RBSE Solutions Class 12 Accountancy Chapter 2 Admission of a New Partner

RBSE Class 12 Accountancy Chapter 2 Multiple Choice Questions

Question 1. Super profit is :
(a) Normal Profit - Average Profit
(b) Average Profit - Normal Profit
(c) Normal Profit + Average Profit
(d) None of the options
Answer: (b) Average Profit - Normal Profit
In simple words: Super profit is the extra profit a business earns compared to the usual profit expected in that industry. It's found by subtracting the normal profit from the average profit.

🎯 Exam Tip: Remember that super profit is always about the *excess* earning capacity of a firm beyond what is considered normal for its industry.

Question 2. A and B are equal partners with the capital of Rs 16,000 and Rs 12,000. C a new partner comes in for 1/4 share and brings capital of Rs 15,000. Find the value of the firm's goodwill.
Answer: The question asks to find the value of the firm's goodwill based on the given capital and new partner's admission. However, the calculation or options for the goodwill value are not provided in the source for this question. Therefore, a specific numerical answer cannot be determined from the available information.
In simple words: We cannot solve this problem because the steps to calculate the goodwill or the options to choose from are missing.

🎯 Exam Tip: When calculating goodwill, always ensure you have all the necessary components like total capital, normal rate of return, and average or super profits, as the method dictates.

Question 3. Total assets and liabilities of the firm are Rs 70,000 and Rs 10,000. Average profit is Rs 8,000. NRR 10%. Calculate super profit.
(a)Rs 1,000
(b)Rs 2,000
(c) Rs 3,000
(d)Rs 4,000
Answer: (b) Rs 2,000
In simple words: First, find the capital employed by subtracting liabilities from assets. Then, calculate the normal profit using the capital employed and the normal rate of return. Finally, subtract this normal profit from the average profit to get the super profit.

🎯 Exam Tip: The Normal Rate of Return (NRR) is always applied to the Capital Employed (Assets - Liabilities) to find the Normal Profit.

Question 4. For getting share in profits, a new partner brings:
(a) capital
(b) loan
(c) goodwill
(d) None of the options
Answer: (c) goodwill
In simple words: A new partner brings goodwill to compensate existing partners for giving up a portion of their future profits. It's like paying for a share of the firm's reputation.

🎯 Exam Tip: Always remember that goodwill brought by a new partner is primarily a payment for a share in the firm's future profits, while capital is for a share in the assets.

Question 5. For getting share in assets of firm, a new partner brings :
(a) capital
(b) loan
(c) goodwill
(d) subsidy
Answer: (a) capital
In simple words: When a new partner joins, they bring capital. This capital gives them a right to a share in the firm's assets, like buildings or machines.

🎯 Exam Tip: Distinguish between capital (for assets) and goodwill (for profits) as a new partner's contributions are crucial for their rights in the firm.

Question 6. N. ccount is :
Answer: (b) (Options not provided)
In simple words: The exact question text is incomplete, and the options are not available in the source. Based on the provided answer choice, option (b) would be the correct one if the options were present.

🎯 Exam Tip: In multiple-choice questions, always carefully read all options before selecting the best fit, ensuring the chosen option directly answers the question.

Question 7. When the partners decide to change the value of assets and liabilities, then which account prepared is :
(a) revaluation account
(b) realization account
(c) memorandum revaluation
(d) none of these
Answer: (a) revaluation account
In simple words: When partners change the value of their firm's assets and liabilities, they prepare a 'revaluation account'. This account helps them see any profit or loss from these changes.

🎯 Exam Tip: The Revaluation Account is crucial to accurately reflect the true value of assets and liabilities at the time of a change in partnership, ensuring fairness to all partners.

Question 8. All undistributed losses are transferred to capital account of the old partners in the ratio of:
(a) new profit sharing ratio
(b) gaining ratio
(c) old profit sharing ratio
(d) sacrificing ratio
Answer: (c) old profit sharing ratio
In simple words: Any losses from before a new partner joins are given to the old partners. They share these losses based on how they used to split profits.

🎯 Exam Tip: Remember to always distribute existing reserves, accumulated profits, and losses to the *old partners* in their *old profit sharing ratio* before admitting a new partner.

Question 9. Nature of goodwill is
(a) cat goodwill
(b) dog goodwill
(c) rat goodwill
(d) all of the options
Answer: (d) all of the options
In simple words: The nature of goodwill can be seen as having characteristics like a cat, dog, or rat. This means goodwill can be attached to the owner, the business location, or the products, just like these animals have different loyalties.

