Maharashtra Board Class 12 Commerce BK Chapter 3 Reconstitution of Partnership (Admission of Partner) Solutions

Class 12 Commerce BK Chapter 3 Exercise Solutions

1. Objetive type questions.

A. Select the most appropriate alternatives from the following and rewrite the sentences.

 

Question 1. Anuj and Eeshan are two partners sharing profits and losses in the ratio of 3 : 2. They decided to admit Aaroh for 1/5th share, the new profit sharing ratio will be
(a) 12:8:5
(b) 4:3:1
(c) 12:8:1
(d) 12:3:1
Answer: (a) 12:8:5
In simple words: When a new partner is admitted, the old partners sacrifice a portion of their share, leading to a calculation of a new profit-sharing ratio for all partners.
The calculation involves finding the remaining share after the new partner's admission and distributing it among old partners in their old ratio.

🎯 Exam Tip: Remember the basic formula for calculating the new ratio: Old Ratio x Remaining Share. Practice with different new partner shares.

 

Question 2. Excess of proportionate capital over actual capital represents _________
(a) equal capital
(b) surplus capital
(c) deficit capital
(d) gain
Answer: (b) surplus capital
In simple words: If a partner's capital is more than what it should be according to the new profit-sharing ratio, it's called surplus capital. This extra capital often needs to be withdrawn or adjusted.

🎯 Exam Tip: Understanding terms like surplus and deficit capital is crucial for capital adjustments during partnership reconstitution. Clearly define each term for better recall.

 

Question 3. _________ is credited when unrecorded asset is brought into business.
(a) Revaluation Account
(b) Balance Sheet
(c) Trading Account
(d) Partners Capital Account
Answer: (a) Revaluation Account
In simple words: When an asset not previously recorded is brought into the business, its value increases the firm's worth, and this increase is recorded as a credit to the Revaluation Account.

🎯 Exam Tip: The Revaluation Account is used to record changes in asset and liability values during admission, retirement, or death of a partner. Remember that increases in assets and decreases in liabilities are credited to this account.

 

Question 4. When goodwill is withdrawn by the partner _________ account is credited.
Answer: (b) Cash/Bank
In simple words: When partners withdraw their share of goodwill in cash, the cash balance of the business decreases, so the Cash/Bank account is credited.

🎯 Exam Tip: Differentiate between goodwill brought in by a new partner and goodwill withdrawn by old partners. Cash/Bank is debited when cash comes in (for capital/goodwill) and credited when cash goes out (for withdrawal of goodwill or capital).

 

Question 5. If asset is taken over by the partner _________ Account is debited.
(a) Revaluation
(b) Capital
(c) Asset
(d) Balance Sheet
Answer: (b) Capital
In simple words: When a partner takes over an asset, their capital account is debited because the value of the asset is essentially being deducted from their share in the firm.

🎯 Exam Tip: When a partner takes over an asset or liability, it directly affects their capital account. Assets taken by a partner reduce their capital (debit), while liabilities taken increase their capital (credit).

 

B. Write the word/phrase/term, which can substitute each of the following statements.

 

Question 1. The method under which calculation of goodwill is done on the basis of extra profit earned above the normal profit.
Answer: Super Profit Method
In simple words: This method values goodwill based on the firm's ability to earn profits beyond what is normally expected in the industry.

🎯 Exam Tip: Super profit is a key concept in goodwill valuation. Make sure you know how to calculate average profit, normal profit, and subsequently, super profit.

 

Question 2. An account is opened to adjust the value of assets and liabilities at the time of admission of a partner.
Answer: Revaluation A/c or Profit and Loss A/c
In simple words: This account is used to record all increases and decreases in the value of assets and liabilities when a new partner joins, to determine any profit or loss from such revaluation.

🎯 Exam Tip: The Revaluation Account (also called Profit and Loss Adjustment Account) is essential for recording appreciation and depreciation of assets, and re-assessment of liabilities during partnership reconstitution. Its balance is distributed among old partners in their old profit sharing ratio.

 

Question 3. The reputation of a business is measured in terms of money.
Answer: Goodwill
In simple words: Goodwill represents the monetary value of a firm's good name, reputation, and connections that enable it to earn more than normal profits.

🎯 Exam Tip: Goodwill is an intangible asset that reflects the firm's earning capacity above normal. Various methods exist for its valuation, each with specific applications.

 

Question 4. The ratio in which general reserve is distributed to the old partners.
Answer: Old Ratio
In simple words: General reserves, accumulated profits, and losses belonging to the period before a new partner's admission are always distributed among the existing partners using their original profit-sharing ratio.

🎯 Exam Tip: Any undistributed profits, reserves, or losses existing at the time of a new partner's admission belong to the old partners and must be distributed in their old profit-sharing ratio before the new partner joins.

 

Question 5. Name the method of the treatment of goodwill where a new partner will bring his share of goodwill in cash.
Answer: Premium Method
In simple words: When a new partner pays for their share of goodwill in cash, this amount is known as premium for goodwill.

🎯 Exam Tip: The premium method is used when the incoming partner brings their share of goodwill in cash, which is then distributed among the sacrificing old partners in their sacrifice ratio.

 

Question 6. The proportion in which old partners make a sacrifice.
Answer: Sacrifice Ratio
In simple words: This ratio indicates how much of their existing profit share old partners give up to accommodate the new partner.

🎯 Exam Tip: The sacrifice ratio is crucial for distributing goodwill brought in by a new partner among the old partners. It is calculated as Old Ratio - New Ratio.

 

Question 7. Capital employed × NRR/100 = _________
Answer: Normal Profit
In simple words: Normal profit is the profit that a firm is expected to earn based on the capital invested and the normal rate of return in that industry.

🎯 Exam Tip: Normal profit is a component in calculating super profit, which is then used for goodwill valuation. It represents the baseline profit for the capital employed.

 

Question 8. An Account is debited when the partner takes over the asset.
Answer: Partner's Capital A/c or Partner's Current A/c
In simple words: When an asset is taken by a partner, it reduces their claim on the firm's assets, hence their Capital or Current Account is debited.

🎯 Exam Tip: The Capital Account is debited if the capital is fluctuating, or the Current Account is debited if the capital is fixed, reflecting the reduction in the partner's equity due to asset withdrawal.

 

Question 9. Profit and Loss Account balance appearing on the liability side of the Balance Sheet.
Answer: Undistributed Profit or Accumulated Profit
In simple words: A credit balance in the Profit and Loss Account on the liability side signifies accumulated profits that have not yet been distributed to the partners.

🎯 Exam Tip: These accumulated profits belong to the old partners and must be distributed among them in their old profit-sharing ratio at the time of admission of a new partner.

 

Question 10. Old ratio - New ratio = _________
Answer: Sacrifice Ratio
In simple words: This formula helps determine the proportion of profit share that existing partners have given up for the incoming partner.

🎯 Exam Tip: The sacrifice ratio is essential for allocating the new partner's goodwill among the old partners who have surrendered a portion of their profit share.

 

C. State True or False with reasons:

 

Question 1. A new partner can bring capital in cash or kind.
Answer: This statement is True.
As per the provision of partnership deed, when any person is admitted in the firm, he has to bring some amount as capital which can be in cash or in-kind of assets to get rights in the assets and definite share in the future profit of the firm.
In simple words: A new partner can contribute capital in the form of cash or assets, as per the partnership agreement, to gain rights and a share in future profits.

🎯 Exam Tip: Always remember that capital contribution is a fundamental requirement for a new partner, and it can take various forms as agreed upon by the partners.

 

Question 2. When goodwill is paid privately to the partners, it is not recorded in the books.
Answer: This statement is True.
When goodwill is paid privately to the partners, by a newly admitted person, then in such case no transaction takes place in the business, and the firm as such is not all benefited. Hence it is not recorded in the books of accounts.
In simple words: Private payment of goodwill means the transaction happens directly between the new partner and old partners, outside the firm's accounts, so the firm itself does not record it.

🎯 Exam Tip: Distinguish between goodwill paid privately and goodwill brought into the business. Only goodwill that affects the firm's assets/liabilities is recorded in its books.

 

Question 3. The gain ratio is calculated at the time of admission of a partner.
Answer: This statement is False.
At the time of admission of a person, in the business, sacrifices are made by the old partners in favour of the new partner. It means there is no question of any gain to the partners, so we can say that the Gain ratio is not calculated at the time of admission of a partner.
In simple words: When a new partner is admitted, existing partners sacrifice a part of their share; therefore, a sacrifice ratio is calculated, not a gain ratio. Gain ratio is typically calculated during retirement or death of a partner.

🎯 Exam Tip: Clearly differentiate between sacrifice ratio (admission) and gain ratio (retirement/death). Understanding when to apply each ratio is critical for correct accounting treatment.

 

Question 4. Revaluation profit is distributed among all partners including new partners.
Answer: This statement is False.
Revaluation profit arises due to efforts and hardworking of the old partners in the past and hence profit earned on revaluation of assets and liabilities at the time of admission of a person as a partner in the business belongs to old partners. So, such profit is not distributed among all partners including the new partners. It is distributed only among old partners.
In simple words: Profit from revaluation belongs to the period before a new partner joins, so it is shared only by the old partners in their old profit-sharing ratio.

🎯 Exam Tip: Revaluation profits or losses, like accumulated reserves, are the sole entitlement of old partners as they relate to the value changes that occurred before the new partner's admission.

 

Question 5. Change in the relationship between the partners is called as Reconstitution of Partnership.
Answer: This statement is True.
When any person joins the business as a partner, a change in the relationship takes place. The old agreement is terminated and a new agreement is prepared. There is the change in profit or loss sharing ratio and relationship of the partners which is known as Reconstitution of Partnership.
In simple words: Reconstitution of partnership refers to any change in the existing partnership agreement, such as admission, retirement, death of a partner, or change in profit-sharing ratio.

