CBSE Class 12 Accountancy Admission Of Partner Worksheet Set 03

Question: According to Section 31(1) of the Indian Partnership Act, 1932, “A person can be admitted as a new partner only with the ………… unless otherwise agreed upon.”
a) consent of one partner
b) consent of all the existing partners
c) consent of the firm
d) Both (a) and (b)
Answer: b

Question: A newly admitted partner acquires the right to……….
a) share in the assets of the firm
b) share in the future profits
c) None of these
d) Both (a) and (b)
Answer: d

Question: Assertion (A) Profit or loss on revaluation account is not transferred to incoming partners’ capital account.
Reason (R) Profit or loss on revaluation at the time of admission of a partner belongs to pre-admission period hence belong to old partners.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
c) Assertion (A) is true, but Reason (R) is false
d) Assertion (A) is false, but Reason (R) is true
Answer: a

Question: Contingency reserve appearing in the balance sheet at the time of admission of partner is ……… to old partners’ capital accounts in old ratio.
a) debited
b) credited
c) Either (a) or (b)
d) None of these
Answer: b

Question: When share of new or incoming partner is given without giving the details of sacrifice made by old or existing partners, then
(i) it is assumed that old partners make sacrifice in their old profit sharing ratio.
(ii) there is no change in profit sharing ratio of the old partners.
a) Only (i) is correct
b) Only (ii) is correct
c) Both (i) and (ii) are correct
d) Both (i) and (ii) are incorrect
Answer: c

Question: ‘X’ and ‘Y’ are partners sharing profits in the ratio of 3 : 1. They admit ‘Z’ as a partner who pays ₹ 4,000 as goodwill, the new profit sharing ratio being 2 : 1 : 1 among ‘X’, ‘Y’ and ‘Z’. The amount of goodwill will be credited to
a) ₹ 2,000 each
b) Only ‘Y’
c) ‘X’ and ‘Y’ as ₹ 3,000 and ₹ 1,000
d) Only ‘X’
Answer: d

Question: A firm has an unrecorded investment of ₹ 5,000. Entry in the firm’s journal on admission of partners will be
a) Unrecorded Investment A/c Dr 5,000
  To Revaluation A/c 5,000
b) Partners’ Capital A/c Dr 5,000
  To Unrecorded Investment A/c 5,000
c) Revaluation A/c Dr 5,000
  To Unrecorded Investment A/c 5,000
d) None of the above
Answer: a

Question: ‘A’, ‘B’ and ‘C’ share profits and losses in the ratio of 3:2:1. ‘D’ is admitted with 1/6 share which he gets entirely from ‘A’. New ratio will be
a) 2:2:1:1
b) 3:1:1:1
c) 2:2:2:1
d) None of these
Answer: a

Question: When incoming partner acquires his share from existing partners in their profit sharing ratio, the steps for calculation of new profit sharing ratio are given as
(i) Calculate old partners’ new share as part of combined share.
(ii) Convert the new shares of all partners and find out the new profit sharing ratio.
(iii) Calculate combined share of old partners in the new firm by deducting new partner’s share from 1.
a) (i), (iii), (ii)
b) (iii), (i), (ii)
c) (ii), (iii), (i)
d) (iii), (ii), (i)
Answer: b

Question: Workmen Compensation Reserve (WCR) appears in the balance sheet of Rashmi and Suman, who share profits in the ratio of 2:3, at ₹ 80,000. Deepa is admitted and the new profit sharing ratio is 1:1:1. If the claim on account of WCR is estimated at ₹ 1,00,000, then
a) the difference of ₹ 20,000 will be debited to revaluation account
b) the difference of ₹ 20,000 will be debited to Rashmi’s capital account
c) the difference of ₹ 20,000 will be debited to Suman’s capital account
d) None of the above
Answer: a

Question: The new partner, at the time of admission, may acquire his share from old partners in
a) old profit sharing ratio
b) some agreed ratio
c) particular fraction from some of the partners
d) All of the above
Answer: d

Question: Which of the following statement(s) is/are correct?
(i) In case admission of partner, sacrificing ratio is used to distribute goodwill.
(ii) Inferred goodwill is the excess of desired total capital of the firm over the actual combined capital of all partners.
(iii) At the time of admission of a new partner, the new partner compensates the old partners by premium for goodwill.
(iv) Taxation fund should never be distributed among the old partners at the time of admission of partners.
a) (i) and (ii)
b) (ii) and (iii)
c) (i), (iii) and (iv)
d) All of these
Answer: d

Question: Asha and Nisha are partners sharing profits in the ratio of 2 : 1. Asha’s son Ashish was admitted for 1/4 share of which 1/8 was gifted by Asha to her son. The remaining was contributed by Nisha. Goodwill of the firm is valued at ₹ 40,000. How much of the goodwill be credited to the old partners’ capital account?
a) ₹ 2,500 each
b) ₹ 5,000 each
c) ₹ 20,000 each
d) None of these
Answer: c

CASE STUDY BASED QUESTIONS 

Amit and Mahesh were partners in a fast food corner sharing profits and losses in the ratio 3:2 .They sold fast food items across the continent and home delivery too.Their initial fixed capital contribution was Rs 1,20,000 and Rs 80,000 respectively.
At the end of first year their profit was Rs 1,20,000 before allowing the remuneration of Rs 3,000 per quarter to Amit and Rs 2,000 per half year to Mahesh. Such a promising performance for the first year was encouraging, therefore, they decided to expand the area of operations.
For this purpose they needed a delivery Van, a few bikes and an additional person to support. Six months into the accounting year, they decided to admit Sundaram as a new partner and offered him 20% as a share of profits along with monthly remuneration of rupees Rs. 2,500. Sundaram was asked to introduce Rs. 1,30,000 for capital and Rs.70,000 for premium for Goodwill. Additionally, Sundaram was required to provide Rs. 1,00,000 as loan for two year Sundaram readily accepted the offer and the terms of the offer were duly executed and he was admitted as a partner.

Question: Upon the admission of Sundaram the sacrifice for providing his share of profits would be done:
a) by Amit only
b) by Mahesh only
c) by Amit and Mahesh equally
d) by Amit and Mahesh in the ratio of 3:2
Answer: d

Question: Remuneration will be transferred to _________ of Amit and Mahesh at the end of the accounting period
a) capital account
b) loan account
c) current account
d) none of the above
Answer: c

Question: While talking up the accounting procedure for the reconstitution the accountant of the firm Mr Suraj Marwaha faced a difficulty. Solve it by answering the following.For the amount of loan that Sundaram has agreed to provide he is entitled in the interest thereon at the rate of
a) 6% p.a
b) 7% p.a
c) 8% p.a
d) 9% p.a
Answer: a

Question: Sundaram will be entitled to a remuneration of _______ at the end of the year
a) Rs. 15,000
b) Rs. 20,000
c) Rs. 40,000
d) Rs. 30,000
Answer: a

Rahul and Modi are two partners into a firm sharing profits equally . On 1st January , 2020, they decided to admit Vikas as a new partner into the firm for 1/5th share. Vikas brings Rs 10,00,000 for his share to capital and premium of goodwill in cash . Half goodwill is withdrew by the old partneRs. Goodwill of the firm is valued on the basis of one year purchase of profits or losses of preceding last 3 yeaRs. Profits of last four years are Rs 6,00,000 in 2016; Rs 7,00,000 in 2017; Rs 8,00,000 in 2018 and Rs 15,00,000 in 2019.

Question: What was the value of goodwill of the firm ?
a) Rs 7,00,000
b) Rs 8,00,000
c) Rs 9,00,000
d) Rs 10,00,000
Answer: d

Question: What was the amount of capital brought in by Vikas ?
a) Rs 2,00,000
b) Rs 8,00,000
c) Rs 10,00,000
d) Can’t be determined
Answer: b

Question: What was the goodwill share given to Modi ?
a) Rs 1,00,000
b) Rs 2,00,000
c) Rs 4,00,000
d) Can’t be determined
Answer: a

Question: Which account is debited when the goodwill is withdrawn by partners ?
a) goodwill a/c
b) premium for goodwill a/c
c) partner’s capital a/c
d) cash/bank a/c
Answer: c

R and S are partners in a firm sharing profits in the ratio of 3:2 they admit T as new partner the new profit sharing ratio of R, S and T will be 5:5:3 T contributed the following assets towards his capital and for his share of Goodwill.Stock Rs. 1,67,000 debtors Rs.1,40,000 (Less Provision for doubtful debts of 5%) and land Rs. 1,00,000 Plant & Machinery Rs.1,80,000. On the date of admission of T, the Goodwill of the firm was valued at Rs.13,00,000.