🎯 Exam Tip: Understanding the "nature" of goodwill (cat, dog, rat) helps explain how it is valued and why it sometimes stays with the business even if the owner changes.

Question 10. A and B are partners sharing profit in ratio of 2 : 1. They admit C for 1/3 share in profits, then sacrificing ratio of A and B is:
Answer: The sacrificing ratio is 3:2.
When C is admitted for \( \frac{1}{3} \) share:
Let the total share be 1.
Remaining share \( = 1 - \frac{1}{3} = \frac{2}{3} \)
A's new share \( = \frac{2}{3} \times \frac{2}{3} = \frac{4}{9} \)
B's new share \( = \frac{2}{3} \times \frac{1}{3} = \frac{2}{9} \)
Old ratio of A and B \( = \frac{2}{3} : \frac{1}{3} \)
New ratio of A, B, C \( = \frac{4}{9} : \frac{2}{9} : \frac{1}{3} \)
To make denominators common for new ratio: \( \frac{4}{9} : \frac{2}{9} : \frac{3}{9} \text{ or } 4:2:3 \)
Sacrifice of A = Old share - New share \( = \frac{2}{3} - \frac{4}{9} = \frac{6-4}{9} = \frac{2}{9} \)
Sacrifice of B = Old share - New share \( = \frac{1}{3} - \frac{2}{9} = \frac{3-2}{9} = \frac{1}{9} \)
Therefore, sacrificing ratio of A and B \( = \frac{2}{9} : \frac{1}{9} = 2:1 \)
This calculation provides a sacrificing ratio of 2:1, which differs from the provided answer of 3:2. Assuming the given solution 3:2 is correct, the steps leading to it are not provided in the OCR.
In simple words: To find the sacrificing ratio, you subtract each old partner's new share from their old share. This shows how much profit share they gave up.

🎯 Exam Tip: Always double-check your calculations for new profit sharing ratio and sacrificing ratio, as a small error can lead to a completely different outcome.

RBSE Class 12 Accountancy Chapter 2 Very Short Answer Questions

Question 1. In which ratio amount of goodwill is divided among the old partners when new partner brings cash for goodwill?
Answer: The amount of goodwill is divided among the old partners in their sacrificing ratio.
In simple words: When a new partner pays for goodwill in cash, the old partners share that money based on how much profit share each of them gave up.

🎯 Exam Tip: Always remember that goodwill is shared in the sacrificing ratio, as it compensates old partners for the future profit share they give up.

Question 2. Write one difference between super profit and average profit.
Answer: Super profit is the profit earned above the normal profit, calculated by subtracting normal profit from average profit. On the other hand, average profit is the total profit earned over a period divided by the number of years. It represents the firm's typical profit. Super profit shows how much better a business performs than others in the same industry.
In simple words: Average profit is just the total profit divided by the number of years. Super profit is the extra profit a business makes above what is normally expected.

🎯 Exam Tip: Clearly define both terms and explain how one is derived from the other, highlighting that super profit indicates superior performance.

Question 3. What is meant by reconstitution of partnership?
Answer: Reconstitution of a partnership firm happens when the existing agreement among partners changes. This leads to a new agreement taking its place. It means the old partnership arrangement ends, and a new one starts. This could happen due to admission of a partner, retirement, death, or change in profit-sharing ratio.
In simple words: Reconstitution of partnership means when the old rules or agreement between partners in a business change, and a new one is made.

🎯 Exam Tip: Emphasize that reconstitution means a change in the existing partnership agreement, which can be triggered by various events, not just admitting a new partner.

Question 4. What is the nature of revaluation account?
Answer: The revaluation account is a nominal account by nature. Nominal accounts are those that record expenses, losses, incomes, and gains. This account is closed at the end of an accounting period by transferring its balance to the partners' capital accounts. Any profit or loss from revaluation is transferred to the partners' capital accounts.
In simple words: A revaluation account is a "nominal account." This means it keeps track of profits and losses that come from changing the value of assets and liabilities.

🎯 Exam Tip: Clearly state "nominal account" and briefly explain what a nominal account records (incomes, expenses, gains, losses) to score full marks.

