{5}{10}=\frac{6-5}{10}=\frac{1}{10} \)
Sacrifice of Q = \( \frac{2}{5}-\frac{2}{10}=\frac{4-2}{10}=\frac{2}{10} \)
Sacrifice ratio = \( \frac{1}{10}: \frac{2}{10} = 1 : 2 \)
(2) Goodwill of R = Rs. 30,000 x = Rs. 9,000

Revaluation Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Stock A/c	9,000	By Interest on Investments A/c	24,000
To Creditors A/c	15,000
	24,000		24,000

Partners' Capital Account

Debit Particulars	Rutvi (Rs.)	Princy (Rs.)	Manan (Rs.)	Credit Particulars	Rutvi (Rs.)	Princy (Rs.)	Manan (Rs.)
To Current A/c (Goodwill)	-	-	-	By Balance b/f	1,20,000	90,000	-
To Current A/c Princy (Goodwill)	-	-	-	By Furniture A/c	-	-	75,000
To Balance c/f	1,20,000	90,000	1,35,000	By Creditors A/c	-	-	60,000
	1,20,000	90,000	1,35,000		1,20,000	90,000	1,35,000

Partners Current Account

Debit Particulars	Rutvi (Rs.)	Princy (Rs.)	Manan (Rs.)	Credit Particulars	Rutvi (Rs.)	Princy (Rs.)	Manan (Rs.)
To Current A/c Rutvi (Goodwill)	-	-	-	By Balance b/f	1,50,000	1,95,000	-
To Current A/c Princy (Goodwill)	-	-	-	By Premium for goodwill A/c	28,125	16,875	-
To Balance c/f	2,07,500	2,29,500	-	By Current A/c of Manan	9,375	5,625	-
	2,07,500	2,29,500	15,000	By Workmen's compensation reserve A/c	20,000	12,000	-
				By Balance c/f	-	-	15,000
	2,07,500	2,29,500	15,000		2,07,500	2,29,500	15,000

Bank Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Balance b/f	60,000	By Balance c/f	1,05,000
To Premium for goodwill A/c	45,000
	1,05,000		1,05,000

Balance Sheet as on 1-4-2017 after admission

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital Accounts :		Building	4,50,000
Rutvi	1,20,000	Furniture	75,000
Princy	90,000	Investments	1,05,000
Manan	1,35,000	3,45,000	Stock	51,000
Current Accounts :		Debtors	90,000
Rutvi	2,07,500	Bank balance	1,05,000
Princy	2,29,500	4,37,000	Outstanding Int. on Investments	24,000
Workmen's profit sharing fund	30,000	Current A/c : Manan	15,000
Creditors	75,000
Workmen's compensation liability	28,000
	9,15,000		9,15,000

Note:
(1) Manan contributes furniture worth Rs. 75,000 to the firm and pays Rs. 60,000 to creditors. Manan's total capital contribution is Rs. 75,000 (furniture) + Rs. 60,000 (creditors adjusted) = Rs. 1,35,000.
(2) The firm's goodwill is valued at Rs. 3,00,000. Manan's share of goodwill is calculated as \( \text{Rs. } 3,00,000 \times \frac{1}{5} = \text{Rs. } 60,000 \). He brings Rs. 45,000 in cash, so the remaining Rs. 15,000 goodwill is debited to his current account.
(3) The premium for goodwill of Rs. 60,000 is distributed between Rutvi and Princy in their sacrificing ratio.
(4) When a new profit-loss sharing ratio or sacrificing ratio is not explicitly given, the sacrificing ratio is assumed to be the old ratio (5:3).

In simple words: This question demonstrates how to account for the admission of a new partner, including bringing in capital and goodwill, revaluing assets and liabilities, and settling outstanding claims. It requires a complete set of financial statements to reflect the changes in the partnership.

🎯 Exam Tip: Pay close attention to all adjustment items, especially how goodwill is treated when not brought in full cash, and how specific liabilities (like creditors to new partner) are handled. Accurately preparing all accounts and the balance sheet is crucial for scoring well.

Question 15. Riya and Gauri are the partners sharing profit and loss in the ratio of 1 : 2. They admitted Sanju as a new partner for \( \frac{1}{5} \) th share on 1-4-2017. Sanju brings Rs. 90,000 as capital in cash. After the adjustment of reserves, profit of revaluation and goodwill the capital of Riya and Gauri was Rs. 1,50,000 and Rs. 2,00,000 respectively. Partners decided to maintain new firm's total capital at Rs. 4,50,000 in their new profit and loss ratio. Necessary adjustments to be brought or withdrawn in cash. Prepare partners' capital account.

Answer:

To prepare the partners' capital account, we first need to determine the new profit-loss sharing ratio and then calculate each partner's proportionate capital in the new firm. Based on these target capital amounts, any excess cash will be withdrawn, and any deficit will be brought in by the partners.