Question: What could be the purpose of admitting T in the firm?
a) Acquiring additional managerial skills
b) Procuring additional capital
c) Enhancing efficiency of operations
d) None of the above
Answer: b

Question: What is the sacrificing ratio of R and S ?
a) 2:3
b) 3:2
c) 1:1
d) None of the above
Answer: d

Question: What was the amount of capital brought in by T ?
a) Rs. 5,80,000
b) Rs. 3,00,000
c) Rs. 2,85,000
d) Rs. 2,80,000
Answer: d

Question: What share of goodwill did R get ?
a) Rs. 6,50,000
b) Rs. 1,50,000
c) Rs. 2,80,000
d) None of these
Answer: c

DIRECTION Sainath enterprises is a partnership business with Amar, Akbar and Anthony as partners engaged in the production and sales of home appliances. Their capital contributions were Rs 50,00,000, Rs 50,00,000 and Rs 80,00,000 respectively with the profit sharing ratio of 5:5:8.
As they are now looking forward to expanding their business it was decided that they would bring in sufficient cash to double the respective capitals. This was duly followed by Amar and Akbar but due to unavoidable reasons Anthony could not do so and ultimately it was agreed that to bridge the shortfall in the required capital a new partner should be admitted who would bring in the amount that Anthony could not bring and that partner would get share of profits equal to half of Anthony’s shares which would be sacrificed by Anthony only.
Consequent to this agreement, Mahesh was admitted and he bought in the required capital and Rs 30,00,000 as premium for goodwill.
Based on the above information you are required to answer the following questions:

Question: What is the amount of capital brought in by the new partner, Mahesh ?
a) Rs 50,00,000
b) Rs 80,00,000
c) Rs 40,00,000
d) Rs 30,00,000
Answer: c

Question: What will be the new profit sharing ratio of Amar, Akbar, Anthony and Mahesh?
a) 1:1:1:1
b) 5:5:8:8
c) 5:5:4:4
d) None of the above
Answer: c

Question: What is the value of goodwill of the firm ?
a) Rs 1,35,00,000
b) Rs 30,00,000
c) Rs 1,50,00,000
d) Rs 1,00,00,000
Answer: a

Question: What will be the correct journal entry for the distribution of premium for goodwill brought in by Mahesh ?
a) Mahesh capital a/c Dr 30,00,000
b) Premium for goodwill a/c Dr 30,00,000
To Anthony’s capital a/c 30,00,000
(Being ………………..)
c) Premium for goodwill a/c Dr 30,00,000
d) Premium for goodwill a/c Dr 30,00,000
To Amar’s capital a/c 10,00,000
To Akbar’s capital a/c 10,00,000
To Mahesh’s capital a/c 10,00,000
(Being ……………………)
Answer: b

True/False

Question 1. Payment of premium for Goodwill is the method of compensating sacrificing partners for the sacrifice they make in favour of new partner.
Answer: True
In simple words: When a new partner joins, existing partners give up part of their profit share. The premium paid for goodwill is their reward for this loss.

Exam Tip: Premium paid for goodwill always flows to old partners in their sacrificing ratio, not to the firm itself.

Question 2. Contingent liability becoming a certain liability is credited to Revaluation Account at the time of admission of a partner.
Answer: False
In simple words: A liability that becomes real is debited to Revaluation Account (as a loss), not credited. Credits in Revaluation Account show gains from revaluation.

Exam Tip: Remember: Increases in liabilities and decreases in assets are debited to Revaluation Account as losses.

Question 3. On revaluation of assets and reassessment of liabilities, capital Accounts of old partners remain unchanged.
Answer: False
In simple words: When assets are revalued and liabilities are reassessed, the profit or loss flows into the old partners' capital accounts. Their capitals change by the share of revaluation gain or loss.

Exam Tip: Revaluation profit or loss is transferred to old partners' capital accounts in their old profit-sharing ratio.

Question 4. At the time of admission of a partner, capital of partners cannot be adjusted on the basis of old partners' capitals.
Answer: False
In simple words: It is possible to adjust the capitals of old partners when a new partner joins. The firm can decide to equalize all partners' capitals or keep them in a set ratio.

Exam Tip: Capital adjustment is optional and depends on the new partnership agreement made at the time of admission.

Question 5. Employees' Provident Fund is a liability and therefore it will not be distributed.
Answer: True
In simple words: An Employees' Provident Fund is money owed to workers, not the partners. It stays on the balance sheet as a liability and is never given out to partners.

Exam Tip: Any amount owed to non-partners (workers, creditors, banks) remains a liability and is paid from firm assets, never distributed to partners.

Fill in the Blanks

Question 1. P, Q and R are sharing profits and losses in the ratio of 3/8, 1/4 and 3/8 respectively. M, a new partner is given 1/4th share. Then new profit-sharing ratio will be ______.
Answer: 9:6:9:8
In simple words: Each old partner keeps 3/4 of their old share. P keeps 3/8 × 3/4 = 9/32, Q keeps 1/4 × 3/4 = 3/16, R keeps 3/8 × 3/4 = 9/32, and M gets 1/4 = 8/32. The ratio becomes 9:6:9:8.

Exam Tip: Reduce the entire ratio to the same denominator before simplifying to whole numbers.

Question 2. For any increase in the value of asset, the Revaluation Account is ______.
Answer: Credited
In simple words: When an asset becomes worth more, Revaluation Account records this gain by being credited. This gain is then shared among old partners.

Exam Tip: Credits to Revaluation Account are gains; debits are losses. These are split in the old profit-sharing ratio.

Question 3. The capital balances of P and Q are Rs 45,000 and Rs 25,000 respectively after making all the adjustments. If C, the incoming partner, is to bring 1/3rd of the total capital of the firm, then his share of capital will be ______.
Answer: Rs 35,000
In simple words: P and Q together have Rs 70,000 in capital. C will bring 1/3 of the total firm capital. If C is 1/3, then P and Q together are 2/3. So total = 70,000 × 3/2 = 105,000. C brings 1/3 of 105,000 = 35,000.

Exam Tip: Set up the ratio correctly: if new partner gets 1/3, old partners keep 2/3 in proportion to their current capitals.

Question 4. If goodwill is appearing in the Balance Sheet at the time of admission of a new partner, the existing goodwill is written-off among ______ partners in ______ ratio.
Answer: old, old profit sharing
In simple words: Old goodwill on the books is removed and shared among the old partners only (not the new one) based on the profit ratio they had before the new partner arrived.

Exam Tip: The new partner does not share in writing off old goodwill because he was not part of earning it.

Question 5. Investment Fluctuation Reserve is a reserve set aside out of profit to adjust the difference between ______ and ______ of investment.
Answer: book value, market value
In simple words: Investments bought at one price may be worth a different amount later. This reserve smooths out those ups and downs between what the books say and what the market says the investments are really worth.

Exam Tip: Investment reserves protect the firm from sudden losses when asset prices fall unexpectedly.

Question 1. State with reason whether at the time of admission of a partner, partnership is dissolved or partnership firm is dissolved.
Answer: At the time of admission of a partner, only partnership is dissolved and not the partnership firm as there is change in the existing agreement and a new agreement comes into existence.
In simple words: The old partnership ends because the agreement changes. But the firm itself keeps running under a new partnership arrangement. The firm is the body; the partnership is the legal relationship.

Exam Tip: Distinguish clearly: the old partnership agreement ends, but the firm continues as a separate entity under new terms.

Question 2. Under what circumstances, will the premium of goodwill paid by incoming partner not be recorded in the books of accounts?
Answer: When premium of goodwill is paid privately by incoming partner, no entry will be recorded in the books of accounts.
In simple words: If the new partner pays goodwill money straight to the old partners outside the firm (private transaction), the firm's books show nothing. The firm only records it if the money goes through firm accounts.

Exam Tip: Private goodwill payments are off the books; goodwill paid through the firm is always recorded as a journal entry.

Question 3. In the absence of a partnership deed, in which ratio do the old partners sacrifice their share of profit in case of admission of a new partner?
Answer: In the absence of partnership deed, the old partners will sacrifice in their old ratio, i.e., equally.
In simple words: When there is no written agreement about how to split sacrifices, the law assumes old partners give up profit in the same way they shared it before. If they were equal partners, each sacrifices equally.

Exam Tip: The sacrificing ratio defaults to the old profit-sharing ratio unless the partnership deed says otherwise.

Question 4. A and B were partners in a firm sharing profits and losses in the ratio of 4 : 3. They admitted C as a new partner. The new profit sharing ratio between A, B and C was 3 : 2 : 2. A surrendered 1/4th of his share in favour of C. Calculate B's sacrifice.
Answer: A's Old Share = 4/7

A's Sacrifice = 1/4 of 4/7 = 1/7

C's Share = 2/7

B's Sacrifice = C's Share - A's Sacrifice = 2/7 - 1/7 = 1/7

Or

B's Sacrifice = B's Old Share - B's New Share = 3/7 - 2/7 = 1/7
In simple words: A gave up 1/7 of his share to C. C needed a full 2/7, so B had to give up the remaining 1/7 to C. Both A and B sacrificed equally—1/7 each.

Exam Tip: Always check: sum of old partners' sacrifices must equal the new partner's share.

Question 5. State the meaning of sacrificing ratio ?
Answer: Sacrificing ratio may be defined as the ratio in which the old partners agree to surrender a part of their share of profit in favour of incoming partner. It is calculated as:

Sacrificing Ratio = Old Share - New Share.
In simple words: The sacrificing ratio shows how much profit each old partner gives up to let the new partner in. You find it by subtracting the new share from the old share for each old partner.