Question 5. A and B are partners in a firm, sharing profits in the ratio of 3 : 2. C is admitted for 20% share in profits of the firm. Calculate new profit sharing ratio and sacrificing ratio.
Answer: A and B are partners in a firm, sharing profits in the Ratio of 3 : 2. C is admitted for 20% share in profits of the firm. Here's how to calculate the new profit sharing ratio and sacrificing ratio:
C's share \( = 20\% = \frac{20}{100} = \frac{1}{5} \)
Remaining share after C's admission \( = 1 - \frac{1}{5} = \frac{4}{5} \)
A's new share \( = \frac{4}{5} \times \text{Old share of A} = \frac{4}{5} \times \frac{3}{5} = \frac{12}{25} \)
B's new share \( = \frac{4}{5} \times \text{Old share of B} = \frac{4}{5} \times \frac{2}{5} = \frac{8}{25} \)
C's share \( = \frac{1}{5} \)
To make denominators common: \( \frac{1}{5} = \frac{1 \times 5}{5 \times 5} = \frac{5}{25} \)
New Profit Sharing Ratio of A, B, and C \( = \frac{12}{25} : \frac{8}{25} : \frac{5}{25} = 12:8:5 \)
Sacrificing Ratio = Old Share - New Share
A's sacrifice \( = \frac{3}{5} - \frac{12}{25} = \frac{15 - 12}{25} = \frac{3}{25} \)
B's sacrifice \( = \frac{2}{5} - \frac{8}{25} = \frac{10 - 8}{25} = \frac{2}{25} \)
Sacrificing Ratio of A and B \( = \frac{3}{25} : \frac{2}{25} = 3:2 \)
In simple words: First, calculate the share left for old partners after the new partner joins. Then, divide this remaining share between the old partners using their old profit ratio. The difference between their old share and new share is their sacrificing ratio.

🎯 Exam Tip: When a new partner's share is given, and the old partners agree to share the remaining profits in their old ratio, it implies that the old ratio itself is the sacrificing ratio.

Question 6. A, B and C are partners in a firm, sharing profits in the ratio of 5 : 3 : 2. D is admitted for 1/5th share in profits of the firm. Calculate new profit sharing ratio and sacrificing ratio.
Answer: A, B and C are partners in a firm, sharing profits in the ratio of 5 : 3 : 2. D is admitted for 1/5th share in profits of the firm.
Old Ratio of A, B, C = 5:3:2 (Total = 10)
D's Share \( = \frac{1}{5} \)
Remaining share for A, B, C \( = 1 - \frac{1}{5} = \frac{4}{5} \)
This remaining share will be distributed among A, B, C in their old ratio (5:3:2).
A's new share \( = \frac{4}{5} \times \frac{5}{10} = \frac{20}{50} = \frac{2}{5} \)
B's new share \( = \frac{4}{5} \times \frac{3}{10} = \frac{12}{50} \)
C's new share \( = \frac{4}{5} \times \frac{2}{10} = \frac{8}{50} \)
D's share \( = \frac{1}{5} = \frac{10}{50} \)
New Profit Sharing Ratio of A, B, C, D \( = \frac{20}{50} : \frac{12}{50} : \frac{8}{50} : \frac{10}{50} = 20:12:8:10 \)
Simplifying the ratio by dividing by 2: New Profit Sharing Ratio \( = 10:6:4:5 \)
Sacrificing Ratio = Old Share - New Share
A's sacrifice \( = \frac{5}{10} - \frac{20}{50} = \frac{25-20}{50} = \frac{5}{50} \)
B's sacrifice \( = \frac{3}{10} - \frac{12}{50} = \frac{15-12}{50} = \frac{3}{50} \)
C's sacrifice \( = \frac{2}{10} - \frac{8}{50} = \frac{10-8}{50} = \frac{2}{50} \)
Sacrificing Ratio of A, B, C \( = \frac{5}{50} : \frac{3}{50} : \frac{2}{50} = 5:3:2 \)
In simple words: First, find out what part of the profit is left after the new partner takes their share. Then, distribute this left-over profit to the old partners based on their original sharing ratio. The part of profit each old partner gives up is their sacrificing share.

🎯 Exam Tip: When a new partner is admitted without specifying how the old partners give up their share, assume they sacrifice in their old profit-sharing ratio.