🎯 Exam Tip: Reconstitution of a partnership signifies the termination of the old partnership agreement and the formation of a new one, affecting the relationships and profit shares among partners.

 

Question 6. New partners always bring their share of goodwill in cash.
Answer: This statement is False.
When a new person is admitted to the partnership firm, the old partners surrender a certain share in profit and give it to a new partner. In exchange for that new partner is required to bring goodwill in cash or in kind. If he is unable to bring cash for goodwill, then Goodwill is raised and adjusted to the new partner's capital A/c.
In simple words: While new partners often bring goodwill in cash, they can also contribute it in kind, or if unable to do so, goodwill can be raised in the books and adjusted through their capital account.

🎯 Exam Tip: Be aware of the different methods of goodwill treatment-premium method (cash), revaluation method (not in cash), and hidden goodwill. Each has distinct accounting entries.

 

Question 7. When the goodwill is written off, the goodwill account is debited.
Answer: This statement is False.
To write off goodwill means to decrease or wipe out the value of goodwill. When goodwill as an asset of the business is raised, Goodwill A/c is debited in the books of Account. Conversely, when Goodwill is written off from the business, the Goodwill A/c is credited in the books of business.
In simple words: Writing off goodwill means reducing its value, which is done by crediting the Goodwill Account and debiting the partners' capital accounts.

🎯 Exam Tip: Remember the basic accounting rule: to reduce an asset, you credit it. Therefore, writing off goodwill requires a credit to the Goodwill Account.

 

Question 8. The new ratio minus the old ratio is equal to the sacrifice ratio.
Answer: This statement is False.
When a new partner is admitted, old partners have to sacrifice their profit share in favour of the new partner and their old ratio gets reduced and whatever ratio is left becomes a new ratio. Hence, as per equation:
New Ratio = Old Ratio – Sacrifice Ratio.
By interchanging the terms,
Sacrifice Ratio = Old Ratio – New Ratio.
In simple words: The correct formula for sacrifice ratio is Old Ratio minus New Ratio; new ratio minus old ratio would actually represent a gain.

🎯 Exam Tip: Memorize the formulas for sacrifice ratio and gain ratio. A common mistake is to confuse the two or use the inverse formula, which leads to incorrect calculations.

 

Question 9. Usually, when a new partner is admitted to the firm, there will be an increase in the capital of the firm.
Answer: This statement is True.
When a new partner is admitted to the firm, he brings his share of capital and goodwill, in cash or in-kind, to enjoy the right of sharing the future profit, and hence there will be an increase in the capital of the firm.
In simple words: A new partner contributes capital upon admission, directly increasing the total capital of the partnership firm.

🎯 Exam Tip: Capital brought in by a new partner is a primary source of increased capital for the firm, strengthening its financial position. This is a direct effect of admission.

 

Question 10. Cash/Bank Account is credited when goodwill is withdrawn by the old partners.
Answer: This statement is True.
When a new partner brings his share of goodwill, old partners have the right to withdraw it in cash. Therefore, when old partners withdraw the amount of goodwill, cash goes out from the firm and not goodwill. Hence Cash/Bank A/c is credited.
In simple words: When old partners take out their share of goodwill in cash, the cash balance of the firm decreases, leading to a credit entry in the Cash/Bank Account.

🎯 Exam Tip: Always follow the golden rule of accounting for real accounts: "Credit what goes out." Cash going out of the business necessitates a credit to the Cash/Bank Account.

 

D. Find the odd one.

 

Question 1. General reserve, Creditors, Machinery, Capital
Answer: Machinery
In simple words: Machinery is an asset, while General reserve, Creditors, and Capital are all liabilities or equity items.

🎯 Exam Tip: Classify items into assets, liabilities, and equity. This fundamental accounting classification helps identify odd items in a group.

 

Question 2. Decrease in Furniture, Patents wrote off, Increase in Bills payable, R.D.D. written off
Answer: R.D.D. written off
In simple words: Decrease in Furniture, Patents wrote off, and Increase in Bills payable are all reductions in asset value or increases in liability. R.D.D. written off implies the provision is no longer needed, effectively reducing a liability or increasing net asset value.

🎯 Exam Tip: Understand the impact of each item on the Revaluation Account. Most listed items reduce value or increase liabilities (debit to revaluation), while writing off R.D.D. reduces a provision, which is a credit to revaluation.

 

Question 3. Super profit method, Valuation method, Average profit method, Fluctuating capital method
Answer: Fluctuating capital method
In simple words: Super profit method, Valuation method, and Average profit method are all ways to calculate goodwill, whereas Fluctuating capital method is a system for maintaining partners' capital accounts.

🎯 Exam Tip: Differentiate between methods of goodwill valuation and methods of maintaining capital accounts. These are distinct concepts in partnership accounting.

 

E. Calculate the following:

 

Question 1. A and B are partners in a firm sharing profit and losses in the ratio of 1 : 1. C is admitted. A surrenders 1/4th share and B surrenders 1/5th of his share in favour of C. Calculate new profit sharing ratio.
Solution:
Old ratio of A and B = 1 : 1 or \( \frac{1}{2} : \frac{1}{2} \)
A's sacrifice = \( \frac{1}{4} \times \frac{1}{2} = \frac{1}{8} \)
B's sacrifice = \( \frac{1}{5} \times \frac{1}{2} = \frac{1}{10} \)
Sacrificing ratio of A and B = \( \frac{1}{8} : \frac{1}{10} = 5:4 \)
C's share = A's share + B's share = \( \frac{1}{8} + \frac{1}{10} = \frac{5+4}{40} = \frac{9}{40} \)
A's new share = Old ratio – Sacrifice ratio = \( \frac{1}{2} - \frac{1}{8} = \frac{4-1}{8} = \frac{3}{8} \)
B's new share = Old ratio – Sacrifice ratio = \( \frac{1}{2} - \frac{1}{10} = \frac{5-1}{10} = \frac{4}{10} \)
Therefore, New ratio of A, B and C = \( \frac{3}{8} : \frac{4}{10} : \frac{9}{40} \)
(Making denominator equal) = \( \frac{15}{40} : \frac{16}{40} : \frac{9}{40} = 15:16:9 \)
Answer: New profit sharing ratio of A, B and C is 15:16:9
In simple words: We calculated how much each old partner sacrificed and added these sacrifices to find the new partner's share. Then, we subtracted each partner's sacrifice from their old share to get the new profit-sharing ratio for all.

🎯 Exam Tip: When old partners surrender a *fraction of their share*, calculate the actual amount sacrificed first. Always ensure all ratios have a common denominator for the final answer.

 

Question 2. Anika and Radhika are partners sharing profit in the ratio of 5 : 1. They decide to admit Sanika to the firm for 1/5th share. Calculate the Sacrifice ratio of Anika and Radhika.
Solution:
Balance = 1 - share of new partner
= \( 1 - \frac{1}{5} = \frac{4}{5} \) (Remaining share)
New ratio = Old ratio x Balance of 1
Anika's New ratio = \( \frac{5}{6} \times \frac{4}{5} = \frac{20}{30} \)
Radhika's New ratio = \( \frac{1}{6} \times \frac{4}{5} = \frac{4}{30} \)
Sanika's New ratio = \( \frac{1}{5} \times \frac{6}{6} = \frac{6}{30} \) (Making denominator equal)
So, New Profit and Loss ratio = \( \frac{20}{30} : \frac{4}{30} : \frac{6}{30} = 20 : 4 : 6 \) i.e. \( 10: 2:3 \)
Sacrifice ratio = Old ratio – New ratio
Anika's Sacrifice ratio = \( \frac{5}{6} - \frac{20}{30} = \frac{25-20}{30} = \frac{5}{30} \)
Radhika's Sacrifice ratio = \( \frac{1}{6} - \frac{4}{30} = \frac{5-4}{30} = \frac{1}{30} \)
So, Sacrifice ratio = \( \frac{5}{30} : \frac{1}{30} = 5:1 \)
Answer: The sacrifice ratio of Anika and Radhika is 5:1.
In simple words: We first found the remaining profit share after Sanika's admission, then calculated each old partner's new share and finally determined their sacrifice by subtracting the new share from their old share.

🎯 Exam Tip: The sacrificing ratio is usually the same as the old profit-sharing ratio when the new partner acquires their share from the old partners in their old ratio. However, always calculate it to be precise.

 

Question 3. Pramod and Vinod are partners sharing profits and losses in the ratio of 3 : 2. After the admission of Ramesh the New ratio of Pramod, Vinod and Ramesh are 4:3:2. Find out the Sacrifice ratio.
Solution:
Sacrifice Ratio = Old ratio – New ratio
Pramod's Sacrifice ratio = \( \frac{3}{5} - \frac{4}{9} = \frac{27-20}{45} = \frac{7}{45} \)
Vinod's Sacrifice ratio = \( \frac{2}{5} - \frac{3}{9} = \frac{18-15}{45} = \frac{3}{45} \)
So, Sacrifice ratio = \( \frac{7}{45} : \frac{3}{45} = 7:3. \)
Answer: The sacrifice ratio of Pramod and Vinod is 7:3.
In simple words: We subtracted each old partner's new profit share from their old profit share to find out how much they sacrificed for the new partner, Ramesh.

🎯 Exam Tip: When both old and new ratios are given, the sacrificing ratio is directly calculated using the formula: Old Ratio - New Ratio. Ensure you find a common denominator for accurate subtraction.

 

F. Answer in one sentence.

 

Question 1. What is Revaluation Account?
Answer: An account opened and operated by any partnership firm for recording changes in the value of assets and liabilities and to ascertain profit or loss made on revaluation of assets and liabilities is called Revaluation Account.
In simple words: Revaluation Account is a temporary account used to record gains or losses from re-assessing asset and liability values when a partner is admitted or retires.