Partners' Capital Account

Debit Particulars	Riya (Rs.)	Gauri (Rs.)	Sanju (Rs.)	Credit Particulars	Riya (Rs.)	Gauri (Rs.)	Sanju (Rs.)
To Cash A/c (withdrawn)	30,000	-	-	By Balance b/f	1,50,000	2,00,000	-
To Balance c/f	1,20,000	2,40,000	90,000	By Cash A/c	-	-	90,000
	1,50,000	2,40,000	90,000	By Cash A/c (deposited)	-	40,000	-
	1,50,000	2,40,000	90,000		1,50,000	2,40,000	90,000

Note:
(1) New profit-loss sharing ratio : The old profit-loss ratio of Riya and Gauri was 1:2, which means \( \frac{1}{3}: \frac{2}{3} \).
Let the total share of profit be 1. Sanju's share is \( \frac{1}{5} \).
The remaining share for Riya and Gauri is \( 1 - \frac{1}{5} = \frac{4}{5} \).
New share of old partners = Remaining share of profit x Share in old ratio
Riya's new share = \( \frac{4}{5} \times \frac{1}{3}=\frac{4}{15} \).
Gauri's new share = \( \frac{4}{5} \times \frac{2}{3}=\frac{8}{15} \).
Sanju's new share = \( \frac{1}{5} \). To make denominators equal, Sanju's share is \( \frac{1}{5} \times \frac{3}{3} = \frac{3}{15} \).
Therefore, the new profit-loss ratio of Riya, Gauri, and Sanju is 4:8:3.
(2) Capital of each partner in New Firm: The total capital of the new firm is Rs. 4,50,000. This capital is to be distributed among partners in their new profit-loss ratio.
Riya's capital = \( 4,50,000 \times \frac{4}{15} = \text{Rs. } 1,20,000 \)
Gauri's capital = \( 4,50,000 \times \frac{8}{15} = \text{Rs. } 2,40,000 \)
Sanju's capital = \( 4,50,000 \times \frac{3}{15} = \text{Rs. } 90,000 \)
Riya's capital before adjustment was Rs. 1,50,000. Her new capital should be Rs. 1,20,000. Thus, Riya needs to withdraw Rs. 30,000 (Rs. 1,50,000 - Rs. 1,20,000) in cash from the business.
Gauri's capital before adjustment was Rs. 2,00,000. Her new capital should be Rs. 2,40,000. Thus, Gauri needs to bring Rs. 40,000 (Rs. 2,40,000 - Rs. 2,00,000) in cash into the business.

In simple words: When a new partner joins, existing partners may need to adjust their capital to align with the new profit-sharing ratio and a predetermined total capital. This often involves withdrawing or contributing cash to meet the new capital requirements.

🎯 Exam Tip: For capital adjustment questions, calculate the new profit-sharing ratio and the proportionate capital for each partner first. Then, compare these target capital amounts with their existing adjusted capital balances to determine cash inflows or outflows. Accuracy in ratio calculation is critical.

Question 16. Parshvi and Aneri are the partners sharing profit and loss in the ratio of 2 : 1. Balance sheet of their firm as on 31-3-2016 was as under:

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital Accounts :		Goodwill	21,000
Parshvi	91,000	Building	1,40,000
Aneri	84,000	1,75,000	Furniture	28,000
Capital reserve	14,700	Stock	18,200
Workmen saving account	7,000	Debtors	16,800
Workmen profit sharing fund	8,400	Cash	56,000
10% Loan from bank	35,000
Creditors	39,900
	2,80,000		2,80,000

On 1-4-2016, they admitted Henshi as a new partner on the following conditions :
(1) New profit and loss sharing ratio is to be kept at 3 : 4 : 2.
(2) Henshi brings Rs. 40,000 as capital.
(3) Interest on bank loan is outstanding for one year.
(4) Personal expense of Parshvi paid by the firm is debited to the profit and loss account Rs. 5,600.
(5) Reconstruction expense is paid by Aneri Rs. 8,400.
(6) Goodwill is valued at Rs. 90,000.
(7) Parshvi and Aneri will maintain their capital in the new firm in their new profit and loss sharing ratio by taking Henshi's capital as base. For this purpose, necessary adjustments should be made in partners' current account.
Prepare necessary accounts and balance sheet after admission.

Answer:

Upon Henshi's admission, various adjustments are necessary. This involves recognizing outstanding interest on the bank loan, recording partners' personal expenses, handling reconstruction expenses, and revaluing goodwill. The partners' capital accounts are then adjusted to reflect the new profit-sharing ratio based on Henshi's capital, with balancing amounts moving through their current accounts. Finally, the firm's financial position is presented in a new balance sheet.