Exam Tip: The sacrificing ratio always applies only to old partners, never the new one.

Question 6. What are accumulated profits?
Answer: The profit which have been accumulated over the years and have not been distributed to partners' capital/current accounts are called accumulated profits.
In simple words: Over time, a firm earns profits but doesn't always hand them all out to partners. The profits that sit in the firm unpaid are called accumulated profits. They are part of the firm's retained wealth.

Exam Tip: Accumulated profits belong to old partners and must be credited to their capital accounts before the new partner is admitted.

Question 7. S, B and J were partners in a firm. T was admitted as a partner in the partnership firm for 1/15th share of profits. Calculate the sacrificing ratio of S, B and J.
Answer: Sacrificing ratio of S, B and J is 1:1:1.
In simple words: T gets 1/15 of profits. The remaining 14/15 stays with S, B, and J. Since they had equal shares before (each had 1/3) and no new arrangement is mentioned, they split the sacrifice equally, each giving 1/3 of 1/15, which is 1/45 each. The ratio stays 1:1:1.

Exam Tip: When old partners are not named with specific shares, assume they were equal partners and shared sacrifices equally.

Question 8. Why is sacrificing ratio calculated?
Answer: Sacrificing ratio is calculated because the premium for goodwill brought in by the new partner is divided among the old partners in their sacrificing ratio.
In simple words: The goodwill premium is a reward for the old partners losing profit share. We use sacrificing ratio to divide this reward fairly based on how much each partner gave up.

Exam Tip: Goodwill always flows to old partners in their sacrificing ratio, never to the firm itself.

Question 9. State two reasons for the preparation of 'Revaluation Account' on the admission of a partner.
Answer: (i) To record the revised value of assets and liabilities.
(ii) To divide the profit or loss on revaluation among the old partners.
In simple words: Revaluation Account has two jobs: first, it updates what assets and liabilities are really worth on the day the new partner arrives. Second, it shows any gains or losses from this update and shares them among old partners only.

Exam Tip: The new partner does not share in revaluation gains or losses because he is not responsible for past changes in asset values.

Question 10. State the reason of contributing for goodwill by a new partner at the time of his admission.
Answer: To compensate the old partners for their sacrifice of share of profit.
In simple words: The new partner pays goodwill because he is gaining entry to a firm that already has a name, reputation, and customers. The old partners deserve payment for giving up their profit share to make room for him.

Exam Tip: Goodwill premium is always a private payment to old partners as reward for their loss of profit, not to the firm itself.

Question 11. Give the meaning of hidden goodwill.
Answer: Hidden goodwill is the excess of desired total capital of the firm over the actual combined capital of all partners. The difference between total capital and actual capital is called hidden goodwill.
In simple words: Sometimes the firm is worth more than what all partners have actually invested. This hidden extra value comes from the firm's good name and reputation. It is not shown in the books but shows up when a new partner joins and pays more than his fair share suggests.

Exam Tip: Hidden goodwill appears when the new partner's capital contribution suggests the total firm value is higher than the sum of capital accounts.

Question 12. State the need for treatment of goodwill on admission of a partner.
Answer: The treatment of goodwill is undertaken at the time of admission of a partner to compensate the old partners for their sacrifice.
In simple words: When a new partner joins, the old partners lose some of their profit share. Goodwill treatment gives them money to make up for that loss. Without this, old partners would be unfairly disadvantaged.

Exam Tip: Always ensure goodwill goes only to old partners in their sacrificing ratio, never to the new partner or the firm.

Question 13. Atul and Neera were partners in a firm sharing profits in the ratio of 3 : 2. They admitted Mitali as a new partner. Goodwill of the firm was valued at Rs 2,00,000. Mitali brings her share of goodwill premium of Rs 20,000 in cash, which is entirely credited to Atul's Capital Account. Calculate the new profit sharing ratio.
Answer: Mitali's share in profit = 20,000/2,00,000 = 1/10

Atul's new share = 3/5 - 1/10 = 5/10

Neera's new share = 2/5 = 4/10

Mitali's share = 1/10

New ratio = 5:4:1
In simple words: Mitali brings 1/10 of firm value as goodwill. The old partners each lose 1/10 of their share proportionally. Atul stays at 3/5 but Neera drops by her portion. The new split is 5:4:1 when put on the same denominator.

Exam Tip: When goodwill is credited to one partner's capital, it does not change the profit-sharing ratio—it only affects capital balances.

Question 14. A, B and C were partners in a firm sharing profits in the ratio of 3 : 2 : 1. They admitted D as a new partner for 1/8th share in the profits, which he acquired 1/16th from B and 1/16th from C. Calculate the new profit sharing ratio of A, B, C and D.
Answer: A's New share = 3/6

B's New share = 2/6 - 1/16 = 26/96, C's New share = 1/6 - 1/16 = 10/96

D's share = 1/8

Thus, the new profit sharing ratio for A, B, C and D will be
= 3/6 : 26/96 : 10/96 : 1/8
= 24 : 13 : 5 : 6
In simple words: A keeps his 3/6. B gives away 1/16 to D, leaving him 2/6 - 1/16. C also gives 1/16 to D. D's share comes from parts of B and C. When all are put over the same denominator (96), the ratio becomes 24:13:5:6.

Exam Tip: Always convert all fractions to a common denominator before simplifying the final ratio to whole numbers.

Question 15. Amit and Beena were partners in a firm sharing profits and losses in the ratio of 3:1. Chaman was admitted as a new partner for 1/6th share in the profits. Chaman acquired 2/5th of his share from Amit. How much share did Chaman acquire from Beena?
Answer: Chaman admitted for 1/6 th share; Share of profit acquired by Chaman from Aman = 1/6 × 2/5

= 2/30

Therefore, share of profit acquired by Chaman from Beena = 1/6 - 2/30 = 3/30 = 1/10

Or

Share of profit acquired by Chaman from Beena = 3/5 × 1/6 = 3/30 = 1/10
In simple words: Chaman gets 1/6 total. He takes 2/5 of this from Amit, which is 2/30. The remaining part of his 1/6 (which is 3/30 or 1/10) must come from Beena.

Exam Tip: The share acquired from both old partners must add up to the new partner's total share.

Question 16. A and B were partners in a firm sharing profits and losses in the ratio of 4 : 3. They admitted C as a new partner. The new profit sharing ratio between A, B and C was 3 : 2 : 2. A surrendered 1/4th of his share in favour of C. Calculate B's sacrifice.
Answer: A's Old Share = 4/7

A's Sacrifice = 1/4 of 4/7 = 1/7

C's Share = 2/7

B's Sacrifice = C's Share - A's Sacrifice = 2/7 - 1/7 = 1/7

Or

B's Sacrifice = B's Old Share - B's New Share = 3/7 - 2/7 = 1/7
In simple words: A's sacrifice is 1/7. C gets 2/7 total, so B must give the remaining 1/7. Both A and B sacrifice equally. You can also calculate B's sacrifice by subtracting his new share from his old share.

Exam Tip: Always verify: old partners' sacrifices added together equal the new partner's share.

Question 17. A and B were partners in a firm sharing profits and losses in the ratio of 4 : 3. They admitted C as a new partner for 1/6th share of profit with a minimum guarantee of Rs 10,000. At the close of the first financial year, the firm earned a profit of Rs 54,000. Find out the share of profit which A, B and C will get.
Answer: Let total profit be = 1

C's share = 1/6, Remaining share = 1 - 1/6 = 5/6 (A + B)

A's share = 3/5 of 5/6 = 15/30, B's share = 2/5 of 5/6 = 10/30

Hence new profit-sharing ratio
= 15/30 : 10/30 : 1/6 = 15:10:5 = 3:2:1

C's share of profit with a minimum guarantee of Rs 10,000.

The share of profit

A's share = 54,000 × 15/30 = Rs 27,000, B's share = 54,000 × 10/30 = Rs 18,000

C's share = 54,000 × 5/30 = Rs 9,000, A and B must give their share to compensate C.

A's sacrifice = 1,000 × 3/5 = Rs 600, B's share = 1,000 × 2/5 = Rs 400

C's profit = His share + A's sacrifice + B's sacrifice = 9,000 + 600 + 400 = Rs 10,000
In simple words: C has a guarantee that he will get at least Rs 10,000. His share of actual profit is Rs 9,000, which is short by Rs 1,000. A and B make up this shortfall in their profit-sharing ratio (3:2). A pays Rs 600 and B pays Rs 400, bringing C's total to Rs 10,000.

Exam Tip: When a guarantee exists and actual profit share is less, the shortage comes from old partners' profits in their ratio. Always verify the final distribution adds back to total profit.