🎯 Exam Tip: Remember that the Revaluation Account is a nominal account, and its balance (profit or loss) is transferred to the old partners' capital accounts.

 

Question 2. What is meant by Reconstitution of Partnership?
Answer: Reconstitution of partnership means a change in the relationship between/among partners and in the form of partnership.
In simple words: Reconstitution occurs when there's a change in the partnership agreement, altering the relationships and profit shares among partners.

🎯 Exam Tip: Key events leading to reconstitution include admission, retirement, death of a partner, or a simple change in the profit-sharing ratio among existing partners.

 

Question 3. Why is the new partner admitted?
Answer: A new partner is admitted to the existing partnership firm to increase the capital resources of the firm and to secure advantages of a new entrant's skill and business connections, i.e. goodwill.
In simple words: New partners are admitted to bring in more capital, benefit from their expertise, or leverage their connections to expand the business.

🎯 Exam Tip: Focus on the dual benefits of admitting a new partner: financial (capital) and non-financial (skill, connections, goodwill).

 

Question 4. What is the sacrifice ratio?
Answer: A ratio that is surrendered or given up by the old partners in favour of a newly admitted partner is called the sacrifice ratio.
In simple words: It's the proportion of profit share that old partners give up to allow a new partner to join the firm.

🎯 Exam Tip: The sacrifice ratio is typically used to distribute the goodwill brought in by the new partner among the sacrificing old partners.

 

Question 5. What do you mean by raising the goodwill at the time of admission of a new partner?
Answer: Raising the Goodwill at the time of admission of a new partner means debiting Goodwill Account up to the value it is raised and crediting. Old partners' Capital Accounts in their old ratio in the books of the firm.
In simple words: Raising goodwill means recording its value in the firm's books by debiting the Goodwill Account and crediting the old partners' capital accounts in their old profit-sharing ratio.

🎯 Exam Tip: This method is used when the new partner cannot bring their share of goodwill in cash. The goodwill account becomes an asset in the balance sheet, reflecting the firm's overall goodwill value.

 

Question 6. What is the super profit method of calculation of goodwill?
Answer: Super profit method of calculation of Goodwill is a method in which Goodwill is valued at a certain number of years purchases of the super profit of the partnership firm.
In simple words: The super profit method values goodwill by multiplying the firm's 'super profit' (earnings above normal) by a specified number of years' purchase.

🎯 Exam Tip: This method emphasizes the firm's ability to earn extraordinary profits. Make sure you understand how to calculate average profit, normal profit, and then super profit.

 

Question 7. When is the ratio of sacrifice calculated for the distribution of goodwill?
Answer: The ratio of sacrifice is calculated when the benefits of goodwill contributed by a new partner in cash is to be transferred to existing partners' Capital/Current Account.
In simple words: The sacrifice ratio is calculated to determine how the cash goodwill brought by a new partner will be distributed among the old partners who gave up their profit share.

🎯 Exam Tip: Goodwill is an adjustment for the loss of future profits to old partners. The sacrifice ratio ensures that those who sacrifice more receive a larger share of the goodwill premium.

 

Question 8. What is the treatment of accumulated profits at the time of admission of a partner?
Answer: Accumulated profits at the time of admission of a partner are transferred to old partners' Capital/Current Accounts in their old profit sharing ratio.
In simple words: Accumulated profits existing before a new partner's admission are distributed to the old partners' capital or current accounts, based on their original profit-sharing ratio.

🎯 Exam Tip: These profits belong exclusively to the old partners because they were earned before the new partner joined the firm. This ensures fairness and correct capital distribution.

 

Question 9. State the ratio in which the old partner's Capital A/c will be credited for goodwill when the new partner does not bring his share of goodwill in cash.
Answer: When the new partner does not bring his share of goodwill in cash, Goodwill is raised up to a certain value and credited to old partners' Capital/Current A/cs in their old profit sharing ratio.
In simple words: If a new partner cannot bring goodwill in cash, the total goodwill is raised and credited to the old partners' capital accounts in their old profit-sharing ratio.

🎯 Exam Tip: This method capitalizes goodwill in the balance sheet. Sometimes, this raised goodwill is immediately written off, but the initial credit is always to old partners in their old ratio.

 

Question 10. What does the excess of debit over credits in the Profit and Loss Adjustment Account indicate?
Answer: The excess of debit over credits in the Profit and Loss Adjustment Account indicates loss on revaluation of assets and liabilities.
In simple words: If the total debits (losses from revaluation) in the Profit and Loss Adjustment Account are greater than the total credits (gains from revaluation), it means there's a net loss on revaluation.

🎯 Exam Tip: A debit balance in the Revaluation Account signifies a loss, which reduces the capital of the old partners, whereas a credit balance indicates a profit, increasing their capital.

 

G. Complete the table.

 

Question 1.
\[ \text{\_\_\_\_\_\_\_\_\_\_} = \frac{\text{Total profit}}{\text{Number of years.}} \]
Answer:
\[ \text{Average Profit} = \frac{\text{Total Profit}}{\text{Number of years}} \]
In simple words: To find the average profit, you sum up all profits over a period and divide by the number of years.

🎯 Exam Tip: Average profit is the most common method for calculating goodwill and serves as a base for the super profit method. Ensure correct summation and division.

 

Question 2.
\[ \text{Normal Profit} = \text{\_\_\_\_\_\_\_\_\_\_} \times \frac{\text{NRR}}{\text{100}} \]
Answer:
\[ \text{Normal Profit} = \text{Capital Employed} \times \frac{\text{NRR}}{\text{100}} \]
In simple words: Normal profit is calculated by multiplying the capital invested in the business by the normal rate of return expected in that industry.

🎯 Exam Tip: Normal Rate of Return (NRR) is a crucial factor, usually given in the problem, representing the typical return on investment in a similar business.

 

Question 3. Stock shown in Balance Sheet -> Stock undervalued by 20% -> Cost of Stock
Rs.1,60,000
Answer:
The stock shown in Balance Sheet -> Stock undervalued by 20% -> Cost of Stock
Rs. 1,60,000 -> Rs. 40,000 -> Rs. 2,00,000
In simple words: If the stock is undervalued by 20%, it means the recorded value (Rs. 1,60,000) is 80% of the true cost. To find the true cost, divide Rs. 1,60,000 by 80% (0.80) to get Rs. 2,00,000. The undervaluation amount is the difference (Rs. 40,000).

🎯 Exam Tip: When an asset is undervalued, the recorded value is less than its true value. To find the original value, you must calculate the amount of undervaluation and add it back.

 

Practical Problems

 

Question 1. Vikram and Pradnya share profits and losses in the ratio 2 : 3 respectively. Their Balance Sheet as of 31st March 2018 was as under.
Balance Sheet as of 31st March 2018

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Creditors	1,05,000	Cash	7,500
Capitals:		Land & Building	37,500
Vikram	75,000	Plant	45,000
Pradnya	75,000	Furniture	3,000
		Stock	75,000
		Debtors	87,000
Total	2,55,000	Total	2,55,000

They agreed to admit Avani as a partner on 1st April 2018 on the following terms:
1. Avani shall have 1/4th share in future profits.
2. He shall bring Rs. 37,500 as his capital and Rs. 30,000 as his share of goodwill.
3. Land and building to be valued at Rs. 45,000 and furniture to be depreciated by 10%.
4. Provision for bad and doubtful debts is to be maintained at 5% on the Sundry Debtors.
5. Stock to be valued Rs. 82,500.
The Capital A/c of all partners to be adjusted in their new profit and loss ratio and excess amount be transferred to their loan accounts.
Prepare Profit and Loss Adjustment Account, Capital Accounts, and New Balance Sheet.
Solution:
In the books of Partnership Firm

Dr. Profit and Loss Adjustment Account Cr.

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To R.D.D. A/c	4,350	By Land & Building A/c	7,500
To Furniture A/c (Depreciation)	300	By Stock A/c	7,500
To Profit on Revaluation
Vikram	4,140
Pradnya	6,210	10,350
Total	15,000	Total	15,000

Dr. Partners' Capital Accounts Cr.

Particulars	Vikram (Rs.)	Pradnya (Rs.)	Avani (Rs.)	Particulars	Vikram (Rs.)	Pradnya (Rs.)	Avani (Rs.)
To Partners' Loan A/c	46,140	31,710		By Balance b/d	75,000	75,000
To Balance c/d	45,000	67,500	37,500	By Bank A/c			37,500
				By Revaluation A/c (Profit)	4,140	6,210
				By Goodwill A/c	12,000	18,000
Total	91,140	99,210	37,500	Total	91,140	99,210	37,500

Balance Sheet as of 1st April 2018

Liabilities	Amount (Rs.)	Amount (Rs.)	Assets	Amount (Rs.)	Amount (Rs.)
Capital Accounts:			Cash		75,000
Vikram	45,000		Land & Building	37,500
Pradnya	67,500		Add : Appreciation	7,500	45,000
Avani	37,500	1,50,000	Furniture	3,000
Creditors		1,05,000	Less : Depreciation	300	2,700
Partners' Loan A/c:			Plant		45,000
Vikram	46,140		Stock	75,000
Pradnya	31,710	77,850	Add : Appreciation	7,500	82,500
			Debtors	87,000
			Less : R.D.D. (5%)	4,350	82,650
Total		3,32,850	Total		3,32,850

Working Notes:
1. Calculation of new profit ratio = 1 – share of new partner
= \( 1 - \frac{1}{4} = \frac{3}{4} \) (Remaining share)
New ratio = old ratio × balance 1 (Remaining share)
Vikram's new ratio = \( \frac{2}{5} \times \frac{3}{4} = \frac{6}{20} \)
Pradnya's new ratio = \( \frac{3}{5} \times \frac{3}{4} = \frac{9}{20} \)
Avani's ratio = \( \frac{1}{4} = \frac{1}{4} \times \frac{5}{5} = \frac{5}{20} \)
So, New profit sharing ratio = 6 : 9 : 5.
Capital amount adjusted in their new profit and loss ratio:
Total Capital of the Partnership Firm = (Reciprocal of New Partner's Share) × (Capital of New Partner)
= (Reciprocal of \( \frac{1}{4} \)) × 37,500
= 4 × 37,500
= Rs. 1,50,000
Vikram's Capital balance = (Vikram's New Ratio) × (Total Capital of the firm)
= \( \frac{6}{20} \times 1,50,000 \) = Rs. 45,000
Pradnya's Capital balance = \( \frac{9}{20} \times 1,50,000 \) = Rs. 67,500
Answer: The Profit and Loss Adjustment Account shows a profit of Rs. 10,350, distributed to Vikram (Rs. 4,140) and Pradnya (Rs. 6,210). The final capital balances for Vikram, Pradnya, and Avani are Rs. 45,000, Rs. 67,500, and Rs. 37,500 respectively, with excess amounts transferred to their loan accounts. The new Balance Sheet totals Rs. 3,32,850.
In simple words: We calculated the new profit-sharing ratio, adjusted capital accounts based on this ratio, recorded revaluations of assets and liabilities, and prepared the final financial statements reflecting Avani's admission.