Revaluation Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Interest on loan A/c	3,500	By Parshvi's capital A/c	5,600
To Capital A/c - Aneri (Reconstruction exp. paid)	8,400	By Loss : Old partners' capital A/c Parshvi Aneri	4,200 2,100	6,300
	11,900		11,900

Partners Capital Account

Debit Particulars	Parshvi (Rs.)	Aneri (Rs.)	Henshi (Rs.)	Credit Particulars	Parshvi (Rs.)	Aneri (Rs.)	Henshi (Rs.)
To Goodwill A/c	14,000	7,000	-	By Balance b/f	91,000	84,000	-
To Revaluation A/c	5,600	-	-	By Cash A/c	-	-	40,000
To Revaluation A/c Loss	4,200	2,100	-	By Capital reserve A/c	9,800	4,900	-
To Parshvi's capital A/c	10,000	-	-	By Revaluation A/c	-	8,400	-
To Partners current A/c	47,000	-	-	By Aneri's capital A/c	-	10,000	-
To Balance c/f	60,000	80,000	40,000	By Henshi's capital A/c	20,000	-	-
	1,30,800	99,100	60,000	By Partners' current A/c	1,800	-	20,000
	1,30,800	99,100	60,000		1,30,800	99,100	60,000

Cash Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Balance b/f	56,000	By Balance c/f	96,000
To Henshi's capital A/c	40,000
	96,000		96,000

Balance Sheet as on 1-4-2016 after admission

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital Accounts :		Building	1,40,000
Parshvi	60,000	Furniture	28,000
Aneri	80,000	Stock	18,200
Henshi	40,000	1,80,000	Debtors	16,800
Workmen saving account	7,000	Cash balance	56,000
Workmen profit sharing fund	8,400	+ Cash brought by Henshi	40,000	96,000
10% Loan from bank	35,000	Current A/c : Aneri	1,800
Outstanding int. on bank loan	3,500	Henshi	20,000
Creditors	39,900
Current A/c - Parshvi	47,000
	3,20,800		3,20,800

Note :
(1) Sacrificing Ratio:
The old ratio of Parshvi and Aneri was 2:1. The new ratio of Parshvi, Aneri and Henshi is 3:4:2.
Sacrifice of partner = Old share - New share
Sacrifice of Parshvi = \( \frac{2}{3}-\frac{3}{9}=\frac{6-3}{9}=\frac{3}{9} \)
Sacrifice of Aneri = \( \frac{1}{3}-\frac{4}{9}=\frac{3-4}{9}=\frac{-1}{9} \) (Aneri is gaining, not sacrificing)
(2) New Goodwill:
The firm's goodwill is valued at Rs. 90,000.
Goodwill received by Parshvi = \( \text{Rs. } 90,000 \times \frac{3}{9} = \text{Rs. } 30,000 \)
Goodwill given to Aneri = \( \text{Rs. } 90,000 \times \frac{1}{9} = \text{Rs. } 10,000 \)
Goodwill given to Henshi = \( \text{Rs. } 90,000 \times \frac{2}{9} = \text{Rs. } 20,000 \)
**Entry for Goodwill :**
Aneri's Capital A/c Dr. 10,000
Henshi's Capital A/c Dr. 20,000
To Parshvi's Capital A/c 30,000
(3) Capital of New partners:
Henshi's capital at \( \frac{2}{9} \) part = Rs. 40,000
Capital of firm at 1 part = \( 40,000 \times \frac{9}{2} = \text{Rs. } 1,80,000 \)
Now, Capital of Parshvi = \( \text{Rs. } 1,80,000 \times \frac{3}{9} = \text{Rs. } 60,000 \)
Capital of Aneri = \( \text{Rs. } 1,80,000 \times \frac{4}{9} = \text{Rs. } 80,000 \)

In simple words: This problem involves a complex admission scenario where goodwill is revalued, some partners gain while others sacrifice, and capital accounts are adjusted to a new profit-sharing ratio based on the incoming partner's capital. Current accounts are used for balancing adjustments.

🎯 Exam Tip: When a partner gains a share instead of sacrificing, their capital account is debited for their share of goodwill. Carefully calculate the sacrificing/gaining ratio. Capital adjustments based on a new partner's capital require calculating the total firm capital and then distributing it according to the new profit-sharing ratio.

Question 17. Ankita and Esha are the partners sharing profit and loss in the ratio of 2 : 1. Balance sheet of their firm as on 31-3-2016 was as under:

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital Accounts :		Machinery	64,000
Ankita	64,000	Furniture	40,000
Esha	32,000	96,000	Stock	13,600
General reserve	16,800	Debtors	40,000
Creditors	60,000	Bad debt reserve	3,200	36,800
Bills payable	8,000	Cash-Bank	26,400
	1,80,800		1,80,800

They admitted Arpita as a new partner on 1-4-2016 on the following conditions :
(1) Ankita sacrificed \( \frac{1}{12} \) th from her share and Esha sacrificed \( \frac{1}{6} \) th from her share in favour of Arpita.
(2) Arpita is to bring proportionate capital.
(3) Arpita is to bring her share of goodwill in cash. Goodwill of the firm is valued at Rs. 90,000.
(4) Fixed assets are to be depreciated by 10%.
(5) All debtors are good.
(6) Insurance premium of Rs. 2,400 out of Rs. 12,000 is to be carried forward to next year.
Prepare necessary accounts and balance sheet.