Question 7. A, B and C are partners in a firm, sharing profits in the ratio of 3/6 : 2/6 : 1/6. D is admitted for 1/6th share in profits of the firm. Calculate new profit sharing ratio and sacrificing ratio.
Answer: A, B and C are partners in a firm, sharing profits in the ratio of 3/6 : 2/6 : 1/6 (or 3:2:1). D is admitted for 1/6th share in profits of the firm.
Old Ratio of A, B, C = 3:2:1 (Total = 6)
D's Share \( = \frac{1}{6} \)
Remaining share for A, B, C \( = 1 - \frac{1}{6} = \frac{5}{6} \)
This remaining share will be distributed among A, B, C in their old ratio (3:2:1).
A's new share \( = \frac{5}{6} \times \frac{3}{6} = \frac{15}{36} \)
B's new share \( = \frac{5}{6} \times \frac{2}{6} = \frac{10}{36} \)
C's new share \( = \frac{5}{6} \times \frac{1}{6} = \frac{5}{36} \)
D's share \( = \frac{1}{6} = \frac{6}{36} \)
New Profit Sharing Ratio of A, B, C, D \( = \frac{15}{36} : \frac{10}{36} : \frac{5}{36} : \frac{6}{36} = 15:10:5:6 \)
Sacrificing Ratio = Old Share - New Share
A's sacrifice \( = \frac{3}{6} - \frac{15}{36} = \frac{18-15}{36} = \frac{3}{36} \)
B's sacrifice \( = \frac{2}{6} - \frac{10}{36} = \frac{12-10}{36} = \frac{2}{36} \)
C's sacrifice \( = \frac{1}{6} - \frac{5}{36} = \frac{6-5}{36} = \frac{1}{36} \)
Sacrificing Ratio of A, B, C \( = \frac{3}{36} : \frac{2}{36} : \frac{1}{36} = 3:2:1 \)
In simple words: When a new partner joins, the old partners share the remaining profit in their original ratios. The amount of profit each old partner gives up is their sacrificing ratio.

🎯 Exam Tip: Confirm that the sum of the sacrificing ratios equals the new partner's share, which helps verify your calculations.

Question 8. A and B are partners in a firm, sharing profits of the firm. C is admitted for 1/4th share in profits of the firm. Calculate new profit sharing ratio and sacrificing ratio.
Answer: A and B are partners in a firm, sharing profits. The old profit sharing ratio is not specified. Assuming they share profits equally (1:1), or it is a typo and should be 3:2 as in previous problems, we will use a common assumption for similar problems or clarify if more information is available.
If A and B share profits equally (1:1):
C's profit \( = \frac{1}{4} \)
Remaining profit \( = 1 - \frac{1}{4} = \frac{3}{4} \)
A's new profit \( = \frac{3}{4} \times \frac{1}{2} = \frac{3}{8} \)
B's new profit \( = \frac{3}{4} \times \frac{1}{2} = \frac{3}{8} \)
C's share \( = \frac{1}{4} = \frac{2}{8} \)
New profit sharing ratio = \( \frac{3}{8} : \frac{3}{8} : \frac{2}{8} = 3:3:2 \)
Sacrifice Ratio = Old Share - New Share
A's Sacrifice \( = \frac{1}{2} - \frac{3}{8} = \frac{4-3}{8} = \frac{1}{8} \)
B's Sacrifice \( = \frac{1}{2} - \frac{3}{8} = \frac{4-3}{8} = \frac{1}{8} \)
Sacrifice Ratio \( = \frac{1}{8} : \frac{1}{8} = 1:1 \)
In simple words: If the old profit sharing ratio is not given, we assume partners share equally. Then, we find the share left for old partners after the new one joins, and distribute it. The amount given up by old partners is their sacrifice.

🎯 Exam Tip: When the old profit-sharing ratio is not explicitly stated in a problem, it is generally assumed that the partners share profits equally, unless indicated otherwise by their capital contributions or other factors.

Question 10. A and B are partners in a firm, sharing profits in the ratio of 3 : 2. C is admitted for 1/5th share in profits of the firm which he acquired in equal proportions from both A and B. Calculate new profit sharing ratio and sacrificing ratio.
Answer: A and B are partners in a firm, sharing profits in the ratio of 3 : 2. C is admitted for 1/5th share in profits of the firm which he acquired in equal proportions from both A and B.
Old Ratio of A and B = 3:2
C's Share \( = \frac{1}{5} \)
C acquires his share equally from A and B.
So, A sacrifices for C \( = \frac{1}{5} \times \frac{1}{2} = \frac{1}{10} \)
B sacrifices for C \( = \frac{1}{5} \times \frac{1}{2} = \frac{1}{10} \)
Sacrificing Ratio of A and B \( = \frac{1}{10} : \frac{1}{10} = 1:1 \)
New Share = Old Share - Sacrificed Share
A's New Share \( = \frac{3}{5} - \frac{1}{10} = \frac{6-1}{10} = \frac{5}{10} \)
B's New Share \( = \frac{2}{5} - \frac{1}{10} = \frac{4-1}{10} = \frac{3}{10} \)
C's Share \( = \frac{1}{5} = \frac{2}{10} \)
New Profit Sharing Ratio of A, B, C \( = \frac{5}{10} : \frac{3}{10} : \frac{2}{10} = 5:3:2 \)
In simple words: When a new partner gets their share equally from the old partners, we first find out how much each old partner gives up. Then we subtract this amount from their old shares to get their new shares. The amount they give up is their sacrificing ratio.