🎯 Exam Tip: Pay close attention to capital adjustments based on the new profit-sharing ratio. Any surplus or deficit capital is usually adjusted through loan accounts or cash, as specified in the problem.

 

Question 2. Amalendu and Sameer share profits and losses in the ratio 3 : 2 respectively. Their Balance Sheet as of 31st March 2017 was as under:
Balance Sheet as of 31st March 2017

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Sundry Creditors	10,000	Cash at bank	12,000
Amlendu capital	60,000	Sundry debtors	24,000
Sameer capital	40,000	Land & Building	50,000
General reserve	20,000	Stock	16,000
		Plant and machinery	20,000
		Furniture & fixture	8,000
Total	1,30,000	Total	1,30,000

On 1st April 2017 they admit Paresh into partnership. The term being that:
1. He shall pay Rs. 16,000 as his share of Goodwill 50% amount of Goodwill shall be withdrawn by the old partners.
2. He shall have to bring in Rs. 20,000 as his Capital for 1/4 share in future profits.
3. For the purpose of Paresh's admission it was agreed that the assets would be revalued as follows:
A. Land and Building is to be valued at Rs. 60,000.
B. Plant and Machinery to be valued at Rs. 16,000.
C. Stock valued at Rs. 20,000 and Furniture and Fixtures at Rs. 4,000.
D. A Provision of 5% on Debtors would be made for Doubtful Debts.
Pass the necessary Journal Entries in the books of a new firm.
Solution:
Journal entries in the books of Partnership Firm

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
2017 April 1	General Reserve A/c Dr. To Amalendu's Capital A/c To Sameer's Capital A/c (Being general reserve distributed among old partners)		20,000	12,000 8,000
	Profit and Loss Adjustment A/c Dr. To Plant and Machinery A/c To Furniture & Fixture A/c To R.D.D. A/c (Being decrease in the value of assets and reserve for doubtful debts.)		9,200	4,000 4,000 1,200
	Land and Building A/c Dr. Stock A/c Dr. To Profit and Loss Adjustment A/c (Being appreciation in the value of assets)		10,000 4,000	14,000
	Profit and Loss Adjustment A/c Dr. To Amalendu's Capital A/c To Sameer's Capital A/c (Being profit on revaluation distributed in profit sharing ratio)		4,800	2,880 1,920
	Cash/Bank A/c Dr. To Paresh's Capital A/c (Being amount brought in for capital by Paresh)		20,000	20,000
	Cash/Bank A/c Dr. To Goodwill A/c (Being amount brought in for goodwill by Paresh)		16,000	16,000
	Goodwill A/c Dr. To Amalendu's Capital A/c To Sameer's Capital A/c (Being goodwill distributed among old partners)		16,000	9,600 6,400
	Amalendu's Capital A/c Dr. Sameer's Capital A/c Dr. To Bank A/c (Being half of the goodwill amount withdrawn by old partners)		4,800 3,200	8,000

Working Notes:

Question 2. Amalendu and Sameer share profits and losses in the ratio 3 : 2 respectively. Their Balance Sheet as of 31st March 2017 was as under:
Balance Sheet as of 31st March 2017

ℹ️ चित्र व्याख्या (Diagram Explanation): यह सारणी 31 मार्च 2017 को अमलेंदु और समीर की साझेदारी फर्म का तुलन-पत्र (बैलेंस शीट) दर्शाती है। देनदारियां पक्ष में लेनदार, अमलेंदु और समीर की पूंजी, और सामान्य आरक्षित निधि (जनरल रिजर्व) शामिल हैं। परिसंपत्ति पक्ष में बैंक में नकदी, विविध देनदार, भूमि और भवन, स्टॉक, संयंत्र और मशीनरी, और फर्नीचर और फिक्स्चर शामिल हैं, जो फर्म की वित्तीय स्थिति का विवरण देते हैं।

On 1st April 2017 they admit Paresh into partnership. The term being that:
(1) He shall pay Rs. 16,000 as his share of Goodwill 50% amount of Goodwill shall be withdrawn by the old partners.
(2) He shall have to bring in Rs. 20,000 as his Capital for 1/4 share in future profits.
(3) For the purpose of Paresh's admission it was agreed that the assets would be revalued as follows:
A. Land and Building is to be valued at Rs. 60,000.
B. Plant and Machinery to be valued at Rs. 16,000.
C. Stock valued at Rs. 20,000 and Furniture and Fixtures at Rs. 4,000.
D. A Provision of 5% on Debtors would be made for Doubtful Debts.
Pass the necessary Journal Entries in the books of a new firm.

Answer:
Solution:
Journal entries in the books of Partnership Firm

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
2017 April 1	General Reserve A/c Dr. To Amalendu's Capital A/c To Sameer's Capital A/c (Being general reserve distributed among old partners)		20,000	12,000 8,000
	Profit and Loss Adjustment A/c Dr. To Plant and Machinery A/c To Furniture & Fixture A/c To R.D.D. A/c (Being decrease in the value of assets and reserve for doubtful debts.)		9,200	4,000 4,000 1,200
	Land and Building A/c Dr. Stock A/c Dr. To Profit and Loss Adjustment A/c (Being appreciation in the value of assets)		10,000 4,000	14,000
	Profit and Loss Adjustment A/c Dr. To Amalendu's Capital A/c To Sameer's Capital A/c (Being profit on revaluation distributed in profit sharing ratio)		4,800	2,880 1,920
	Cash/Bank A/c Dr. To Paresh's Capital A/c (Being amount brought in for capital by Paresh)		20,000	20,000
	Cash/Bank A/c Dr. To Goodwill A/c (Being amount brought in for goodwill by Paresh)		16,000	16,000
	Goodwill A/c Dr. To Amalendu's Capital A/c To Sameer's Capital A/c (Being goodwill distributed among old partners)		16,000	9,600 6,400
	Amalendu's Capital A/c Dr. Sameer's Capital A/c Dr. To Bank A/c (Being half of the goodwill amount withdrawn by old partners)		4,800 3,200	8,000

Working Notes:

Dr.	Goodwill Account		Cr.
Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Amalendu's Capital A/c	9,600	By Cash/Bank A/c	16,000
To Sameer's Capital A/c	6,400
	16,000		16,000

Dr.	Profit and Loss Adjustment Account			Cr.
Particulars	Amount (Rs.)	Amount (Rs.)	Particulars	Amount (Rs.)	Amount (Rs.)
To Plant and Machinery A/c	4,000		By Land & Building A/c		10,000
To Furniture and Fixture A/c	4,000		By Stock A/c		4,000
To R.D.D. Debts A/c	1,200
To Profit on Revaluation Transferred to Partners' Capital A/cs: Amalendu Sameer	2,880 1,920	4,800
		14,000			14,000

In simple words: These tables present the comprehensive journal entries for Paresh's admission, covering general reserve distribution, asset revaluation, goodwill accounting, and capital contributions. They are further supported by detailed goodwill and profit and loss adjustment accounts, illustrating the financial impact of the partnership changes.

🎯 Exam Tip: For journal entries, always remember the golden rules of accounting (debit what comes in, credit what goes out; debit all expenses/losses, credit all incomes/gains) and ensure each entry has a clear narration for full marks.

Question 3. Vasu and Viraj share profits and losses in the ratio of 3 : 2 respectively. Their Balance Sheet as on 31st March, 2019 was as under:
Balance Sheet as on 31st March, 2019

ℹ️ चित्र व्याख्या (Diagram Explanation): यह सारणी 31 मार्च 2019 को वासु और विराज की साझेदारी फर्म का तुलन-पत्र (बैलेंस शीट) प्रस्तुत करती है। देनदारियां पक्ष में विविध लेनदार, सामान्य आरक्षित निधि, और वासु व विराज की पूंजी शामिल है। परिसंपत्ति पक्ष में बैंक में नकदी, विविध देनदार, स्टॉक, निवेश, संयंत्र और भवन जैसी परिसंपत्तियां दर्शायी गई हैं, जो फर्म की वित्तीय स्थिति का विस्तृत अवलोकन प्रदान करती हैं।

They admit Hari into partnership on 1-4-2019. The terms being that:
(1) He shall have to bring in Rs. 60,000 as his Capital for 1/4 share in future profits.
(2) Value of Goodwill of the firm is to be fixed at the average profits for the last three years.
The Profit were:
2015-16 - Rs. 48,000
2016-17 - Rs. 81,000
2017-18 - Rs. 73,500
Hari is unable to bring the value of Goodwill in cash. It is decided to raise Goodwill in the books of accounts.
(3) Reserve for Doubtful debts is to be created at Rs. 1,500.