Answer:

For Arpita's admission, the firm must first revalue its assets and liabilities. This includes adjusting for depreciation on fixed assets, making provision for bad debts no longer needed, and recognizing prepaid insurance. Goodwill is valued, and Arpita contributes her share in cash. Her capital is determined proportionately based on the adjusted capital of the old partners and her profit share. All these adjustments are reflected in the Revaluation Account, Partners' Capital Account, Cash-Bank Account, and the new Balance Sheet.

Revaluation Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Machinery A/c (Depreciation)	6,400	By Bad debts reserve A/c	3,200
To Furniture A/c (Depreciation)	4,000	By Prepaid insurance premium A/c	2,400
		By Loss : Old partners' capital A/c Ankita Esha	3,200 1,600	4,800
	10,400		10,400

Partners Capital Account

Debit Particulars	Ankita (Rs.)	Esha (Rs.)	Arpita (Rs.)	Credit Particulars	Ankita (Rs.)	Esha (Rs.)	Arpita (Rs.)
To Revaluation A/c Loss	3,200	1,600	-	By Balance b/f	64,000	32,000	-
				By Cash A/c	-	-	43,500
				By General reserve A/c	11,200	5,600	-
To Balance c/f	79,500	51,000	43,500	By Premium for goodwill A/c	7,500	15,000	-
	82,700	52,600	43,500		82,700	52,600	43,500

Cash-Bank Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Balance b/f	26,400	By Balance c/f	92,400
To Arpita's capital A/c	43,500
To Premium for goodwill A/c	22,500
	92,400		92,400

Balance Sheet as on 1-4-2016 after admission

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital Accounts :		Machinery	64,000
Ankita	79,500	- Depreciation	6,400	57,600
Esha	51,000	Furniture	40,000
Arpita	43,500	1,74,000	- Depreciation	4,000	36,000
Creditors	60,000	Stock	13,600
Bills Payable	8,000	Debtors	40,000
		Cash-Bank	92,400
		Prepaid Insurance Premium	2,400
	2,42,000		2,42,000

Note:
(1) Sacrificing Ratio:
Sacrifice by Ankita = \( \frac{1}{12} \)
Sacrifice by Esha = \( \frac{1}{6} = \frac{2}{12} \)
Sacrificing ratio : 1:2
Arpita's share = Ankita's sacrifice + Esha's sacrifice = \( \frac{1}{12}+\frac{2}{12}=\frac{3}{12}=\frac{1}{4} \)
(2) Goodwill:
Goodwill to be brought by Arpita = \( \text{Rs. } 90,000 \times \frac{1}{4} = \text{Rs. } 22,500 \)
Arpita's goodwill amount, distributed among old partners in the sacrificing ratio = 1:2
Ankita's goodwill amt. = \( \text{Rs. } 22,500 \times \frac{1}{3} = \text{Rs. } 7,500 \)
Esha's goodwill amt. = \( \text{Rs. } 22,500 \times \frac{2}{3} = \text{Rs. } 15,000 \)
(3) Arpita's capital:
Ankita's capital in new firm = Rs. 79,500
Esha's capital in new firm = Rs. 51,000
Total capital = Rs. 1,30,500
Arpita's share in profit = \( \frac{1}{4} \). Total share in profit of Ankita and Esha = \( 1 - \frac{1}{4} = \frac{3}{4} \)
For \( \frac{3}{4} \) share of Ankita and Esha, Capital = Rs. 1,30,500
For \( \frac{1}{4} \) share of Arpita, Capital = \( \text{Rs. } 1,30,500 \times \frac{1}{4} \times \frac{4}{3} = \text{Rs. } 43,500 \)

In simple words: This problem involves adjusting accounts for a new partner's admission, including depreciation, revaluing assets, recording prepaid expenses, and handling goodwill. The incoming partner's capital is calculated proportionally based on the adjusted capital of existing partners.

🎯 Exam Tip: Remember to calculate the new partner's capital proportionally from the combined adjusted capital of the old partners after all revaluation adjustments. Also, accurately compute the sacrificing ratio for goodwill distribution, which is usually the ratio in which old partners sacrifice their share.

Question 18. Jaini and Aanya are the partners sharing profit and loss in the ratio of 3 : 2. The balance sheet of their firm as on 31-3-2016 was as under:

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital Accounts :		Building	42,000
Jaini	70,000	Machinery	17,500
Aanya	56,000	1,26,000	Investment	63,000
General reserve	8,400	Debtors	56,000
Investment reserve	4,200	Bad debt reserve	2,800	53,200
Workmen profit sharing fund	31,500	Bank	39,200
Creditors	44,800
	2,14,900		2,14,900

They admitted Priyanka as a partner on 1-4-2016 on the following terms :
(1) Priyanka will bring Rs. 14,000 as goodwill in cash.
(2) Priyanka will bring her capital equal to 20% of new total capital of Jaini and Aanya.
(3) New profit and loss sharing ratio is to be kept at 2:2:1.
(4) Provision for bad debt is not required.
(5) Machinery is to be reduced by 10%.
(6) Market value of building is Rs. 70,000.
(7) Market value of investments is Rs. 68,950.
(8) Total capital of the old partners Jaini and Aanya after all adjustments will be maintained in their relative new ratio. For this purpose, necessary adjustments will be made through bank.
Prepare necessary accounts and balance sheet.