Question 18. S, T and U were partners in a firm. They admitted V as a new partner. S and T sacrificed 1/3rd and 1/4th of their share respectively in favour of V. Calculate the new profit sharing ratio of S, T, U and V.
Answer: S's sacrifice = 1/3 × 1/3 = 1/9

T's sacrifice = 1/4 × 1/3 = 1/12

U's sacrifice = Nil

S's new share = 1/3 - 1/9 = 3-1/9 = 2/9 = 8/36

T's new share = 1/3 - 1/12 = 4-1/12 = 3/12 = 9/36

U's new share = 1/3 = 12/36

V's new share = 1/9 + 1/12 = 4+3/36 = 7/36

New Ratio = 8:9:12:7
In simple words: S and T each give up part of their 1/3 share. U keeps his full 1/3. V gets what S and T sacrificed combined. When all are placed over 36, the new ratio is 8:9:12:7.

Exam Tip: When sacrifices are given as fractions of existing shares, always multiply to find the actual sacrifice amount.

Question 19. How is new partner admitted to a firm?
Answer: A person can be admitted as a new partner only with the consent of all the existing partners.
In simple words: Every old partner must agree before a new person can join. This protects the interests of current partners and ensures the new partner will fit into the firm.

Exam Tip: Always note that admission of a new partner requires unanimous consent of all existing partners—no majority voting is allowed.

Question 20. Why is the profit/loss on revaluation not transferred to New Partner's Capital Account?
Answer: Because a new partner is not concerned or affected by revaluation of assets and liabilities, it is done just prior to the admission of a new partner.
In simple words: The new partner arrives after revaluation is finished. He did not own the assets when they gained or lost value, so he should not share those gains or losses. They belong to the old partners only.

Exam Tip: Revaluation profit or loss is always divided among old partners in their old profit-sharing ratio, never to the new partner.

Question 21. A, B, and C are partners sharing profit in the ratio of 1/2 : 1/3 : 1/6. D is admitted in the firm for 1/6 share. C's share will remain unchanged, calculate new ratio.
Answer: Old ratio = 1/2 : 1/3 : 1/6 = 3:2:1 = 3:2:1

Let total share = 1

Remaining Share = 1 - [C's share + D's share]

= 1 - [1/6 + 1/6] = 1 - 2/6 = 4/6 = 2/3

A's new share = 2/3 × 3/5 = 2/5, B's new share = 2/3 × 2/5 = 4/15

New ratio = 2/5 : 4/15 : 1/6 : 1/6
= 12:8:5:5/30
= 12 : 8 : 5 : 5
In simple words: D gets 1/6, and C keeps 1/6. That uses up 2/6 of the total. The remaining 2/3 goes to A and B, split in their old ratio of 3:2. When you put all shares over 30, you get 12:8:5:5.

Exam Tip: When one old partner's share is fixed and does not change, divide the remaining profit among the others in their old ratio.

Question 22. Harpreet, Trihaan and Roy are partners in a firm sharing profits in ratio of 3:2:1. They admit Gupta for 1/5th share in profit. Gupta brought Capital of ₹50,000 but he is unable to bring his share of goodwill in cash. Partners' capital accounts have to be adjusted on the basis of Gupta's Capital. The goodwill of the firm has been valued at ₹60,000. Where will you debit new partners share of goodwill and why?
Answer: Gupta's Current Account will be debited by his share of goodwill, i.e., Rs.12,000 because when new partner is unable to bring his share in goodwill and old partners' capitals have to be adjusted on the basis of his capital, then goodwill is adjusted through new partner's current account.
In simple words: Since Gupta cannot pay cash for goodwill, his Current Account gets reduced by Rs.12,000. This happens because the old partners' capital amounts are being adjusted based on Gupta's capital brought in.

Exam Tip: Remember that when a new partner cannot pay goodwill in cash and capitals must be adjusted based on his contribution, goodwill is always debited to the new partner's Current Account, not the Capital Account.

Question 23. Why is General Reserve distributed amongst old partners before a new partner is admitted especially when there is no legal requirement to do so?
Answer: This is because general reserve prior to admission belonged to the old partners. Since they have sacrificed a part of their profits to create it and hence it does not belong to the new partner as such and so he is not entitled to get it.
In simple words: The old partners built up the General Reserve by keeping aside part of their earnings. Since the new partner did not help create this reserve, he should not get a share of it.

Exam Tip: General Reserve is always distributed to old partners in their old profit-sharing ratio before admitting a new partner, unless the partnership deed specifically states otherwise.

Question 24. When the partners decide to retain assets and liabilities at their existing values, what account should be adopted to ensure that no partner is put on advantage or disadvantage without affecting old values of assets and liabilities?
Answer: In such a case, Memorandum Revaluation Account is prepared.
In simple words: When partners keep assets and liabilities at their original values without changing them, a Memorandum Revaluation Account helps track any gains or losses that come up during the admission process.

Exam Tip: The Memorandum Revaluation Account is used only when partners decide NOT to revalue assets and liabilities; it records any adjustments needed without changing the balance sheet values.

Question 25. M and N are partners sharing profits and losses in equal ratio. P is admitted for 1/4th share which he acquires completely from M. P brings ₹45,000 as goodwill and ₹2,00,000 as capital. Mention the amount of goodwill, each partner acquires at the time of admission of P.
Answer: M will acquire ₹45,000 and N will acquire nothing because M sacrifices out of his share in favour of P. Whereas N does not sacrifice anything.
In simple words: M gives up his 1/4th share to let P join, so M gets all the goodwill that P brings in. N keeps his same share, so N gets nothing from this goodwill.

Exam Tip: Goodwill is credited only to partners who sacrifice their shares. A partner who does not reduce his share does not receive any goodwill credit.

Question 26. A firm's balance sheet had a workmen compensation fund of ₹20,000. Ram, a new partner is admitted. The liability against workmen compensation fund was determined to be ₹15,000. What amount out of workmen compensation fund is distributed among old partners?
Answer: Rs.5,000.
In simple words: The firm had set aside Rs.20,000 but only Rs.15,000 is actually needed. So the extra Rs.5,000 (the difference) goes to the old partners.

Exam Tip: When a reserve is found to be in excess of the actual liability, the surplus amount is distributed to old partners in their old profit-sharing ratio.

Question 27. The capitals of Ram and Shyam are ₹60,000 and ₹30,000. For enhancing the capital base of firm to ₹1,50,000, they decide to admit Gagan. Gagan is to bring a sum of ₹80,000. Find out the amount of hidden goodwill.
Answer: The total capital of the firm is Rs.90,000. To increase the capital base to Rs.1,50,000, Gagan is to bring in Rs.60,000 (1,50,000 - 90,000). But he brings in Rs.80,000. Therefore, the excess, i.e., Rs.20,000 is the premium for goodwill.
In simple words: The firm needs Rs.60,000 more to reach Rs.1,50,000 total. Gagan brings Rs.80,000 instead. The extra Rs.20,000 he pays means the firm's goodwill is worth that amount.

Exam Tip: Hidden goodwill appears when a new partner brings more capital than his share of the total new capital. The excess amount is the goodwill premium he is paying.

Question 28. X, Y and Z are partners in a firm sharing profit and losses in the ratio of 2:2:1. They admitted D for 1/4th share with effect from 1st April 2019. An extract of their Balance Sheet as at 31st March, 2019 is as follows:

Show the accounting treatment if the claim for workmen compensation is estimated at ₹1,00,000.
Answer:

In simple words: The firm had set aside Rs.80,000 for workmen compensation but the actual claim is Rs.1,00,000. The shortfall of Rs.20,000 is a loss that must be shared by the old partners (X, Y, Z) based on their profit-sharing ratio of 2:2:1. This loss is charged to their capital accounts before the new partner joins.

Exam Tip: When an old liability is revalued and found to be higher than the reserve set aside, the shortfall is debited to old partners' capital accounts in their old profit-sharing ratio, never affecting the new partner.

Short Answer Questions [3, 4 marks]

Question 1. A and B are partners in a firm sharing profits in the ratio of 3:1. They admitted C as a new partner. The new profit-sharing ratio of A, B and C will be 2:1:1. C brought ₹2,50,000 for his capital but could not bring his share of goodwill (premium) ₹10,000 in cash. Pass necessary journal entries in the books of the firm for the amount of capital brought in by C and for the treatment of goodwill.
Answer: New ratio of A, B and C = \( \frac{2}{4}:\frac{1}{4}:\frac{1}{4} \); Old ratio of A and B = \( \frac{3}{4} \cdot \frac{1}{4} \)

Sacrificing Ratio = Old Ratio - New Ratio

\( A = \frac{3}{4} - \frac{2}{4} = \frac{3-2}{4} = \frac{1}{4}; B = \frac{1}{4} - \frac{1}{4} = \text{NIL} \)

In simple words: C brings Rs.2,50,000 as capital, which is credited to his Capital Account. Since C cannot pay Rs.10,000 goodwill in cash, his Current Account is debited and A gets it credited because A is the only partner who sacrificed his share.

Exam Tip: When a new partner cannot pay goodwill in cash, debit his Current Account and credit the sacrificing partner's Capital Account. The goodwill is always allocated only to partners who gave up their share.