(4) Closing stock is valued at Rs. 22,500.
(5) Plant and Building are to be depreciated by 5%.
Prepare Profit and Loss-Adjustment A/c, Capital Accounts of Partners and Balance Sheet of the new firm.
Answer:
Solution:
In the books of the firm

Dr.	Profit and Loss Adjustment Account		Cr.
Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To R.D.D. (New) A/c	1,500	By Loss on Revaluation
To Stock A/c	3,000	Transferred to Partners' Capital A/cs:
To Depreciation A/cs: Plant Building	4,500 1,800	Vasu Viraj	6,480 4,320
	6,300		10,800
	10,800		10,800

Dr.	Partners' Capital Accounts				Cr.
Particulars	Vasu (Rs.)	Viraj (Rs.)	Hari (Rs.)	Particulars	Vasu (Rs.)	Viraj (Rs.)	Hari (Rs.)
To Profit and Loss Adjustment A/c (Loss)	6,480	4,320	-	By Balance b/d	1,08,000	72,000	-
To Balance c/d	1,60,020	1,06,680	60,000	By Cash/Bank A/c			60,000
				By Goodwill A/c	40,500	27,000
				By General Reserve A/c	18,000	12,000	-
	1,66,500	1,11,000	60,000		1,66,500	1,11,000	60,000

Balance Sheet as on 1st April 2019

ℹ️ चित्र व्याख्या (Diagram Explanation): यह सारणी हरि के प्रवेश के बाद 1 अप्रैल 2019 को फर्म का नया तुलन-पत्र (बैलेंस शीट) प्रस्तुत करती है। देनदारियां पक्ष में पार्टनर्स की संशोधित पूंजी (वासु, विराज, हरि) और विविध लेनदार शामिल हैं। परिसंपत्ति पक्ष में नकद, विविध देनदार (RDD घटाकर), स्टॉक (घटाकर मूल्यह्रास), निवेश, संयंत्र (घटाकर मूल्यह्रास), भवन (घटाकर मूल्यह्रास) और गुडविल शामिल हैं, जो साझेदारी की पुनर्गठन के बाद की वित्तीय स्थिति को दर्शाते हैं।

Working Notes:
(1) Average Profit = \( \frac{Total Profit}{No. of years} \)
= \( \frac{48,000+81,000+73,500}{3} \)
= Rs. 67,500
\( \therefore \) Goodwill value = Rs. 67,500

(2) Vasu's share in Goodwill = Rs. 40,500 (67,500 \( \times \) \( \frac{3}{5} \))
Viraj's share in Goodwill = Rs. 27,000 (67,500 \( \times \) \( \frac{2}{5} \))
Hari is not able to bring a share in goodwill and it is decided to raise the goodwill in the book.
Therefore, Goodwill is recorded in the Asset side Rs. 67,500.
In simple words: This solution provides the revaluation account, partners' capital accounts, and the new balance sheet after Hari's admission, including detailed working notes for goodwill calculation and its distribution. It comprehensively illustrates the financial impact of the partnership reconstitution, ensuring all adjustments are properly reflected.

🎯 Exam Tip: When goodwill is not brought in cash, remember to raise it in the books and distribute it among old partners in their old profit sharing ratio before preparing the balance sheet.

Question 4. Mr. Deep & Mr. Karan were in partnership sharing profits & losses in the proportion of 3 : 1 respectively. Their Balance Sheet on 31st March 2018 stood as follows:
Balance Sheet as of 31st March 2018

ℹ️ चित्र व्याख्या (Diagram Explanation): यह सारणी 31 मार्च 2018 को डीप और करन की साझेदारी फर्म का तुलन-पत्र (बैलेंस शीट) दर्शाती है। देनदारियां पक्ष में विविध लेनदार, देय बिल, बैंक ओवरड्राफ्ट, डीप और करन की पूंजी, और सामान्य आरक्षित निधि शामिल हैं। परिसंपत्ति पक्ष में नकद, विविध देनदार, भूमि और भवन, स्टॉक, संयंत्र और मशीनरी, और फर्नीचर शामिल हैं, जो फर्म की वित्तीय स्थिति का विवरण प्रस्तुत करते हैं।

They admit Shubham into Partnership on 1 April 2018. The terms being that:
(1) He shall have to bring in Rs. 20,000 as his capital for 1/5 share in future profits & Rs. 10,000 as his share of Goodwill.
(2) A provision for 5% doubtful debts to be created on sundry debtors.
(3) Furniture to be depreciated by 20%.
(4) Stock should be appreciated by 5% and Building be appreciated by 20%.
(5) Capital A/c of all partners be adjusted in their new profit sharing ratio through cash account.
Prepare Profit and Loss-Adjustment A/c, Partners' Capital A/c, Balance Sheet of the new firm.
Answer:
Solution:
In the books of the firm

Dr.	Profit and Loss Adjustment Account		Cr.
Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To R.D.D. (New) A/c	1,600	By Stock A/c	1,000
To Depreciation A/c - Furniture	2,200	By Building A/c	3,200
To Profit on Revaluation Transferred to Partners' Capital A/cs: Deep Karan	300 100
	400
	4,200		4,200

Dr.	Partners' Capital Accounts				Cr.
Particulars	Deep (Rs.)	Karan (Rs.)	Shubham (Rs.)	Particulars	Deep (Rs.)	Karan (Rs.)	Shubham (Rs.)
To Cash A/c	13,800	4,600	-	By Balance b/d	60,000	20,000	-
To Balance c/d	60,000	20,000	20,000	By Cash/Bank A/c			20,000
				By Goodwill A/c	7,500	2,500	-
				By Revaluation on A/c (Profit)	300	100
				By General Reserve A/c	6,000	2,000	-
	73,800	24,600	20,000		73,800	24,600	20,000

Balance Sheet as of 1st April 2018

ℹ️ चित्र व्याख्या (Diagram Explanation): यह सारणी शुभम के प्रवेश के बाद 1 अप्रैल 2018 को फर्म का नया तुलन-पत्र (बैलेंस शीट) प्रस्तुत करती है। देनदारियां पक्ष में पार्टनर्स की संशोधित पूंजी (डीप, करन, शुभम), विविध लेनदार, देय बिल, और बैंक ओवरड्राफ्ट शामिल हैं। परिसंपत्ति पक्ष में नकद, विविध देनदार (RDD घटाकर), भूमि और भवन (बढ़ाकर), स्टॉक (बढ़ाकर), फर्नीचर (घटाकर), और संयंत्र व मशीनरी शामिल हैं, जो साझेदारी की पुनर्गठन के बाद की वित्तीय स्थिति को दर्शाते हैं।

Working Note:
Calculation of new ratio : Balance of 1 = 1 – share of new partner
= \( 1 - \frac{1}{5} \)
= \( \frac{4}{5} \) (Remaining share)
New ratio = Old ratio \( \times \) balance 1 (Remaining share)
Deep's new ratio = \( \frac{3}{4} \times \frac{4}{5} = \frac{3}{5} \)
Karan's new ratio = \( \frac{1}{4} \times \frac{4}{5} = \frac{1}{5} \)
Shubham's new ratio = \( \frac{1}{5} = \frac{1}{5} \)
\( \therefore \) New profit and loss sharing ratio = 3 : 1 : 1

Capital amount to be adjusted in Partner's new profit and loss ratio:
Total Capital of the firm = (Reciprocal of New partner's share) \( \times \) (New partner's capital)
= 5 \( \times \) 20,000
= Rs. 1,00,000
Deep's capital balance = \( \frac{3}{5} \times 1,00,000 \) = Rs. 60,000
Karan's capital balance = \( \frac{1}{5} \times 1,00,000 \) = Rs. 20,000

Dr.	Cash Account		Cr.
Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Balance b/d	40,000	By Deep's Capital A/c	13,800
To Shubham's Capital A/c	20,000	By Karan's Capital A/c	4,600
To Goodwill A/c	10,000	By Balance c/d	51,600
	70,000		70,000

(4) After keeping these capital balances difference of the amount of Amit's capital Rs. 63,520 and of Baban's capital Rs. 45,280 are taken as partner's loan to the firm and as a liability of the firm it is recorded in the Liabilities side of the Balance Sheet.
In simple words: This solution calculates the new profit sharing ratio and adjusted capital balances for Deep, Karan, and Shubham, showing how the total firm capital is determined and allocated. It also includes the cash account and explains how capital adjustments affect partner loan accounts and the balance sheet.

🎯 Exam Tip: Always verify that the total of both sides of the balance sheet matches after all adjustments and capital reallocations, as this is a key indicator of accuracy.