Answer:

The admission of Priyanka requires a comprehensive accounting process. This includes revaluing assets like machinery, building, and investments, reversing bad debt provisions, and adjusting for goodwill brought by the new partner. The capital accounts of existing partners, Jaini and Aanya, are adjusted to a new profit-sharing ratio based on Priyanka's proportionate capital, with cash adjustments made through the bank. All these changes are recorded in the Revaluation Account, Partners' Capital Account, Bank Account, and finally presented in the new Balance Sheet.

Revaluation Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Machinery A/c	1,750	By Bad debts reserve A/c	2,800
To Profit: Old partners' capital A/c Jaini Aanya	21,000 14,000	By Building A/c	28,000
	35,000	By Investments A/c	5,950
	36,750		36,750

Partners Capital Account

Debit Particulars	Jaini (Rs.)	Aanya (Rs.)	Priyanka (Rs.)	Credit Particulars	Jaini (Rs.)	Aanya (Rs.)	Priyanka (Rs.)
To Bank A/c	18,760	-	-	By Balance b/f	70,000	56,000	-
				By General reserve A/c	5,040	3,360	-
				By Investment reserve A/c	2,520	1,680	-
To Balance c/f	93,800	93,800	37,520	By Revaluation A/c - Profit	21,000	14,000	-
				By Premium for goodwill A/c	14,000	-	-
	1,12,560	93,800	37,520	By Bank A/c	-	18,760	37,520
	1,12,560	93,800	37,520		1,12,560	93,800	37,520

Bank Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Balance b/f	39,200	By Jaini's capital A/c	18,760
To Premium for goodwill A/c	14,000	By Balance c/f	90,720
To Aanya's capital A/c	18,760
To Priyanka's capital A/c	37,520
	1,09,480		1,09,480

Balance Sheet as on 1-4-2016 after admission

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital Accounts :		Building	70,000
Jaini	93,800	Machinery	15,750
Aanya	93,800	Investments	68,950
Priyanka	37,520	2,25,120	Debtors	56,000
Creditors	44,800	Bank balance	90,720
Workmen's profit sharing fund	31,500
	3,01,420		3,01,420

Note :
(1) Sacrificing ratio :
The old profit-loss sharing ratio of Jaini and Aanya was 3:2.
The new profit-loss sharing ratio of Jaini, Aanya and Priyanka is 2:2:1.
Sacrifice of partner = Old share - New share
Jaini's Sacrifice = \( \frac{3}{5}-\frac{2}{5}=\frac{1}{5} \)
Aanya's Sacrifice = \( \frac{2}{5}-\frac{2}{5} = 0 \)
Therefore, the premium for goodwill amount is received by Jaini only.
(2) Capital of Jaini, Aanya and Priyanka :

Particulars	Jaini (Rs.)	Aanya (Rs.)
Opening balance	70,000	56,000
General reserve	5,040	3,360
Investment fluctuation reserve	2,520	1,680
Premium for goodwill	14,000	-
Revaluation A/c - Profit	21,000	14,000
Total New Capital	1,12,560	75,040

Priyanka brings her share of capital, which is 20% of the total capital of Jaini and Aanya.
Jaini's capital = Rs. 1,12,560
Aanya's capital = Rs. 75,040
Total capital = Rs. 1,87,600
Priyanka's capital = \( \text{Rs. } 1,87,600 \times \frac{20}{100} = \text{Rs. } 37,520 \)
Jaini and Aanya maintained their capital in their new profit sharing ratio, which is 2:2 or 1:1 (equal share)
Jaini's capital = \( \text{Rs. } 1,87,600 \times \frac{1}{2} = \text{Rs. } 93,800 \)
Aanya's capital = \( \text{Rs. } 1,87,600 \times \frac{1}{2} = \text{Rs. } 93,800 \)

In simple words: This solution demonstrates how to account for a new partner bringing in capital and goodwill while existing partners adjust their capital to a new profit-sharing ratio through bank transactions. It also involves revaluing various assets and liabilities.

🎯 Exam Tip: When new profit-sharing ratios are provided, first calculate the sacrificing ratio to correctly distribute goodwill. For capital adjustments based on a new partner's proportionate share, ensure all prior adjustments (reserves, revaluation profits/losses) are made to old partners' capital before calculating the base for the new partner.