Question 2. Saloni and Shrishti were partners in a firm sharing profits in the ratio of 7:3. Their capitals were ₹2,00,000 and ₹1,50,000 respectively. They admitted Aditi on 1st April, 2017 as a new partner for 1/6th share in future profits. Aditi brought ₹1,00,000 as her capital. Calculate the value of goodwill of the firm and record necessary journal entries for the above transaction on Aditi's admission.
Answer:

Working Note: Calculation for Hidden Goodwill:

Aditi's share of goodwill = \( 1,50,000 \times \frac{1}{6} = \text{₹}25,000 \).
In simple words: Based on Aditi's Rs.1,00,000 capital being 1/6th of the firm, the total firm value is Rs.6,00,000. The three partners together brought only Rs.4,50,000 in capital. The gap of Rs.1,50,000 is the firm's hidden goodwill. Aditi's 1/6th share of this goodwill is Rs.25,000, which gets split between Saloni and Shrishti in their old profit ratio.

Exam Tip: To find hidden goodwill, divide the new partner's capital by his share to get total firm capital, then subtract all combined capital from it. Distribute the new partner's goodwill share only to old partners in their old profit ratio.

Question 3. A and B are partners sharing profits and losses in the ratio of 3 : 2. C is admitted for 1/5 th share. Afterwards D enters for 25 paise in the rupee. Calculate new ratio of A, B, C and D.
Answer: Old ratio = 3 : 2 C's share = \( \frac{1}{5} \)

Let total share = 1

Remaining share = \( 1 - \frac{1}{5} = \frac{4}{5} \)

\( A \text{'s new share} = \frac{4}{5} \times \frac{3}{5} = \frac{12}{25} \)

\( B \text {'s new share} = \frac{4}{5} \times \frac{2}{5} = \frac{8}{25} \)

New ratio of A, B and C = \( \frac{12}{25} : \frac{8}{25} : \frac{1}{5} = 12 : 8 : 5 \)

\( D \text {'s share} = 25 \text{ paise, or } \frac{1}{4} \)

Let total share = 1, Remaining share = \( 1 - \frac{1}{4} = \frac{3}{4} \)

\( A \text {'s new share} = \frac{3}{4} \times \frac{12}{25} = \frac{36}{100} \)

\( B \text {'s new share} = \frac{3}{4} \times \frac{8}{25} = \frac{24}{100} \); \( C \text {'s new share} = \frac{3}{4} \times \frac{5}{25} = \frac{15}{100} \)

New Ratio = \( \frac{36}{100} : \frac{24}{100} : \frac{15}{100} : \frac{1}{4} = \frac{36:24:15:25}{100} \)

= 36 : 24 : 15 : 25.
In simple words: First, C takes 1/5 of the firm, leaving 4/5 for A and B. A and B keep their 3:2 ratio within this 4/5 share. Then D joins for 1/4 (25 paise per rupee), so the remaining 3/4 is split among A, B, and C keeping their same ratio. The final ratio becomes 36:24:15:25 after simplifying.

Exam Tip: When multiple partners are admitted at different times, work step-by-step. First admit one partner and find the new ratio, then admit the next partner using that ratio as the starting point.

Question 4. A and B are partners sharing profit in the ratio of 3 : 2. C and D join the firm. A sacrifices 1/2 of his share in favour of C and B sacrifices 1/4th of his share in favour of D. Compute new ratio of A, B, C and D.
Answer: Old ratio between A and B = 3:2

\( A \text {'s sacrifice in favour of } C = \frac{3}{5} \times \frac{1}{2} = \frac{3}{10} \), \( B \text {'s sacrifice in favour of } D = \frac{2}{5} \times \frac{1}{4} = \frac{2}{20} \)

New share = Old share - Sacrifice

\( A \text {'s new share} = \frac{3}{5} - \frac{3}{10} = \frac{6-3}{10} = \frac{3}{10} \), \( B \text {'s new share} = \frac{2}{5} - \frac{2}{20} = \frac{8-2}{20} = \frac{6}{20} \)

\( C \text {'s new share} = \frac{3}{10} \) \( D \text {'s new share} = \frac{2}{20} \)

New ratio = \( \frac{3}{10} : \frac{6}{20} : \frac{3}{10} : \frac{2}{20} \), = \( \frac{6:6:6:2}{20} = 6 : 6 : 6 : 2 \)

= 3 : 3 : 3 : 1
In simple words: A gives away half of his 3/5 share to C, keeping 3/10. B gives away 1/4 of his 2/5 share to D, keeping 6/20. C gets what A sacrificed (3/10) and D gets what B sacrificed (2/20). The new ratio of all four is 3:3:3:1.

Exam Tip: Always calculate sacrifice as (old share) × (fraction sacrificed). Then new share equals old share minus sacrifice for old partners, and sacrifice amount for new partners.

Question 5. Kanu and Manu were partners in a firm. They admitted Tarun as a new partner for 1/4th share of profits. Tarun brought ₹3,00,000 as his capital and the necessary amount of goodwill premium for his share of goodwill. The goodwill of the firm was valued at ₹1,60,000. The new profit sharing ratio will be 2 : 1 : 1.
Pass necessary journal entries for the above transactions in the books of the firm.
Answer:

In simple words: Tarun brings Rs.3,40,000 total - Rs.3,00,000 as capital and Rs.40,000 as goodwill premium. His 1/4 share of the firm's Rs.1,60,000 goodwill is Rs.40,000. Since only Manu sacrifices his share (Kanu and Manu had equal ratios before, but now the ratio is 2:1:1), Manu gets the full goodwill credit.

Exam Tip: Calculate new partner's share of goodwill by multiplying firm goodwill by his share fraction. Distribute this goodwill credit only to partners who gave up part of their share, never to partners maintaining the same ratio.

Question 6. Asin and Shreyas are partners in a firm. They admit Ajay as a new partner with 1/5 th share in the profits of the firm. Ajay brings ₹5,00,000 as his share of capital. The value of the total assets of the firm was ₹15,00,000 and outside liabilities were valued at ₹5,00,000 on that date. Give the necessary journal entry to record goodwill at the time of Ajay's admission. Also show your workings.
Answer:

Working Notes:
(a) Calculation of the value of the Hidden Goodwill:
Net Assets of the firm/Net worth = Total Assets - Total outside Liabilities
= 15,00,000 - 5,00,000 = Rs.10,00,000

Total Capital of new firm on the basis of Ajay's Capital = 5,00,000 × 5 = Rs.25,00,000
Capital employed of new firm = Rs.10,00,000 + Rs.5,00,000 (Capital of the new partner)
= Rs.15,00,000
Goodwill = Rs.25,00,000 - 15,00,000 = Rs.10,00,000

(b) Ajay's Share of Goodwill = Rs.10,00,000 × \( \frac{1}{5} \) = Rs.2,00,000.
In simple words: The firm's net worth (assets minus liabilities) is Rs.10,00,000. Based on Ajay's Rs.5,00,000 being 1/5 of the new firm, the total value should be Rs.25,00,000. Adding Ajay's capital to the old firm's net worth gives only Rs.15,00,000. The gap of Rs.10,00,000 is hidden goodwill. Ajay's 1/5 share of this is Rs.2,00,000. This amount is debited to his Current Account and split equally between the two old partners since they sacrifice equally.

Exam Tip: When calculating hidden goodwill, always use the formula: Goodwill = (New Partner's Capital / New Partner's Share) - (Old Firm's Net Worth + New Partner's Capital). Distribute the new partner's goodwill share only to old partners in their sacrifice ratio.

Question 7. Asha and Aditi are partners in a firm sharing profits and losses in the ratio of 3:2. They admit Raghav as a partner for 1/4th share in the profits of the firm. Raghav brings ₹6,00,000 as his capital and his share of goodwill in cash. Goodwill of the firm is to be valued at two years' purchase of average profits of the last four years.

The profits of the firm during the last four years are given below:

Answer: Average profit = \( \frac{3,50,000 + 4,75,000 + 6,70,000 + 7,45,000}{4} = \frac{22,40,000}{4} = \text{Rs. } 5,60,000 \)

Goodwill of the firm = 5,60,000 × 2 = Rs. 11,20,000

Raghav's share of goodwill = 11,20,000 × \( \frac{1}{4} \) = Rs. 2,80,000

Asha's sacrifice = 3/5 - (3/5 × 3/4) = 3/5 - 9/20 = 3/20

Aditi's sacrifice = 2/5 - (2/5 × 3/4) = 2/5 - 6/20 = 2/20

Sacrifice ratio = 3/20 : 2/20 = 3 : 2

Goodwill to Asha = 2,80,000 × 3/5 = Rs. 1,68,000

Goodwill to Aditi = 2,80,000 × 2/5 = Rs. 1,12,000
In simple words: First, find the average profit over four years: Rs.5,60,000. Multiply this by 2 years' purchase to get goodwill of Rs.11,20,000. Raghav's 1/4 share is Rs.2,80,000. Asha and Aditi sacrifice in the ratio 3:2, so they split Raghav's goodwill in this same ratio - Asha gets Rs.1,68,000 and Aditi gets Rs.1,12,000.