🎯 Exam Tip: When a new partner acquires their share "in equal proportions" from existing partners, the sacrificing ratio is simply the ratio in which the new partner's share is divided among the old partners (e.g., 1:1 for two partners). This makes the sacrificing ratio calculation straightforward.

Question 11. A, B and C are partners in a firm, sharing profits in the ratio of 3 : 2 : 1. D is admitted for 1/6th share in profits of the firm which he acquired in equal proportions from A, B and C. Calculate new profit sharing ratio and sacrificing ratio.
Answer: A, B and C are partners in a firm, sharing profits in the ratio of 3 : 2 : 1. D is admitted for 1/6th share in profits of the firm, which he acquired in equal proportions from A, B and C.
Old Ratio of A, B, C = 3:2:1 (Total = 6)
D's Share \( = \frac{1}{6} \)
D acquires his share equally from A, B and C. So, each partner sacrifices \( = \frac{1}{6} \times \frac{1}{3} = \frac{1}{18} \)
Sacrificing Ratio of A, B, C \( = \frac{1}{18} : \frac{1}{18} : \frac{1}{18} = 1:1:1 \)
New Share = Old Share - Sacrificed Share
A's New Share \( = \frac{3}{6} - \frac{1}{18} = \frac{9-1}{18} = \frac{8}{18} \)
B's New Share \( = \frac{2}{6} - \frac{1}{18} = \frac{6-1}{18} = \frac{5}{18} \)
C's New Share \( = \frac{1}{6} - \frac{1}{18} = \frac{3-1}{18} = \frac{2}{18} \)
D's Share \( = \frac{1}{6} = \frac{3}{18} \)
New Profit Sharing Ratio of A, B, C, D \( = \frac{8}{18} : \frac{5}{18} : \frac{2}{18} : \frac{3}{18} = 8:5:2:3 \)
In simple words: When a new partner takes shares equally from all old partners, each old partner gives up the same small part of their profit. This amount is subtracted from their original share to find their new share, and the amount given up is their sacrifice.

🎯 Exam Tip: When a new partner acquires a share equally from multiple existing partners, their sacrificing ratio will also be equal (1:1:1 in this case).

Question 12. A and B are partners in a firm, sharing profits in the ratio of 3 : 2. C is admitted for 1/4th share in profits of the firm which he acquired from A and B in the ratio of 2 : 1. Calculate new profit sharing ratio.
Answer: A and B are partners in a firm, sharing profits in the ratio of 3 : 2. C is admitted for 1/4th share in profits of the firm which he acquired from A and B in the ratio of 2 : 1.
Old Ratio of A and B = 3:2
C's Share \( = \frac{1}{4} \)
C acquires his share from A and B in the ratio of 2:1.
So, A sacrifices for C \( = \frac{1}{4} \times \frac{2}{3} = \frac{2}{12} \)
B sacrifices for C \( = \frac{1}{4} \times \frac{1}{3} = \frac{1}{12} \)
Sacrificing Ratio of A and B \( = \frac{2}{12} : \frac{1}{12} = 2:1 \)
New Share = Old Share - Sacrificed Share
A's New Share \( = \frac{3}{5} - \frac{2}{12} = \frac{36-10}{60} = \frac{26}{60} \)
B's New Share \( = \frac{2}{5} - \frac{1}{12} = \frac{24-5}{60} = \frac{19}{60} \)
C's Share \( = \frac{1}{4} = \frac{15}{60} \)
New Profit Sharing Ratio of A, B, C \( = \frac{26}{60} : \frac{19}{60} : \frac{15}{60} = 26:19:15 \)
In simple words: When a new partner gets their share from old partners in a specific ratio, we first figure out how much each old partner gives up. Then, we subtract this from their original share to find their new share.

🎯 Exam Tip: When the new partner's share acquisition ratio from existing partners is given, this ratio directly represents the sacrificing ratio of the old partners.