Question 19. Tapu and Sonu are the partners sharing profit and loss in the ratio of 1 : 2. The balance sheet of their firm as on 31-3-2016 was as under:

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital account :		Goodwill	54,000
Tapu	2,00,000	Land-Building	3,00,000
Sonu	3,00,000	5,00,000	Machinery	1,00,000
Profit-loss A/c	48,000	Stock	40,000
Creditors	50,000	Debtors	80,000
Bad debt reserve	16,000	Cash	40,000
	6,14,000		6,14,000

They admitted Goli as a new partner on the following terms :
(1) Goodwill is valued at Rs. 54,000.
(2) Bad debt reserve on debtors to be maintained at Rs. 10,000.
(3) Land-building is to be increased by 10%.
(4) Book value of machinery is 25% more than its market value.
(5) Value of stock is to be reduced by 10%.
(6) Goli will bring his capital equal to 50% of net assets of the new firm.
(7) Goli will bring his share of goodwill in cash.
(8) Tapu sacrifices \( \frac{1}{3} \) rd of his profit share and Sonu sacrifices \( \frac{1}{6} \) share for Goli.
Prepare the necessary accounts and balance sheet. Also determine new profit-loss sharing ratio of all the three partners.

Answer:

The admission of Goli necessitates a thorough revaluation of assets and liabilities, including adjusting for goodwill, bad debt reserve, land-building, machinery, and stock. Goli contributes goodwill in cash and capital based on the new firm's net assets. Crucially, the sacrificing shares of existing partners (Tapu and Sonu) determine the new profit-loss sharing ratio. All these adjustments are reflected in the Revaluation Account, Partners' Capital Account, Cash Account, and a new Balance Sheet, along with the calculated new profit-sharing ratio.

Revaluation Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To B.D.R. (New)	10,000	By Land-Building A/c	30,000
- B.D.R. (Old)	16,000	(-) 6,000	By Bad debts reserve A/c (As per contra)	6,000
To Machinery A/c	20,000
To Stock A/c	4,000
To Profit: Old Partners' capital A/c Tapu Sonu	4,000 8,000	12,000
	36,000		36,000

Partners' Capital Account

Debit Particulars	Tapu (Rs.)	Sonu (Rs.)	Goli (Rs.)	Credit Particulars	Tapu (Rs.)	Sonu (Rs.)	Goli (Rs.)
To Goodwill A/c	18,000	36,000	-	By Balance b/f	2,00,000	3,00,000	-
				By Profit-loss A/c	16,000	32,000	-
				By Revaluation A/c	4,000	8,000	-
To Balance c/f	2,08,000	3,13,000	5,21,000	By Premium for goodwill A/c	6,000	9,000	-
	2,26,000	3,49,000	5,21,000	By Cash A/c	-	-	5,21,000
	2,26,000	3,49,000	5,21,000		2,26,000	3,49,000	5,21,000

Cash Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Balance b/f	40,000	By Balance c/f	5,76,000
To Premium for goodwill A/c	15,000
To Goli's capital A/c	5,21,000
	5,76,000		5,76,000

Balance Sheet as on 1-4-2016 after admission

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital Accounts :		Land-Building	3,30,000
Tapu	2,08,000	Machinery	80,000
Sonu	3,13,000	Stock	36,000
Goli	5,21,000	10,42,000	Debtors	70,000
Creditors	50,000	Cash balance	5,76,000
	10,92,000		10,92,000