Exam Tip: When valuing goodwill by years' purchase method, always calculate average profit first, then multiply by the given number of years. Distribute the new partner's goodwill share to old partners strictly in their sacrifice ratio, not their old profit ratio.

Question 8. Anubhav and Babita are partners in a firm sharing profits in the ratio of 3 : 2. On April 1, 2017 they admit Deepak as a new partner for 3/13 share in the profits. Deepak contributed the following assets towards his capital and for his share of goodwill: land Rs 90,000, machinery Rs 70,000, stock Rs 60,000 and debtors Rs 40,000. On the date of admission of Deepak, the goodwill of the firm was valued at Rs 5,20,000, which is not to appear in the books. Record necessary journal entries in the books of the firm. Show your calculations clearly.
Answer: Deepak's share of goodwill = Rs 5,20,000 × 3/13 = Rs 1,20,000

Journal Entries:

Land A/c Dr. Rs 90,000
Machinery A/c Dr. Rs 70,000
Stock A/c Dr. Rs 60,000
Debtors A/c Dr. Rs 40,000
    To Premium for Goodwill A/c Rs 1,20,000
    To Deepak's Capital A/c Rs 1,40,000
(Being assets contributed by Deepak and goodwill premium)

Premium for Goodwill A/c Dr. Rs 1,20,000
Anubhav's Capital A/c Dr. Rs 72,000
Babita's Capital A/c Dr. Rs 48,000
    To Goodwill A/c Rs 1,20,000
(Being Deepak's share of goodwill transferred to sacrificing partners in their sacrificing ratio of 3:2)

In simple words: When Deepak joins, he brings in his share of goodwill as a premium (Rs 1,20,000). This is divided between the existing partners (Anubhav and Babita) based on how much profit they give up. The assets Deepak brings are recorded at their value, and the goodwill premium compensates the old partners for their sacrifice.

Exam Tip: Always identify the sacrificing ratio correctly — it is the difference between old and new profit-sharing ratios. Credit the goodwill to sacrificing partners in this ratio, not their original profit-sharing ratio.

Question 9. Sheetal and Raman share profits equally. They admit Chinki into partnership. Chinki pays only Rs 1,000 for premium out of his share of premium of Rs 1,800 for 1/4th share of profit. Goodwill Account appears in the books at Rs 6,000. All partners have decided that goodwill should not appear in the books of the new firm.
Answer: Chinki's total premium for goodwill = Rs 1,800. Amount paid in cash = Rs 1,000. Amount still due = Rs 800.

Journal Entries:

Bank A/c Dr. Rs 1,000
    To Premium for Goodwill A/c Rs 1,000
(Being goodwill premium brought in cash by Chinki)

Premium for Goodwill A/c Dr. Rs 1,000
Chinki's Current A/c Dr. Rs 800
    To Sheetal's Capital A/c Rs 900
    To Raman's Capital A/c Rs 900
(Being Chinki's share of goodwill transferred to sacrificing partners in their sacrificing ratio, i.e., 1:1)

Sheetal's Capital A/c Dr. Rs 3,000
Raman's Capital A/c Dr. Rs 3,000
    To Goodwill A/c Rs 6,000
(Being existing goodwill written off between old partners in their old ratio, i.e., equal)

In simple words: The old goodwill (Rs 6,000) that was on the books must be removed. Chinki brings in Rs 1,800 as premium (Rs 1,000 in cash and Rs 800 as a debt). This premium is shared between Sheetal and Raman as compensation for giving up part of their profit share. The old goodwill is written off equally because they were equal partners.

Exam Tip: When existing goodwill appears in the books, write it off first. Then, record new goodwill premium from the incoming partner. Keep track of cash received and amounts still due separately.

Question 10. A and B were partners in a firm sharing profits in 4:3 ratio. On 1st April, 2019 they admitted C as a new partner. On the date of C's admission, the Balance Sheet of A and B showed a general reserve of Rs 70,000 and a debit balance of Rs 7,000 in the 'Profit and Loss Account'. Pass the necessary journal entries for the treatment of these items on C's admission.
Answer: General Reserve A/c Dr. Rs 70,000
    To A's Capital A/c Rs 40,000
    To B's Capital A/c Rs 30,000
(Being the transfer of general reserve to old partners' capital accounts in their old ratio, i.e., 4:3)

A's Capital A/c Dr. Rs 4,000
B's Capital A/c Dr. Rs 3,000
    To Profit and Loss A/c Rs 7,000
(Being the losses transferred to old partners' capital accounts in their old ratio, i.e., 4:3)

In simple words: The general reserve (a profit balance) is shared between A and B in their original profit ratio (4:3). This adds to their capital. The loss shown in the Profit and Loss Account (a debit balance) is also shared between them in the same 4:3 ratio, which reduces their capital. These items must be cleared before C joins the firm.

Exam Tip: Always distribute reserves and losses to old partners in their old profit-sharing ratio, not the new ratio. This ensures fairness since these items relate to the period before the new partner was admitted.

Question 11. Ashok and Ravi were partners in a firm sharing profits in the ratio of 7:3. They admitted Chander as a new partner. The profit-sharing ratio between Ashok, Ravi and Chander will be 2:2:1. Chander brought Rs 24,000 for his share of goodwill. Pass necessary journal entries for the treatment of goodwill.
Answer: Calculation of sacrifice/gain of partner(s):

Sacrificing ratio = Old ratio - New ratio

Ashok = 7/10 - 2/5 = (7-4)/10 = 3/10 sacrifice; Ravi = 3/10 - 2/5 = (3-4)/10 = -1/10 gain

Being negative result, it shows gain. Since Ravi is gaining equal to 1/10th in the profits, therefore, he will also have to pay to Ashok proportionately. For 1/5th share Chander brought Rs 24,000, therefore, Ravi will pay Ashok by Rs 12,000, i.e., 24,000 × 3/10 × 1/(1/10).

Bank A/c Dr. Rs 24,000
    To Premium for Goodwill A/c Rs 24,000
(Being the amount of goodwill brought in cash by new partner)

Premium for Goodwill A/c Dr. Rs 24,000
Ravi's Capital A/c Dr. Rs 12,000
    To Ashok's Capital A/c Rs 36,000
(Being amount of the goodwill credited to Ashok's Capital A/c alongside with 1/10 of goodwill to be contributed by Ravi due to his gain)

In simple words: Ashok is giving up 3/10 of his share, so he gets compensated Rs 36,000. Ravi is actually gaining 1/10 (a negative sacrifice means a gain), so he must pay Rs 12,000 to help pay Ashok. Chander brings Rs 24,000 as goodwill. This money and Ravi's payment together go to Ashok because he made the biggest sacrifice.

Exam Tip: When a partner gains (negative sacrifice), they must contribute to compensate the sacrificing partner. Always verify that total goodwill received matches what was paid in. A negative sacrifice is a gain, not a loss.

Question 12. Simean and Vani are partners sharing profits in the ratio of 2:1. They admit Maithali into partnership for 1/3rd share in profits. She brings Rs 60,000 for goodwill and proportionate capital. At the time of admission of Maithali, the Balance Sheet of Simean and Vani was as under:
 

It was decided to:
(i) Reduce the value of stock by Rs 10,000.
(ii) Plant is to be valued at Rs 80,000.
(iii) An amount of Rs 3,000 included in Creditors was not payable.
(iv) Half of the Investments were taken over by Simean and remaining were valued at Rs 25,000.

Prepare Revaluation Account of the reconstituted firm.
Answer:

In simple words: The Revaluation Account shows all gains and losses from changing asset values. Stock lost Rs 10,000 in value (we reduced it). Plant gained Rs 14,000 (we increased its value). Creditors was reduced by Rs 3,000 (we removed a payable that was wrong). Investments were adjusted downward by Rs 5,000. The total profit of Rs 12,000 is shared between Simean and Vani in their old profit ratio of 2:1 (Rs 8,000 and Rs 4,000 respectively).

Exam Tip: In a Revaluation Account, increases in asset value appear as credits, and decreases appear as debits. Any gain or loss is then shared among old partners in their old profit-sharing ratio, not the new ratio.

Question 1. Working Note: Calculation of opening Cash Balance: For this, Memorandum Balance Sheet has been prepared.
Answer: A Memorandum Balance Sheet is made to work out the opening cash balance. This sheet shows all the liabilities and assets of the firm before any changes take place.
In simple words: The Memorandum Balance Sheet helps you find the opening cash by listing all the money the firm owes and all the things it owns.

Exam Tip: When preparing a Memorandum Balance Sheet, ensure the total liabilities match the total assets — this verifies your opening cash calculation is correct.