Question 5. Mr. Kishor & Mr. Lal were in partnership sharing profits & losses in the proportion of 3/4 and 1/4 respectively.
Galiabilities Amt Amt Assets Amt Amt

ℹ️ चित्र व्याख्या (Diagram Explanation): यह सारणी किशोर और लाल की साझेदारी फर्म का तुलन-पत्र (बैलेंस शीट) दर्शाती है, जहाँ देनदारियां पक्ष में लेनदार, सामान्य आरक्षित निधि, और किशोर व लाल की पूंजी शामिल है। परिसंपत्ति पक्ष में भूमि और भवन, फर्नीचर, स्टॉक, देनदार, देय बिल, और बैंक में नकदी जैसी परिसंपत्तियां प्रस्तुत की गई हैं, जो फर्म की वित्तीय स्थिति का विवरण देती हैं।

They decided to admit Ram on 1 April 2018 on the following terms:
(1) He should be given 1/5th share in profit and for that, he brought in Rs. 60,000 as capital through RTGS.
(2) Goodwill should be raised at Rs. 60,000.
(3) Appreciate Land and Building by 20%.
(4) Furniture and Stock are to be depreciated by 10%.
(5) The capitals of all partners should be adjusted in their new profit sharing ratio through Bank A/c.
Pass necessary Journal Entries in the books of the partnership firm and a Balance Sheet of the new firm.
Answer:
Solution:
Journal entries in the books of the firm

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
2018 April 1	General Reserve A/c Dr. To Mr. Kishor's Capital A/c To Mr. Lal's Capital A/c (Being general reserve distributed among old partners)		12,000	9,000 3,000
1	Profit and Loss Adjustment A/c Dr. To Furniture A/c To Stock A/c (Being decrease in the value of assets)		6,600	600 6,000
1	Land and Building A/c Dr. To Profit and Loss Adjustment A/c (Being increase in the value of assets)		15,000	15,000
1	Profit and Loss Adjustment A/c Dr. To Mr Kishor's Capital A/c To Mr Lal's Capital A/c (Being profit on revaluation distributed in profit sharing ratio)		8,400	6,300 2,100
1	Bank A/c Dr. To Ram's Capital A/c (Being capital amount brought in through RTGS)		60,000	60,000
1	Goodwill A/c Dr. To Kishor's Capital A/c To Lal's Capital A/c (Being the goodwill raised and transferred to capital A/cs in their old ratio)		60,000	45,000 15,000
1	Bank A/c Dr. To Kishor's Capital A/c (Being deficit in capital account settled in cash by Kishor)		29,700	29,700
1	Lal's Capital A/c Dr. To Bank A/c (Being surplus capital amount paid to Lal)		8,100	8,100

Balance Sheet as of 1st April 2018

ℹ️ चित्र व्याख्या (Diagram Explanation): यह सारणी राम के प्रवेश के बाद 1 अप्रैल 2018 को फर्म का नया तुलन-पत्र (बैलेंस शीट) प्रस्तुत करती है। देनदारियां पक्ष में पार्टनर्स की संशोधित पूंजी (मिस्टर किशोर, मिस्टर लाल, राम) और लेनदार शामिल हैं। परिसंपत्ति पक्ष में भूमि और भवन (बढ़ाकर), फर्नीचर (घटाकर), स्टॉक (घटाकर), देनदार, गुडविल, देय बिल, और बैंक में नकदी शामिल हैं, जो साझेदारी की पुनर्गठन के बाद की वित्तीय स्थिति को दर्शाते हैं।

Working Notes:

(1)

Dr.	Partners' Capital Accounts				Cr.
Particulars	Kishor (Rs.)	Lal (Rs.)	Ram (Rs.)	Particulars	Kishor (Rs.)	Lal (Rs.)	Ram (Rs.)
To Bank A/c	-	8,100	-	By Balance b/d	90,000	48,000	-
To Balance c/d	1,80,000	60,000	60,000	By Bank A/c			60,000
				By Goodwill A/c	45,000	15,000	-
				By General Reserve A/c	9,000	3,000	-
				By Revaluation A/c (Profit)	6,300	2,100	-
				By Bank A/c	29,700	-	-
	1,80,000	68,100	60,000		1,80,000	68,100	60,000

Dr.	Bank Account		Cr.
Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Balance b/d	30,000	By Lal's Capital A/c	8,100
To Ram's Capital A/c	60,000	By Balance c/d	1,11,600
To Kishor's Capital A/c	29,700
	1,19,700		1,19,700

(2) Calculation of new profit sharing ratio:
New Ratio = (Balance of 1) \( \times \) (old ratio)
Kishor's New ratio = \( (1 - \frac{1}{5}) \times \frac{3}{4} = \frac{4}{5} \times \frac{3}{4} = \frac{3}{5} \)
Lal's New ratio = \( (1 - \frac{1}{5}) \times \frac{1}{4} = \frac{4}{5} \times \frac{1}{4} = \frac{1}{5} \)
Ram's ratio = \( \frac{1}{5} \)
(3) Total capital of the firm = (Reciprocal of Ram's ratio) \( \times \) (His capital contribution)
= \( \frac{5}{1} \times 60,000 \) = Rs. 3,00,000
Kishor's new closing capital balance = \( \frac{3}{5} \times 3,00,000 \) = Rs. 1,80,000
Lal's new closing capital balance = \( \frac{1}{5} \times 3,00,000 \) = Rs. 60,000
Ram's new closing capital balance = Rs. 60,000
In simple words: This solution provides the detailed journal entries for Ram's admission, including revaluation adjustments, goodwill accounting, and capital contributions. It also calculates the new profit sharing ratio and adjusted capital balances for all partners, concluding with the new firm's balance sheet and a bank account summary.

🎯 Exam Tip: When adjusting capital accounts to a new profit sharing ratio, ensure that any excess or deficit amounts are accurately transferred to partner loan accounts or bank accounts as per the given terms to maintain balance sheet integrity.

Question 6. Vrushali and Leena are equal partners in the business. Their Balance Sheet as of 31st March 2013 stood as under.
Balance Sheet as of 31st March 2018

ℹ️ चित्र व्याख्या (Diagram Explanation): यह सारणी 31 मार्च 2018 को वृषाली और लीना की साझेदारी फर्म का तुलन-पत्र (बैलेंस शीट) दर्शाती है, जिसमें देनदारियां पक्ष में विविध लेनदार, वृषाली और लीना की पूंजी, और सामान्य आरक्षित निधि शामिल है। परिसंपत्ति पक्ष में बैंक में नकदी, देनदार (कम R.D.D.), भवन, मशीनरी, और देय बिल जैसी परिसंपत्तियां प्रस्तुत की गई हैं, जो फर्म की वित्तीय स्थिति का विवरण देती हैं।

They decided to admit Aparna on 1st April 2018 on the following terms:
(1) The Machinery and Building be depreciated by 10%. Reserve for Doubtful Debts to be increased by Rs. 5,000.
(2) Bills receivable are taken over by Vrushali at a discount of 10%.
(3) Aparna should bring Rs. 60,000 as capital for her 1/4th share in future profits.
(4) The Capital accounts of all the partners be adjusted in proportion to the new profit sharing ratio by opening the Current accounts of the partners.
Prepare Profit and Loss-Adjustment A/c, Partners' Capital A/c, Balance Sheet of the new firm.
Answer:
Solution:
Dr. Profit and Loss Adjustment Account Cr.

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Machinery A/c	2,400	By Loss on Revaluation
To Building A/c	5,500	Transferred to Partners' Capital A/cs:
To R.D.D. A/c	5,000	Vrushali	7,050
To Bills Receivable A/c (Discount)	1,200	Leena	7,050
	14,100		14,100

Dr.	Partners' Capital Accounts				Cr.
Particulars	Vrushali (Rs.)	Leena (Rs.)	Aparna (Rs.)	Particulars	Vrushali (Rs.)	Leena (Rs.)	Aparna (Rs.)
To Revaluation A/c (Loss)	7,050	7,050	-	By Balance b/d	45,000	30,000	-
To Bills Receivable A/c	10,800	-	-	By Bank A/c			60,000
To Balance c/d	90,000	90,000	60,000	By General Reserve A/c	9,000	9,000	-
				By Partner's Current A/c	53,850	58,050
	1,07,850	97,050	60,000		1,07,850	97,050	60,000

Balance Sheet as on 1st April 2018

ℹ️ चित्र व्याख्या (Diagram Explanation): यह सारणी अपर्णा के प्रवेश के बाद 1 अप्रैल 2018 को फर्म का नया तुलन-पत्र (बैलेंस शीट) प्रस्तुत करती है। देनदारियां पक्ष में पार्टनर्स की संशोधित पूंजी (वृषाली, लीना, अपर्णा), विविध लेनदार, और पार्टनर्स के चालू खाते (वृषाली, लीना) शामिल हैं। परिसंपत्ति पक्ष में बैंक में नकदी, देनदार (RDD घटाकर), भवन (घटाकर मूल्यह्रास), मशीनरी (घटाकर मूल्यह्रास), और देय बिल जैसी परिसंपत्तियां दर्शायी गई हैं, जो साझेदारी की पुनर्गठन के बाद की वित्तीय स्थिति को दर्शाते हैं।

Working Notes:
(1) R.D.D. to be increased by Rs. 5,000 means subtract Rs. 5,000 from Debtors.
(2) Bills receivable taken by Vrushali at 10 % discount i.e. 12,000 - 1,200 = Rs. 10,800. Write this amount on the debit side of the partners' Capital Account in Vrushali's column.
(3) Calculation of new ratio = 1 – share of new partner
= \( 1 - \frac{1}{4} \)
= \( \frac{3}{4} \) (Remaining share)
New ratio = Old ratio \( \times \) Balance 1 (Remaining Share)
Vrushali's new ratio = \( \frac{1}{2} \times \frac{3}{4} = \frac{3}{8} \)
Leena's new ratio = \( \frac{1}{2} \times \frac{3}{4} = \frac{3}{8} \)
Aparna's ratio = \( \frac{1}{4} \)
\( \therefore \) Partner's new profit and loss ratio = \( \frac{3}{8} : \frac{3}{8} : \frac{1}{4} \) = 3 : 3 : 2
Now, capital amount to be adjusted in partners new profit and loss ratio.
Total capital of the firm = (Reciprocal of New Partner's Share) \( \times \) (New Partner's Capital)
= (Reciprocal of \( \frac{1}{4} \)) \( \times \) 60,000
= 4 \( \times \) 60,000
= Rs. 2,40,000
Vrushali's capital balance = \( \frac{3}{8} \times 2,40,000 \) = Rs. 90,000
Leela's capital balance = \( \frac{3}{8} \times 2,40,000 \) = Rs. 90,000
The deficit of these capital balances is to be adjusted through the Current account.
To keep the balance of Vrushali's and Leena's capital Rs. 90,000 each, deficit of Rs. 53,850 and Rs. 58,050 are incurred which is transferred to the respective Partner's Current A/cs and recorded on the Asset side of Balance Sheet [As it is to be recovered from Partners].
In simple words: This solution details the revaluation of assets and liabilities, the accounting for bills receivable taken by a partner, and the admission of Aparna with capital and a new profit-sharing ratio. It includes the preparation of adjustment and capital accounts, along with the new balance sheet and comprehensive working notes for capital adjustments and current account treatment.