Note:
(1) Sacrificing ratio :
The old profit-loss ratio of Tapu and Sonu was 1:2.
Sacrifice of Tapu = \( \frac{1}{3} \times \frac{1}{3}=\frac{1}{9} \).
Sacrifice of Sonu = \( \frac{2}{3} \times \frac{1}{6}=\frac{1}{9} \).
Sacrifice ratio = \( \frac{1}{9}: \frac{1}{9} = 1:1 \). (The provided note has `\frac{1}{6}` for Sonu and ratio `2:3`. Rechecking question: "Sonu sacrifices \( \frac{1}{6} \) share for Goli" which means \( \frac{2}{3} \times \frac{1}{6} = \frac{1}{9} \) is incorrect, it implies from his *total share* of 2/3, he gives 1/6. The problem text "Sonu sacrifices \( \frac{1}{6} \) share for Goli" could mean 1/6 *of* his share, or 1/6 *as* his share. Given the answer's sacrifice for Sonu is `1/6`, let's assume it means *as* 1/6 of total profit. So Tapu's original 1/3 share and he gives 1/3 of that, `1/3 * 1/3 = 1/9`. Sonu's original 2/3 share and he gives 1/6. This is conflicting. I will follow the note's stated sacrifice ratio `2:3` for Tapu and Sonu).
Re-interpreting sacrifice: Tapu gives \( \frac{1}{3} \) from his share, so \( \frac{1}{3} \times \frac{1}{3} = \frac{1}{9} \). Sonu gives \( \frac{1}{6} \) from his share, so \( \frac{2}{3} \times \frac{1}{6} = \frac{1}{9} \). The sacrificing ratio would then be \( \frac{1}{9}:\frac{1}{9} = 1:1 \). The note provided later (`2:3`) seems to contradict this, but I must follow the provided solution for consistency.
Given note from question: "Tapu sacrifices \( \frac{1}{3} \) rd of his profit share and Sonu sacrifices \( \frac{1}{6} \) share for Goli."
Tapu's share = \( \frac{1}{3} \). Sacrifice = \( \frac{1}{3} \times \frac{1}{3} = \frac{1}{9} \).
Sonu's share = \( \frac{2}{3} \). Sacrifice = \( \frac{1}{6} \). (This implies absolute 1/6, not 1/6 *of* his share).
So, Tapu's sacrifice = \( \frac{1}{9} \), Sonu's sacrifice = \( \frac{1}{6} \).
Sacrificing Ratio: \( \frac{1}{9} : \frac{1}{6} \). To simplify, multiply by 18: \( (18 \times \frac{1}{9}) : (18 \times \frac{1}{6}) = 2:3 \). This matches the note. So the note is correct.
(2) Distribution of Goodwill :
Part of Goli = Sacrifice by Tapu + Sacrifice by Sonu = \( \frac{1}{9}+\frac{1}{6}=\frac{2+3}{18}=\frac{5}{18} \)
Share of Goodwill of Goli = \( \text{Rs. } 54,000 \times \frac{5}{18} = \text{Rs. } 15,000 \).
Tapu's share in goodwill = \( \text{Rs. } 15,000 \times \frac{2}{5} = \text{Rs. } 6,000 \).
Sonu's share in goodwill = \( \text{Rs. } 15,000 \times \frac{3}{5} = \text{Rs. } 9,000 \).
(3) Capital amount to be brought in by Goli :
Market value of machine:
Book value = Rs. 1,00,000 (which is 125% of market value, so market value is 100%)
If 125% = Rs. 1,00,000, then 100% = \( \frac{1,00,000 \times 100}{125} = \text{Rs. } 80,000 \).
Goli will bring 50% amount of net assets in new firm as his capital.
Net assets = Total assets - Creditors
Tapu's capital in new firm = Rs. 2,08,000
Sonu's capital in new firm = Rs. 3,13,000
Total capital in the New Firm = Rs. 5,21,000
Goli's capital in new firm = 50% of the total capital of Tapu and Sonu = Rs. 5,21,000.
New Profit-loss sharing ratio of all three partners:
Tapu's new share = Old share - Sacrifice = \( \frac{1}{3} - \frac{1}{9} = \frac{3-1}{9} = \frac{2}{9} \).
Sonu's new share = Old share - Sacrifice = \( \frac{2}{3} - \frac{1}{6} = \frac{4-1}{6} = \frac{3}{6} = \frac{1}{2} \).
Goli's share = Tapu's sacrifice + Sonu's sacrifice = \( \frac{1}{9} + \frac{1}{6} = \frac{2+3}{18} = \frac{5}{18} \).
To equalize denominators for Tapu and Sonu: Tapu = \( \frac{2}{9} = \frac{4}{18} \), Sonu = \( \frac{1}{2} = \frac{9}{18} \).
New profit-loss sharing ratio for Tapu, Sonu, and Goli = \( \frac{4}{18} : \frac{9}{18} : \frac{5}{18} = 4:9:5 \).

In simple words: This solution details the complex process of admitting a new partner, including revaluing assets, adjusting liabilities, calculating and distributing goodwill based on sacrificing ratios, and determining the new partner's capital using a net asset approach. It concludes with the calculation of the new profit-sharing ratio.

🎯 Exam Tip: When faced with specific sacrifice instructions, carefully distinguish between sacrificing "from his share" (a fraction *of* his share) and sacrificing "share for Goli" (an absolute fraction). Goodwill valuation and capital calculation for new partners based on net assets are key areas for potential errors; ensure all adjustments are correctly applied before final calculations.

Question 20. Meet, Jeet and Neel are the partners sharing profit and loss in the ratio of 3 : 2 : 1. The balance sheet of their firm as on 31-3-2017 was as under:

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital accounts :		Building	1,00,000
Meet	75,000	Machinery	80,000
Jeet	50,000	Investment	60,000
Neel	50,000	2,25,000	Debtors	40,000
General reserve	12,000	Stock	64,000
Investment fluctuation reserve	20,000	Cash	26,000
Workmen compensation reserve	15,000
Workmen profit sharing fund	35,000
Workmen saving account	40,000
Creditors	23,000
	3,70,000		3,70,000

On the above date, they admitted Heer as a new partner on the following conditions :
(1) Meet sacrificed \( \frac{1}{8} \) th share and Neel sacrificed \( \frac{1}{24} \) th share from their profit in favour of Heer.
(2) Goodwill is valued at Rs. 60,000. Heer will bring her share of goodwill in cash.
(3) Market value of investment is Rs. 52,000, which is to be shown in books.
(4) Claim for workmen compensation is accepted at Rs. 18,000.
(5) Market value of machinery is Rs. 60,000 and market value of building is Rs. 1,26,000 which are to be brought in the books.
(6) Heer will bring Rs. 50,000 as her capital in cash.
(7) Capital of the partners is to be proportionate to their new profit sharing ratio, taking Heer's capital as base.
Necessary effect is to be given in cash.
Prepare the necessary account and balance sheet after admission of Heer.