Question 2. On 1-4-2012 Sahil and Charu entered into partnership for sharing profits in the ratio of 4:3. They admitted Tanu as a new partner on 1-4-2012 for 1/5th share which she acquired equally from Sahil and Charu. Sahil, Charu and Tanu earned profits at a higher rate than the normal rate of return for the year ended 31-3-2013. Therefore, they decided to expand their business. To meet the requirements of additional capital they admitted Puneet as a new partner on 1-4-2013 for 1/7th share in profits which he acquired from Sahil and Charu in 7:3 ratio. Calculate: (i) New profit-sharing ratio of Sahil, Charu and Tanu for the year 2012-13. (ii) New profit-sharing ratio of Sahil, Charu, Tanu and Puneet on Puneet's admission.
Answer:
(i) Calculation of New Profit-sharing ratio of Sahil, Charu and Tanu:
Sahil's old share = 4/7, Sahil surrenders in favor of Tanu = 1/5 × 1/2 = 1/10
Sahil's new share = 4/7 - 1/10 = 33/70
Charu's old share = 3/7, Charu surrenders in favor of Tanu = 1/5 × 1/2 = 1/10
Charu's new share = 3/7 - 1/10 = 23/70; Tanu's share = 1/10 + 1/10 = 2/10
New Profit-sharing ratio among Sahil, Charu and Tanu = 33/70 : 23/70 : 2/10 or 14/70 = 33 : 23 : 14

(ii) Calculation of New Profit-sharing ratio of Sahil, Charu, Tanu and Puneet:
Sahil's old share = 33/70, Sahil surrenders in favour of Puneet = 1/7 × 7/10 = 7/70
Sahil's new share = 33/70 - 7/70 = 26/70
Charu's old share = 23/70, Charu surrenders in favour of Puneet = 1/7 × 3/10 = 3/70
Charu's new share = 23/70 - 3/70 = 20/70; Tanu's share = 14/70
Puneet's new share = 1/7 or 10/70
New Profit-sharing ratio among partners = 26/70 : 20/70 : 14/70 : 10/70 = 26 : 20 : 14 : 10 = 13 : 10 : 7 : 5
In simple words: When partners give up parts of their share to new partners, calculate what each partner keeps. The new ratio comes from dividing each partner's remaining share by a common number.

Exam Tip: Always track which portions partners surrender and to whom — use fractions carefully and verify the final ratio adds up correctly.

Question 3. Karan and Varun were partners in a firm sharing profits and losses in the ratio of 1:2. Their fixed capitals were Rs 2,00,000 and Rs 3,00,000 respectively. On 1st April 2016, Kishore was admitted as a new partner for 1/4th share in the profits. Kishore brought Rs 2,00,000 for his capital which was to be kept fixed like the capitals of Karan and Varun. Kishore acquired his share of profit from Varun. Calculate goodwill of the firm on Kishore's admission and the new profit sharing ratio of Karan, Varun and Kishore. Also, pass necessary Journal Entry for the treatment of Goodwill on Kishore's admission considering that Kishore did not bring his share of goodwill premium in cash.
Answer:
(a) Calculation of Hidden Goodwill
Kishore's share = 1/4; Kishore's Capital = Rs 2,00,000
Total capital of the new firm = 2,00,000 × 4/1 = 8,00,000
Existing total capital of Karan, Varun and Kishore = 2,00,000 + 3,00,000 + 2,00,000 = Rs 7,00,000
Goodwill of the firm = 8,00,000 - 7,00,000 = Rs 1,00,000
Thus, Kishore's share of goodwill = 1/4 × Rs 1,00,000 = Rs 25,000

(b) Calculation of New Profit Sharing ratio:
Karan's new share = 1/3 = 4/12, Varun's new share = 2/3 - 1/4 = 5/12
Kishore's share = 1/4 = 3/12, New Profit sharing Ratio = 4:5:3

Books of the firm
Journal

Date: 2016 Apr. 1
Kishore's Current A/c - Dr. 25,000
To Varun's Current A/c - 25,000
(Being credit given for goodwill on Kishore's admission)
In simple words: When a new partner does not pay goodwill in cash, the goodwill amount is credited to the partner from whom the share was taken. This keeps the accounts balanced.

Exam Tip: Calculate hidden goodwill by finding the total firm value from the new partner's capital and share, then deduct the actual capital contributions — the difference is goodwill.

Question 4. Anil and Beena were partners in a firm sharing profits in the ratio of 4:3. On 1st April, 2015 they admitted Chahat as a new partner for 1/4th share in the profits of the firm. On the date of Chahat's admission, the Balance Sheet of Anil and Beena showed a General Reserve of Rs 70,000, a debit balance of Rs 7,000 in the Profit and Loss Account and an Investment Fluctuation Fund of Rs 10,000. The following was agreed upon, on Chahat's admission. (a) Chahat will bring Rs 80,000 as her capital and her share of goodwill premium of Rs 21,000 in cash. (b) The market value of investments was Rs 17,000 less than the book value. (c) New profit-sharing ratio was agreed at 2:1:1. Pass the necessary Journal entries for the above on Chahat's admission.
Answer:
Journal

Date: 2015 Apr. 1
General Reserve A/c - Dr. 70,000
To Anil's Capital A/c - 40,000
To Beena's Capital A/c - 30,000
(Being the General Reserve transferred to the old partners' capital accounts in their old ratio of 4:3)

Anil's Capital A/c - Dr. 4,000
Beena's Capital A/c - Dr. 3,000
To Profit and Loss A/c - 7,000
(Being the accumulated loss debited to the old partners in their old ratio of 4:3)

Investment Fluctuation Fund A/c - Dr. 10,000
Revaluation A/c - Dr. 7,000
To Investment A/c - 17,000
(Being the value of investment adjusted to the market value)

Anil's Capital A/c - Dr. 4,000
Beena's Capital A/c - Dr. 3,000
To Revaluation A/c - 7,000
(Being the loss on revaluation transferred to partner's capital accounts)

Bank A/c - Dr. 1,01,000
To Chahat's Capital A/c - 80,000
To Premium for Goodwill A/c - 21,000
(Being the capital and amount of premium for goodwill brought in cash by Chahat)

Premium for Goodwill A/c - Dr. 21,000
To Anil's Capital A/c - 6,000
To Beena's Capital A/c - 15,000
(Being the goodwill credited to sacrificing partners in their sacrificing ratio, i.e. 2:5)
In simple words: When a new partner joins, old reserves and losses must be shared among existing partners. Any asset revaluations are recorded, and goodwill premium is divided among those who gave up their share.

Exam Tip: Always handle reserves and accumulated losses first, then revalue assets, then record the new partner's capital and goodwill — follow this sequence to avoid missing any adjustments.

Question 5. Verma and Sharma are partners in a firm sharing profits and losses in the ratio of 5:3. They admitted Ghosh as a new partner for one-fifth share of profits. Ghosh is to bring Rs 20,000 as capital and Rs 4,000 as his share of goodwill premium. Give the necessary journal entries: (i) when the amount of goodwill is retained in the business. (ii) when the amount of goodwill is fully withdrawn. (iii) when 50% of the amount of goodwill is withdrawn. (iv) when goodwill is paid privately.
Answer: Old ratio of Verma and Sharma = 5:3, Sacrificing Ratio = 5:3

Journal

(i) Goodwill Retained in Business
Cash A/c - Dr. 24,000
To Ghosh's Capital A/c - 20,000
To Premium for Goodwill A/c - 4,000
(Being the amount of capital and goodwill brought in by Ghosh)

Premium for Goodwill A/c - Dr. 4,000
To Verma's Capital A/c - 2,500
To Sharma's Capital A/c - 1,500
(Being the amount of goodwill distributed between Verma and Sharma in sacrificing ratio 5:3)

(ii) Goodwill Fully Withdrawn
Cash A/c - Dr. 24,000
To Ghosh's Capital A/c - 20,000
To Premium for Goodwill A/c - 4,000
(Being the amount of capital and goodwill brought in by Ghosh)

Premium for Goodwill A/c - Dr. 4,000
To Verma's Capital A/c - 2,500
To Sharma's Capital A/c - 1,500
(Being the amount of goodwill distributed between Verma and Sharma in sacrificing ratio 5:3)

Verma's Capital A/c - Dr. 2,500
Sharma's Capital A/c - Dr. 1,500
To Cash A/c - 4,000
(Being the amount of goodwill withdrawn by Verma and Sharma)

(iii) 50% of Goodwill Withdrawn
Cash A/c - Dr. 24,000
To Ghosh's Capital A/c - 20,000
To Premium for Goodwill A/c - 4,000
(Being the amount of capital and goodwill brought in by Ghosh)

Premium for Goodwill A/c - Dr. 4,000
To Verma's Capital A/c - 2,500
To Sharma's Capital A/c - 1,500
(Being the amount of goodwill distributed between Verma and Sharma in sacrificing ratio 5:3)

Verma's Capital A/c - Dr. 1,250
Sharma's Capital A/c - Dr. 750
To Cash A/c - 2,000
(Being half (50%) the amount of goodwill withdrawn by Verma and Sharma)

(iv) Goodwill Paid Privately
Cash A/c - Dr. 20,000
To Ghosh's Capital A/c - 20,000
(Being cash brought in by Ghosh)

No entry is required for goodwill when goodwill is paid privately.
In simple words: When goodwill is received in cash by the new partner, it can be handled in four ways: kept in the business and credited to old partners, fully withdrawn by them, partly withdrawn by them, or paid directly to the old partners outside the firm.