Question 13. A and B are partners in a firm, sharing profits in the ratio of 3 : 2. C is admitted for 1/5th share in profits of the firm which he acquired entirely from B. Calculate new profit sharing ratio.
Answer: A and B are partners in a firm, sharing profits in the ratio of 3 : 2. C is admitted for 1/5th share in profits of the firm which he acquired entirely from B.
Old Ratio of A and B = 3:2
C's Share \( = \frac{1}{5} \)
C acquired his entire share from B. This means A makes no sacrifice.
Sacrificing Ratio: A : B = 0 : \( \frac{1}{5} \)
New Share = Old Share - Sacrificed Share
A's New Share \( = \frac{3}{5} - 0 = \frac{3}{5} \)
B's New Share \( = \frac{2}{5} - \frac{1}{5} = \frac{1}{5} \)
C's Share \( = \frac{1}{5} \)
New Profit Sharing Ratio of A, B, C \( = \frac{3}{5} : \frac{1}{5} : \frac{1}{5} = 3:1:1 \)
In simple words: If a new partner gets their entire share from just one old partner, then only that one old partner gives up a portion of their profit share. The other old partners keep their share the same.

🎯 Exam Tip: When a new partner acquires their share *entirely* from one specific partner, only that partner's share is reduced, and their sacrifice is equal to the new partner's share.

Question 14. A and B are partners in a firm, sharing profits in the ratio of 7 : 5. C is admitted for 1/6th share in profits of the firm. C acquires 1/24 from A and 1/8 from B. Calculate new profit sharing ratio and sacrificing ratio.
Answer: A and B are partners in a firm, sharing profits in the ratio of 7 : 5. C is admitted for 1/6th share in profits of the firm. C acquires \( \frac{1}{24} \) from A and \( \frac{1}{8} \) from B.
Old Ratio of A and B = 7:5 (Total = 12)
C's Share \( = \frac{1}{6} \)
A sacrifices for C \( = \frac{1}{24} \)
B sacrifices for C \( = \frac{1}{8} = \frac{3}{24} \)
Total sacrifice by A and B \( = \frac{1}{24} + \frac{3}{24} = \frac{4}{24} = \frac{1}{6} \), which matches C's share.
Sacrificing Ratio of A and B \( = \frac{1}{24} : \frac{3}{24} = 1:3 \)
New Share = Old Share - Sacrificed Share
A's New Share \( = \frac{7}{12} - \frac{1}{24} = \frac{14-1}{24} = \frac{13}{24} \)
B's New Share \( = \frac{5}{12} - \frac{3}{24} = \frac{10-3}{24} = \frac{7}{24} \)
C's Share \( = \frac{1}{6} = \frac{4}{24} \)
New Profit Sharing Ratio of A, B, C \( = \frac{13}{24} : \frac{7}{24} : \frac{4}{24} = 13:7:4 \)
In simple words: When a new partner takes specific amounts from old partners, subtract these specific amounts from the old partners' original shares to find their new shares. The amounts they give up show their sacrificing ratio.

🎯 Exam Tip: Always verify that the sum of the individual sacrifices made by old partners equals the new partner's total share to ensure accuracy.

Question 15. A and B are partners in a firm, sharing profits in the ratio of 3 : 1. A new partner C is admitted, A surrenders 2/3 of his share and B surrenders 1/3 of his share in favor of C. Calculate new profit sharing ratio and sacrificing ratio.
Answer: A and B are partners in a firm, sharing profits in the ratio of 3 : 1. A new partner C is admitted, A surrenders 2/3 of his share and B surrenders 1/3 of his share in favor of C.
Old Ratio of A and B = 3:1 (Total = 4)
A's old share \( = \frac{3}{4} \)
B's old share \( = \frac{1}{4} \)
A surrenders \( \frac{2}{3} \) of his share: A's sacrifice \( = \frac{3}{4} \times \frac{2}{3} = \frac{6}{12} = \frac{1}{2} \)
B surrenders \( \frac{1}{3} \) of his share: B's sacrifice \( = \frac{1}{4} \times \frac{1}{3} = \frac{1}{12} \)
Sacrificing Ratio of A and B \( = \frac{1}{2} : \frac{1}{12} = \frac{6}{12} : \frac{1}{12} = 6:1 \)
New Share = Old Share - Sacrificed Share
A's New Share \( = \frac{3}{4} - \frac{1}{2} = \frac{3-2}{4} = \frac{1}{4} \)
B's New Share \( = \frac{1}{4} - \frac{1}{12} = \frac{3-1}{12} = \frac{2}{12} = \frac{1}{6} \)
C's Share = A's sacrifice + B's sacrifice \( = \frac{1}{2} + \frac{1}{12} = \frac{6+1}{12} = \frac{7}{12} \)
New Profit Sharing Ratio of A, B, C \( = \frac{1}{4} : \frac{1}{6} : \frac{7}{12} \)
To make denominators common: \( \frac{3}{12} : \frac{2}{12} : \frac{7}{12} = 3:2:7 \)
In simple words: When old partners give up a fraction "of their share" for a new partner, first calculate the exact amount each old partner gives up. Then, subtract this from their original shares to find their new shares. The new partner's share is the sum of these sacrifices.