🎯 Exam Tip: When partners' capital accounts are adjusted to a new profit-sharing ratio, carefully distinguish between transferring excess/deficit to bank accounts versus current accounts, as this impacts the final balance sheet presentation.

Question 7. The balance sheet of Medha and Radha who share profit and loss in the ratio 3 : 1 is as follows:
Balance Sheet as of 31st March 2018

ℹ️ चित्र व्याख्या (Diagram Explanation): यह सारणी 31 मार्च 2018 को मेधा और राधा की साझेदारी फर्म का तुलन-पत्र (बैलेंस शीट) दर्शाती है। देनदारियां पक्ष में विविध लेनदार, देय बिल, बैंक ओवरड्राफ्ट, मेधा और राधा की पूंजी, और सामान्य आरक्षित निधि शामिल हैं। परिसंपत्ति पक्ष में नकद, विविध देनदार, स्टॉक, संयंत्र और मशीनरी, फर्नीचर, और भूमि व भवन जैसी परिसंपत्तियां प्रस्तुत की गई हैं, जो फर्म की वित्तीय स्थिति का विस्तृत विवरण देती हैं।

They decided to admit Krutika on 1st April 2018 on the following terms:
(1) Krutika is taken as a partner on 1st April 2017. She will pay Rs. 40,000 as her capital for 1/5th share in future profits and Rs. 2,500 as goodwill.
(2) 5% provision for bad and doubtful debt be created on debtors.
(3) Furniture be depreciated by 20%.
(4) Stocks be appreciated by 5% and plant & machinery by 20 %.
(5) The Capital accounts of all partners be adjusted in their new profit sharing ratio by adjusting the amount through a loan.
(6) The new profit sharing ratio will be 3/5 : 1/5 : 1/5 respectively.
You are required to prepare Profit and Loss-Adjustment A/c, Partners' Capital A/c, Balance Sheet of the new firm.
Answer:
Solution:
In the books of the firm
Dr. Profit and Loss Adjustment Account Cr.

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To R.D.D. A/c	3,200	By Stock A/c	2,000
To Depreciation A/c - Furniture	4,400	By Plant & Machinery A/c	12,000
To Profit on Revaluation Transferred to Partners' Capital A/cs: Medha Radha	4,800 1,600
	6,400
	14,000		14,000

Dr.	Partners' Capital Account				Cr.
Particulars	Medha (Rs.)	Radha (Rs.)	Krutika (Rs.)	Particulars	Medha (Rs.)	Radha (Rs.)	Krutika (Rs.)
To Partners' Loan A/c	18,675	6,225	-	By Balance b/d	1,20,000	40,000	-
To Balance c/d	1,20,000	40,000	40,000	By Bank A/c			40,000
				By Goodwill A/c	1,875	625	-
				By Revaluation A/c	4,800	1,600	-
				By General Reserve A/c	12,000	4,000	-
	1,38,675	46,225	40,000		1,38,675	46,225	40,000

Balance Sheet as of 1st April 2018

ℹ️ चित्र व्याख्या (Diagram Explanation): यह सारणी कृतिका के प्रवेश के बाद 1 अप्रैल 2018 को फर्म का नया तुलन-पत्र (बैलेंस शीट) प्रस्तुत करती है। देनदारियां पक्ष में पार्टनर्स की संशोधित पूंजी (मेधा, राधा, कृतिका), विविध लेनदार, देय बिल, बैंक ओवरड्राफ्ट, और पार्टनर्स के ऋण खाते (मेधा, राधा) शामिल हैं। परिसंपत्ति पक्ष में नकद, विविध देनदार (RDD घटाकर), स्टॉक (बढ़ाकर), संयंत्र और मशीनरी (बढ़ाकर), फर्नीचर (घटाकर), और भूमि व भवन जैसी परिसंपत्तियां दर्शायी गई हैं, जो साझेदारी की पुनर्गठन के बाद की वित्तीय स्थिति को दर्शाते हैं।

Working Notes:
(1) Total capital of the firm = (Reciprocal of New Partner's Profit Sharing ratio) \( \times \)
(Capital contributed by new partner)
= (Reciprocal of \( \frac{1}{5} \)) \( \times \) 40,000
= 5 \( \times \) 40,000
= Rs. 2,00,000
Medha's closing capital, balance = \( \frac{3}{5} \times 2,00,000 \) = Rs. 1,20,000
Radha's closing capital balance = \( \frac{1}{5} \times 2,00,000 \) = Rs. 40,000
(2) General reserve is distributed among old partners in their old profit and loss ratio.
(3) Cash Balance = 78,000 + 40,000 + 2,500 = Rs. 1,20,500 [Amount brought in by new partner.]
In simple words: This solution provides the detailed partners' capital accounts and the new balance sheet after Krutika's admission, along with working notes for calculating the total capital and its distribution among partners. It also clarifies the treatment of general reserve and cash balance adjustments, offering a comprehensive view of the reconstituted firm's financial standing.

🎯 Exam Tip: When capital accounts are adjusted via partner loans, clearly show the loan amounts in the balance sheet liabilities. Accurate calculation of new capital balances based on the new profit sharing ratio is vital.

Question 8. The Balance Sheet of Sahil and Nikhil who share profits in the ratio of 3 : 2 as of 31st March 2017 is as follows:
Balance Sheet as of 31st March 2017

ℹ️ चित्र व्याख्या (Diagram Explanation): यह सारणी 31 मार्च 2017 को साहिल और निखिल की साझेदारी फर्म का तुलन-पत्र (बैलेंस शीट) दर्शाती है। देनदारियां पक्ष में लेनदार, साहिल और निखिल की पूंजी शामिल है। परिसंपत्ति पक्ष में फर्नीचर, भवन, देनदार, क्लोजिंग स्टॉक और हाथ में नकदी जैसी परिसंपत्तियां प्रस्तुत की गई हैं, जो फर्म की वित्तीय स्थिति का विवरण देती हैं।

Varad admitted on 1st April 2017 on the following terms:
(1) Varad was to pay Rs. 1,00,000 for his share of capital.
(2) He was also to pay Rs. 40,000 as his share of goodwill.
(3) The new profit sharing ratio was 3 : 2 : 3.
(4) Old partners decided to revalue the assets as follows:
Building Rs. 1,00,000. Furniture Rs. 48,000, Debtors Rs. 38,000 (in view of likely bad debts)
(5) It was found that there was a liability for Rs. 3,000 for goods in March 2017 but recorded on 2nd April 2017.
You are required to prepare:
(a) Profit and Loss-Adjustment account
(b) Capital accounts of the partners
(c) Balance Sheet after the admission of Varad.
Answer:
Solution:
Dr. Profit and Loss Adjustment Account Cr.

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Furniture A/c	12,000	By Building A/c	28,000
To Bad Debts A/c (likely)	2,000
To Unrecorded Liability A/c	3,000
To Profit on Revaluation Transferred to Partners' Capital A/cs: Sahil Nikhil	6,600 4,400
	11,000
	28,000		28,000

Dr. Partners' Capital Accounts Cr.

Particulars	Sahil (Rs.)	Nikhil (Rs.)	Varad (Rs.)	Particulars	Sahil (Rs.)	Nikhil (Rs.)	Varad (Rs.)
To Balance c/d	1,10,600	1,20,400	1,00,000	By Balance b/d	80,000	1,00,000	-
				By Bank A/c			1,00,000
				By Goodwill A/c	24,000	16,000	-
				By Revaluation A/c	6,600	4,400	-
	1,10,600	1,20,400	1,00,000		1,10,600	1,20,400	1,00,000

Balance Sheet as of 1st April 2017

ℹ️ चित्र व्याख्या (Diagram Explanation): यह सारणी वरद के प्रवेश के बाद 1 अप्रैल 2017 को फर्म का नया तुलन-पत्र (बैलेंस शीट) प्रस्तुत करती है। देनदारियां पक्ष में पार्टनर्स की संशोधित पूंजी (साहिल, निखिल, वरद), लेनदार, और अघोषित देनदारियां शामिल हैं। परिसंपत्ति पक्ष में फर्नीचर (घटाकर मूल्यह्रास), भवन (बढ़ाकर मूल्यह्रास), देनदार (कम संदिग्ध ऋण), क्लोजिंग स्टॉक, और हाथ में नकदी जैसी परिसंपत्तियां दर्शायी गई हैं, जो साझेदारी की पुनर्गठन के बाद की वित्तीय स्थिति को दर्शाते हैं।

Working Notes:
(1) Cash in hand = Opening balance + Varad's capital + Varad's goodwill (amount brought in)
= 20,000 + 1,00,000 + 40,000
= Rs. 1,60,000
(2) Sacrifice ratio = Old ratio - New ratio
Sahil's sacrifice = \( \frac{3}{5} - \frac{3}{8} = \frac{24-15}{40} = \frac{9}{40} \)
Nikhil's sacrifice = \( \frac{2}{5} - \frac{2}{8} = \frac{16-10}{40} = \frac{6}{40} \)
i.e. sacrifice ratio = \( \frac{9}{40} : \frac{6}{40} \) = 9 : 6 = 3 : 2.
Goodwill is distributed among old partners in the sacrifice ratio.
In simple words: This solution provides the revaluation account, partners' capital accounts, and the new balance sheet after Varad's admission, including detailed working notes for cash in hand and sacrifice ratio calculations. It comprehensively illustrates the financial impact of the partnership reconstitution, ensuring all adjustments are properly reflected.

🎯 Exam Tip: When a new partner brings goodwill in cash, it is typically distributed among old partners in their sacrifice ratio. Ensure correct calculation of sacrifice ratio and proper accounting for goodwill to avoid errors.