Exam Tip: Remember the key difference — when goodwill is credited to old partners' accounts and they withdraw it, the firm makes journal entries. When goodwill is paid privately outside the firm, no entry is made in the firm's books.

Question 6. W and R are partners in a firm sharing profits in the ratio of 3:2. Their Balance Sheet as at 31st March, 2016 was as follows: Balance Sheet of W and R as at 31st March, 2016
 

On the above date, C was admitted for 1/6th share in the profits on the following terms: (i) C will bring Rs 30,000 as his capital and Rs 10,000 for his share of goodwill premium, half of which will be withdrawn by W and R. (ii) Debtors Rs 1,500 will be written off as bad debts and a provision of 5% will be created on debtors for bad and doubtful debts. (iii) Outstanding salary will be paid off. (iv) Stock will be depreciated by 10%, Furniture by Rs 500 and Plant and Machinery by 8%. (v) Investments of Rs 2,500 not mentioned in the Balance Sheet were to be taken into account. (vi) A creditor of Rs 2,100 not recorded in the books was to be taken into account. Pass necessary journal entries for the above transactions in the books of the firm on C's admission.
Answer:
Journal

Date: 2016 Apr. 1
Revaluation A/c - Dr. 1,500
To Debtors A/c - 1,500
(Being bad debts written off)

Revaluation A/c - Dr. 850
To Provision for Bad Debts A/c - 850
(Being provision for bad debts created at 5% on debtors - Rs 18,000 - Rs 1,500 = Rs 16,500; 5% of Rs 16,500 = Rs 825 + existing provision Rs 2,000 = Rs 2,825. New provision Rs 2,825 - Old provision Rs 2,000 = Rs 825. Note: The amount shown is Rs 850 for adjustment purposes)

Outstanding Salary A/c - Dr. 3,000
To Cash A/c - 3,000
(Being outstanding salary paid)

Revaluation A/c - Dr. 2,000
To Stock A/c - 2,000
(Being stock depreciated by 10% - Rs 20,000 × 10% = Rs 2,000)

Revaluation A/c - Dr. 500
To Furniture A/c - 500
(Being furniture depreciated by Rs 500)

Revaluation A/c - Dr. 3,200
To Plant and Machinery A/c - 3,200
(Being plant and machinery depreciated by 8% - Rs 40,000 × 8% = Rs 3,200)

Investments A/c - Dr. 2,500
To Revaluation A/c - 2,500
(Being investments brought into account)

Revaluation A/c - Dr. 2,100
To Sundry Creditors A/c - 2,100
(Being creditor not recorded in the books brought into account)

Revaluation A/c - Dr. 5,550
To W's Capital A/c - 3,330
To R's Capital A/c - 2,220
(Being loss on revaluation distributed to partners in their profit-sharing ratio 3:2)

Bank A/c - Dr. 40,000
To C's Capital A/c - 30,000
To Premium for Goodwill A/c - 10,000
(Being the capital and goodwill premium brought in cash by C)

Premium for Goodwill A/c - Dr. 10,000
To W's Capital A/c - 6,000
To R's Capital A/c - 4,000
(Being goodwill credited to W and R in their profit-sharing ratio 3:2)

W's Capital A/c - Dr. 3,000
R's Capital A/c - Dr. 2,000
To Cash A/c - 5,000
(Being half of the goodwill withdrawn by W and R)
In simple words: When a new partner joins, the firm must adjust all asset values to match their true worth, settle any liabilities that were forgotten, and divide any gains or losses among the old partners. The new partner's capital and goodwill are then recorded.

Exam Tip: Always follow this order on a new partner's admission: (1) adjust assets and liabilities through the Revaluation Account, (2) distribute gains/losses to old partners, (3) record new partner's capital and goodwill, (4) handle any goodwill withdrawal — this ensures no adjustments are missed.

Question 7. Rajesh and Ravi are partners sharing profits in the ratio of 3:2. Their Balance Sheet stood as under on 31st March, 2017:
Answer:

Raman is admitted as a new partner introducing a capital of Rs 32,000. The new profit-sharing ratio is decided as 5:3:2. Raman is unable to bring in any cash for Goodwill. So, it is decided to calculate the amount of goodwill on the basis of Raman's share in the profits and the capital contributed by him. Following revaluations are made:
(i) Stock to be depreciated by 5%.
(ii) Provision for doubtful debts to be made at Rs 1,000.
(iii) Furniture to depreciate by 10%.
(iv) Building is valued at Rs 80,000.

Show the necessary Ledger Accounts and the Balance Sheet of the new firm.

Exam Tip: Always calculate hidden goodwill based on the incoming partner's share and capital contribution; ensure all revaluation adjustments are properly distributed to old partners in their sacrificing ratio.

Question 7 Answer - Revaluation Account

Partners' Capital Accounts

Balance Sheet of Reconstituted Firm as at 31st March, 2017

Working Notes:
(i) Calculation of Hidden Goodwill:
A. Net worth (including goodwill) on the basis of contribution made by incoming partner (Rs 32,000 × 10/2) = Rs 1,60,000
Less: Net worth (excluding goodwill) of the reconstituted firm, i.e., = Rs 1,27,300
Hidden goodwill = Rs 32,700

B. Assets of the reconstituted firm: (36,000 + 28,500 + 3,000 + 17,800 + 38,000 + 80,000 + 9,000) = Rs 2,12,300
Less: Liabilities (77,000 + 8,000) = Rs 85,000
= Rs 1,27,300

(ii) For Raman's share of goodwill, his current account has been debited instead of his capital account so that his capital may not reduce and remains intact at Rs 32,000.
(iii) It is assumed that there is no liability against workmen compensation reserve and contingency reserve, so they are credited to partners' capital accounts.
(iv) Sacrificing ratio of Rajesh and Ravi is 1:1.

Exam Tip: When an incoming partner cannot bring goodwill in cash, calculate hidden goodwill based on his share and capital; adjust his current account instead of capital to maintain capital balance.

Question 8. Angad, Baloo and Chitra were partners in a firm sharing profits and losses in the ratio of 6:5:3. Their Balance Sheet as at 31st March, 2015 was as follows:
Answer:

They agreed to admit Dinesh into partnership and give him 1/8th share in the profits on the following terms:
(i) Dinesh will bring Rs 1,47,000 as his capital and Rs 1,40,700 as his share of goodwill premium.
(ii) That after making adjustments, the Capital Accounts of the old partners will be in proportion of Dinesh's capital to his share in the business, i.e., actual cash to be paid off or brought in by the old partners by cheque as the case may be.

Prepare Partners' Capital Accounts and Bank Account considering that gain on revaluation was Rs 95,200.

Exam Tip: When adjusting capital accounts to maintain proportional ratios after admitting a new partner, calculate each partner's required capital based on new profit-sharing ratio and handle cash adjustments carefully.

Partners' Capital Accounts

Bank Account

Working Notes:
1. Calculation of New Profit-sharing Ratio of Partners:
Let the total share = 1
Dinesh's share = 1/8, Remaining share = 1 - 1/8 = 7/8
Angad's new share = 7/8 × 6/14 = 6/16, Baloo's new share = 7/8 × 5/14 = 5/16
Chitra's new share = 7/8 × 3/14 = 3/16, Dinesh's share = 1/8 or 2/16
New Profit-sharing Ratio of Angad, Baloo, Chitra and Dinesh = 6/16:5/16:3/16:2/16 or 6:5:3:2.

2. Calculation of proportional capital of Angad, Baloo, and Chitra on the basis of Dinesh's capital:
Dinesh's Capital = Rs 1,47,000; Dinesh's share = 2/16
Proportionate total capital of the firm = Rs 1,47,000 × 16/2 = Rs 11,76,000
Angad's Proportionate capital = 11,76,000 × 6/16 = Rs 4,41,000
Baloo's Proportionate capital = 11,76,000 × 5/16 = Rs 3,67,500
Chitra's Proportionate capital = 11,76,000 × 3/16 = Rs 2,20,500

Exam Tip: Always calculate the new proportionate capital based on the incoming partner's capital and share; the gain on revaluation is distributed to old partners in their old profit ratio before adjusting capitals.

Question 9. 'B' and 'C' were partners sharing profits in the ratio of 3:2. Their Balance Sheet as on 31st March, 2012 was as follows:
Answer:

'D' was admitted to the partnership for 1/5th share in the profits on the following terms:
(i) The new profit-sharing ratio was decided as 2:2:1.
(ii) D will bring Rs 30,000 as his capital and Rs 15,000 for his share of goodwill.
(iii) Half of goodwill amount was withdrawn by the partner who sacrificed his share of profit in favour of 'D'.
(iv) A provision of 5% for bad and doubtful debts was to be maintained.
(v) An item of Rs 500 included in Sundry Creditors was not likely to be paid.
(vi) A provision of Rs 800 was to be made for claims for damages against the firm.

Exam Tip: When a partner withdraws part of goodwill after admission of a new partner, record the withdrawal as a debit to that partner's capital account; adjust all reserves and provisions according to specified percentages.