Answer:

The admission of Heer requires extensive adjustments. This includes calculating new profit-sharing and sacrificing ratios to correctly distribute goodwill, revaluing investments, machinery, and building, and settling workmen's compensation claims. Heer contributes capital and goodwill in cash, and the existing partners' capital accounts are adjusted proportionally based on the new profit-sharing ratio using Heer's capital as a benchmark. All transactions are recorded in the Revaluation Account, Partners' Capital Account, Cash Account, and the updated Balance Sheet.

Revaluation Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Workmen compensation reserve A/c	3,000	By Building A/c	26,000
To Machinery A/c	20,000
To Profit : Partners' Capital A/c Meet Jeet Neel	1,500 1,000 500	3,000
	26,000		26,000

Partners Capital Account

Debit Particulars	Meet (Rs.)	Jeet (Rs.)	Neel (Rs.)	Heer (Rs.)	Credit Particulars	Meet (Rs.)	Jeet (Rs.)	Neel (Rs.)	Heer (Rs.)
To Cash A/c	8,500	-	19,500	-	By Balance b/f	1,00,000	75,000	50,000	-
					By Cash A/c	-	-	-	50,000
					By General reserve A/c	6,000	4,000	2,000	-
To Balance c/f	1,12,500	1,00,000	37,500	50,000	By Investment reserve A/c	6,000	4,000	2,000	-
					By Premium for goodwill A/c	7,500	-	2,500	-
					By Revaluation A/c	1,500	1,000	500	-
					By Cash A/c	16,000	-	-	-
	1,21,000	1,00,000	57,000	50,000		1,21,000	1,00,000	57,000	50,000

Cash Account

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Balance b/f	26,000	By Meet's capital A/c	8,500
To Heer's capital A/c	50,000	By Neel's capital A/c	19,500
To Jeet's capital A/c	16,000	By Balance c/f	74,000
To Premium for goodwill A/c	10,000
	1,02,000		1,02,000

Balance Sheet as on 1-4-2017 after admission

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital Account :		Building	1,26,000
Meet	1,12,500	Machines	60,000
Jeet	1,00,000	Investments	52,000
Neel	37,500	Debtors	40,000
Heer	50,000	3,00,000	Stock	64,000
O/s workmen's claim	18,000	Cash balance	74,000
Workers profit sharing fund	35,000
Workers saving accounts	40,000
Creditors	23,000
	4,16,000		4,16,000

Note:
(1) New Profit – Loss Ratio :
Meet sacrifices \( \frac{1}{8} \) and Neel sacrifices \( \frac{1}{24} \) respectively. Thus, the sacrificing ratio is 3:1 (after making common denominator).
New profit-loss ratio of partner = Old share – Sacrifice
Meet's new share = \( \frac{3}{6}-\frac{1}{8}=\frac{12-3}{24}=\frac{9}{24} \)
Jeet's new share = Old share = \( \frac{2}{6} = \frac{8}{24} \)
Neel's new share = \( \frac{1}{6}-\frac{1}{24}=\frac{4-1}{24}=\frac{3}{24} \)
Heer's new share = Meet's sacrifice + Neel's sacrifice = \( \frac{1}{8}+\frac{1}{24}=\frac{3+1}{24}=\frac{4}{24} \)
New Profit-loss sharing ratio for Meet, Jeet, Neel, and Heer = 9:8:3:4.
(2) Sacrificing ratio of Meet and Neel :
Sacrifice of Meet = \( \frac{1}{8} \)
Sacrifice of Neel = \( \frac{1}{24} \)
Sacrificing ratio = \( \frac{1}{8}: \frac{1}{24}=\frac{3}{24}: \frac{1}{24} = 3 : 1 \)
(3) Share of goodwill of Heer = \( \text{Rs. } 60,000 \times \frac{4}{24} = \text{Rs. } 10,000 \), which is distributed between Meet and Neel in the sacrificing ratio of 3:1.
(4) New capital of Partners :
Capital of Heer for \( \frac{4}{24} \) share = Rs. 50,000
Total capital of Firm for 1 share = \( \text{Rs. } 50,000 \times \frac{24}{4} = \text{Rs. } 3,00,000 \)
New capital of Meet = \( \text{Rs. } 3,00,000 \times \frac{9}{24} = \text{Rs. } 1,12,500 \)
New capital of Jeet = \( \text{Rs. } 3,00,000 \times \frac{8}{24} = \text{Rs. } 1,00,000 \)
New capital of Neel = \( \text{Rs. } 3,00,000 \times \frac{3}{24} = \text{Rs. } 37,500 \)

In simple words: This solution explains how to incorporate a new partner by adjusting capital, revaluing assets, and settling claims. The key is to calculate new profit-sharing ratios and ensure old partners' capital aligns with these ratios after all adjustments, using cash transactions.

🎯 Exam Tip: When a problem specifies sacrificing a fraction "from their share", calculate that fraction of the partner's original share. Pay attention to workman's compensation claims and investment revaluation. Capital adjustment based on the new partner's capital requires calculating the total firm capital and then reallocating it to all partners according to the new profit-sharing ratio.

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