🎯 Exam Tip: Pay close attention to the wording "of his share" versus "from his share" as it significantly impacts the calculation of sacrifices.

Question 16. A and B are partners in a firm, sharing profits in the ratio of 2 : 1. A new partner C is admitted. A surrenders 1/3 from his share and B surrenders 1/3 of his share in favor of C. Calculate new profit sharing ratio and sacrificing ratio.
Answer: A and B are partners in a firm, sharing profits in the ratio of 2 : 1. A new partner C is admitted. A surrenders \( \frac{1}{3} \) from his share and B surrenders \( \frac{1}{3} \) of his share in favor of C.
Old Ratio of A and B = 2:1 (Total = 3)
A's old share \( = \frac{2}{3} \)
B's old share \( = \frac{1}{3} \)
A surrenders \( \frac{1}{3} \) from his share: A's sacrifice \( = \frac{1}{3} \)
B surrenders \( \frac{1}{3} \) of his share: B's sacrifice \( = \frac{1}{3} \times \frac{1}{3} = \frac{1}{9} \)
Sacrificing Ratio of A and B \( = \frac{1}{3} : \frac{1}{9} = \frac{3}{9} : \frac{1}{9} = 3:1 \)
New Share = Old Share - Sacrificed Share
A's New Share \( = \frac{2}{3} - \frac{1}{3} = \frac{1}{3} \)
B's New Share \( = \frac{1}{3} - \frac{1}{9} = \frac{3-1}{9} = \frac{2}{9} \)
C's Share = A's sacrifice + B's sacrifice \( = \frac{1}{3} + \frac{1}{9} = \frac{3+1}{9} = \frac{4}{9} \)
New Profit Sharing Ratio of A, B, C \( = \frac{1}{3} : \frac{2}{9} : \frac{4}{9} \)
To make denominators common: \( \frac{3}{9} : \frac{2}{9} : \frac{4}{9} = 3:2:4 \)
In simple words: When old partners give up a fixed fraction "from their share" or "of their share", calculate the exact amounts given up. Then subtract these from their original shares to get their new shares. The sacrificing ratio shows how much each old partner gave up.

🎯 Exam Tip: Differentiate "from his share" (direct subtraction) and "of his share" (multiplication then subtraction) when calculating sacrifices for a new partner.

Question 17. A, B and C are partners in a firm, sharing profits in the ratio of 5 : 3 : 2. D is admitted for 2/10 share in profits of the firm. C will retain his original share. Calculate new profit sharing ratio.
Answer: A, B and C are partners in a firm, sharing profits in the ratio of 5 : 3 : 2. D is admitted for 2/10 share in profits of the firm. C will retain his original share.
Old Ratio of A, B, C = 5:3:2 (Total = 10)
C's old share \( = \frac{2}{10} \)
D's share \( = \frac{2}{10} \)
Since C retains his original share, D's share must come from A and B only.
Total share of C and D \( = \frac{2}{10} + \frac{2}{10} = \frac{4}{10} \)
Remaining share for A and B \( = 1 - \frac{4}{10} = \frac{6}{10} \)
This remaining share will be distributed between A and B in their original ratio (5:3).
A's new share \( = \frac{6}{10} \times \frac{5}{8} = \frac{30}{80} = \frac{3}{8} \)
B's new share \( = \frac{6}{10} \times \frac{3}{8} = \frac{18}{80} = \frac{9}{40} \)
C's new share (retained) \( = \frac{2}{10} = \frac{8}{40} \)
D's share \( = \frac{2}{10} = \frac{8}{40} \)
New Profit Sharing Ratio of A, B, C, D \( = \frac{3}{8} : \frac{9}{40} : \frac{8}{40} : \frac{8}{40} \)
To make denominators common: \( \frac{15}{40} : \frac{9}{40} : \frac{8}{40} : \frac{8}{40} = 15:9:8:8 \)
In simple words: When one partner keeps their share the same after a new partner joins, the new partner's share comes only from the other old partners. First, subtract the shares of the new partner and the partner who retains their share from the total. Then, split the rest among the remaining old partners based on their old ratio.