Question 9. Mr. Amit and Baban share profits and losses in the ratio 2 : 3 respectively. Their Balance Sheet as of 31st March 2018 was as under:
Balance Sheet as of 31st March 2018

ℹ️ चित्र व्याख्या (Diagram Explanation): यह सारणी 31 मार्च 2018 को अमित और बबन की साझेदारी फर्म का तुलन-पत्र (बैलेंस शीट) दर्शाती है। देनदारियां पक्ष में लेनदार, अमित और बबन की पूंजी शामिल है। परिसंपत्ति पक्ष में नकद, भूमि और भवन, संयंत्र, फर्नीचर, स्टॉक, और देनदार जैसी परिसंपत्तियां प्रस्तुत की गई हैं, जो फर्म की वित्तीय स्थिति का विवरण देती हैं।

They agreed decided to admit Kamal on 1st April 2018 on the following terms:
(1) Kamal shall have 1/4th share in future profits.
(2) She shall bring Rs. 50,000 as her capital and Rs. 40,000 as her share of goodwill.
(3) Land and building to be valued at 60,000 and furniture to be depreciated by 10%.

 

Question 9. Mr. Amit and Baban share profits and losses in the ratio 2 - 3 respectively. Their Balance Sheet as of 31st March 2018 was as under:
Balance Sheet as of 31st March 2018

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Creditors	1,40,000	Cash	110,000
Capital :		Land and Building	50,000
Amit	100,000	Plant	60,000
Baban	100,000	Furniture	4,000
		Stock	100,000
		Debtors	16,000
	3,40,000		3,40,000

They agreed decided to admit Kamal on 1st April 2018 on the following terms:
1. Kamal shall have 1/4th share in future profits.
2. She shall bring Rs. 50,000 as her capital and Rs. 40,000 as her share of goodwill.
3. Land and building to be valued at Rs. 60,000 and furniture to be depreciated by 10%.
4. Provision for bad and doubtful debts is to be maintained at 5% on the sundry debtors.
5. Stocks to be valued at Rs. 1,10,000.
The Capital A/c of all partners to be adjusted in their new profit and loss ratio and excess amount be transferred to their loan accounts.
Prepare Profit and Loss-Adjustment A/c, Capital A/cs, and New Balance Sheet.
Answer:
Solution:
In the books of Partnership Firm
Dr. Profit and Loss Adjustment Account Cr.

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Depreciation A/c - Furniture	400	By Land and Building A/c	10,000
To R.D.D. A/c	800	By Stock A/c	10,000
To Profit on Revaluation Transferred to
Partners' Capital A/cs:
Amit	7,520
Baban	11,280
	18,800
	20,000		20,000

Dr. Partners' Capital Accounts Cr.

Particulars	Amit (Rs.)	Baban (Rs.)	Kamal (Rs.)	Particulars	Amit (Rs.)	Baban (Rs.)	Kamal (Rs.)
To Partners' Loan A/c	63,520	45,280		By Balance b/d	1,00,000	1,00,000
To Balance c/d	60,000	90,000	50,000	By Bank A/c			50,000
				By Goodwill A/c	16,000	24,000
				By Revaluation A/c	7,520	11,280
				(Profit)
	1,23,520	1,35,280	50,000		1,23,520	1,35,280	50,000

Balance Sheet as of 1st April 2018

Liabilities	Amount (Rs.)	Amount (Rs.)	Assets	Amount (Rs.)	Amount (Rs.)
Capital A/cs:			Cash		2,00,000
Amit	60,000		Land and Building	50,000
Baban	90,000		Add: Appreciation	10,000	60,000
Kamal	50,000	2,00,000	Plant		60,000
Creditors		1,40,000	Furniture	4,000
Partners' Loan :			Less: Depreciation	400	3,600
Amit	63,520		Stock	1,00,000
Baban	45,280	1,08,800	Add: Appreciation	10,000	1,10,000
			Debtors	16,000
			Less: R.D.D.	800	15,200
		4,48,800			4,48,800

Working Notes:
1. Cash balance = Opening balance + Amount brought in by Kamal
= 1,10,000 + 50,000 + 40,000
= Rs. 2,00,000
2. For calculation of new profit and loss ratio:
Calculation of new profit ratio = \(1 - \text{share of new partner}\)
\( = 1 - \frac{1}{4} \)
\( = \frac{3}{4} \) (Remaining share)
New ratio = old ratio \( \times \) balance 1 (Remaining share)
\( \text{Amit's new ratio} = \frac{2}{5} \times \frac{3}{4} = \frac{6}{20} \)
\( \text{Baban's new ratio} = \frac{3}{5} \times \frac{3}{4} = \frac{9}{20} \)
\( \text{Kamal's ratio} = \frac{1}{4} = \frac{5}{20} \)
3. New profit and loss ratio = 6: 9:5
Capital amount adjusted in their new profit and loss ratio by taking new partner Kamal's capital (50,000) as a base.
For part 5 capital = Rs. 50,000 (Kamal's capital)
For part 6 capital = Rs. 60,000 (Amit's capital)
For part 9 capital = Rs. 90,000 (Baban's capital)
4. After keeping these capital balances difference of the amount of Amit's capital Rs. 63,520 and of Baban's capital Rs. 45,280 are taken as partner's loan to the firm and as a liability of the firm it is recorded in the Liabilities side of the Balance Sheet.
In simple words: This problem illustrates the admission of a new partner, Kamal, and the subsequent adjustments to assets, liabilities, and partners' capital accounts, culminating in a new balance sheet reflecting the revised partnership structure. The solution includes detailed calculations for the new profit-sharing ratio and capital adjustments.

🎯 Exam Tip: Pay close attention to how new partner's capital and goodwill affect the old partners' accounts and how the capital accounts are adjusted to the new profit-sharing ratio, including transfers to loan accounts.

 

Question 10. The following is the Balance Sheet of Om and Jay on 31st March 2018, they share profits and losses in the ratio 3 : 2.
Balance Sheet as of 31st March 2018

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Creditors	30,000	Cash	3,000
Capital A/c		Building	15,000
Om	21,000	Machinery	21,000
Jay	21,000	Furniture	900
Current A/c		Stock	12,300
Om	3,750	Debtors	27,000
Jay	3,450
	79,200		79,200

They take Jagdish into partnership on 1st April 2018. The terms being:
1. Jagdish should pay Rs. 3,000 as his share of Goodwill. 50% of goodwill withdrawn by partners in cash.
2. He should bring Rs. 9,000 as capital for 1/4th share in future profits.
3. Building to be valued at 18,000, Machinery and Furniture to be reduced by 10%.
4. A provision of 5% on debtors to be made for doubtful debts.
5. Stock to be taken at the value of Rs. 15,000.
Prepare Profit and Loss A/c, Partners' Current A/c, Balance Sheet of the new firm.
Answer:
Solution:
Dr. Profit and Loss Adjustment Account Cr.

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Depreciation A/c - Machinery	2,100	By Building A/c	3,000
To Depreciation A/c - Furniture	90	By Stock A/c	2,700
To R.D.D. A/c	1,350
To Profit on Revaluation Transferred to
Partners Capital A/cs:
Om	1,296
Jay	864
	2,160
	5,700		5,700

Dr. Partners' Current Accounts Cr.

Particulars	Om (Rs.)	Jay (Rs.)	Particulars	Om (Rs.)	Jay (Rs.)
To Goodwill	900	600	By Balance b/d	3,750	3,450
To Balance c/d	5,946	4,914	By Goodwill A/c	1,800	1,200
			By Revaluation A/c	1,296	864
	6,846	5,514		6,846	5,514

Balance Sheet as of 1st April 2018

Liabilities	Amount (Rs.)	Amount (Rs.)	Assets	Amount (Rs.)	Amount (Rs.)
Capital Accounts:			Cash		13,500
Om	21,000		Building	15,000
Jay	21,000		Add: Appreciation	3,000	18,000
Jagdish	9,000	51,000	Machinery	21,000
Current A/cs:			Less: Depreciation	2,100	18,900
Om	5,946		Furniture	900
Jay	4,914	10,860	Less: Depreciation	90	810
Creditors		30,000	Stock	12,300
			Add: Appreciation	2,700	15,000
			Debtors	27,000
			Less: R.D.D.	1,350	25,650
		91,860			91,860

Working Notes:
1.

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Balance b/d	3,000	By Om's Capital A/c	900
To Jagdish's Capital A/cs	9,000	By Jay's Capital A/c	600
			1,500
To Om's Capital A/c	1,800	By Balance c/d	13,500
To Jay's Capital A/c	1,200
	3,000
	15,000		15,000

2. Write partner's capital accounts balance as fixed capital balance in the Balance Sheet and transferred current account balance in the Balance Sheet as Partners Current A/c.
3. As shown in the cash account partners' withdrew half amount of goodwill amount share.
In simple words: This solution details the admission of a new partner, Jagdish, and the necessary adjustments to existing assets and liabilities through a Revaluation Account, along with updates to partners' capital and current accounts, resulting in a new balance sheet for the firm.

🎯 Exam Tip: Remember to clearly distinguish between capital accounts and current accounts, especially when partners withdraw goodwill or when capital balances are adjusted without being transferred to loan accounts.

Class 12 Commerce BK Textbook Solutions Digest

• 12th Bk Chapter 1 Practical Problems
• 12th Bk Chapter 2 Practical Problems
• 12th Bk Chapter 3 Practical Problems
• 12th Bk Chapter 4 Practical Problems
• 12th Bk Chapter 5 Practical Problems
• 12th Bk Chapter 6 Practical Problems
• 12th Bk Chapter 7 Practical Problems
• 12th Bk Chapter 8 Practical Problems
• 12th Bk Chapter 9 Practical Problems
• 12th Bk Chapter 10 Practical Problems