🎯 Exam Tip: Always subtract the share of any partner who retains their old share *before* distributing the remaining profit among the sacrificing partners.

Question 18. A and B are partners in a firm, sharing profits. They admitted C and D for 1/5th and 1/6th shares in profits respectively. Calculate new profit sharing ratio.
Answer: A and B are partners in a firm, sharing profits. They admitted C and D for 1/5th and 1/6th shares in profits respectively.
Old Ratio of A and B is not given, so assume it is 1:1 (equal).
C's share \( = \frac{1}{5} \)
D's share \( = \frac{1}{6} \)
Total share of C and D \( = \frac{1}{5} + \frac{1}{6} = \frac{6+5}{30} = \frac{11}{30} \)
Remaining share for A and B \( = 1 - \frac{11}{30} = \frac{19}{30} \)
This remaining share will be distributed between A and B in their old ratio (1:1).
A's new share \( = \frac{19}{30} \times \frac{1}{2} = \frac{19}{60} \)
B's new share \( = \frac{19}{30} \times \frac{1}{2} = \frac{19}{60} \)
C's share \( = \frac{1}{5} = \frac{12}{60} \)
D's share \( = \frac{1}{6} = \frac{10}{60} \)
New Profit Sharing Ratio of A, B, C, D \( = \frac{19}{60} : \frac{19}{60} : \frac{12}{60} : \frac{10}{60} = 19:19:12:10 \)
In simple words: When two new partners join, first add their shares together. Subtract this total from 1 to find the profit left for the original partners. Then, split this remaining profit between the original partners according to their old sharing ratio.

🎯 Exam Tip: If the old profit-sharing ratio is not given, always assume it is equal for the existing partners, and then proceed with the calculation.

Question 19. A, B and C are partners in a firm, sharing profits in the ratio of 3 : 2 : 1. D is admitted as a new partner. D acquires 1/4 of his share from C and A surrenders 3/10 of his share and B surrenders 1/10 of his share for D's share. Calculate new profit sharing ratio and sacrificing ratio.
Answer: A, B and C are partners in a firm, sharing profits in the ratio of 3 : 2 : 1. D is admitted as a new partner. D acquires \( \frac{1}{4} \) of his share from C and A surrenders \( \frac{3}{10} \) of his share and B surrenders \( \frac{1}{10} \) of his share for D's share.
Old Ratio of A, B, C = 3:2:1 (Total = 6)
D's total share = A's sacrifice + B's sacrifice + C's sacrifice
A surrenders \( \frac{3}{10} \) of his share. A's sacrifice \( = \frac{3}{10} \times \frac{3}{6} = \frac{9}{60} \)
B surrenders \( \frac{1}{10} \) of his share. B's sacrifice \( = \frac{1}{10} \times \frac{2}{6} = \frac{2}{60} \)
C surrenders \( \frac{1}{4} \) of his share. C's sacrifice \( = \frac{1}{4} \times \frac{1}{6} = \frac{1}{24} \)
This problem description is slightly contradictory or unusually phrased: "D acquires 1/4 of his share from C" suggests D's share is already known, but then "A surrenders 3/10 of his share and B surrenders 1/10 of his share for D's share" implies A and B are also giving up parts of their total share to D.
Let's re-interpret the prompt from a common structure found in these kinds of problems for clarity based on numerical calculations often seen in solutions:
Old Ratio of A, B, C = 3:2:1 (Total = 6)
A's sacrifice = \( \frac{3}{10} \) (This appears to be a direct amount surrendered, not "of his share" based on typical solutions and the given fractions in the prompt)
B's sacrifice = \( \frac{1}{10} \)
C's sacrifice = \( \frac{1}{4} \)
The source seems to be calculating sacrifices differently or there's a misunderstanding in the question's wording. Assuming the sacrifices are directly given as \( \frac{3}{10} \) from A, \( \frac{1}{10} \) from B, and \( \frac{1}{4} \) from C.
Sacrificing Ratio = A : B : C = \( \frac{3}{10} : \frac{1}{10} : \frac{1}{4} = \frac{6}{20} : \frac{2}{20} : \frac{5}{20} = 6:2:5 \)
This appears to be based on an interpretation where the question states the fractions A, B, C surrender *directly* for D, not fractions *of their own shares*. If A surrenders 3/10 (of total firm profits) and B surrenders 1/10 (of total firm profits) and C surrenders 1/4 (of total firm profits), then:
A's New Share \( = \frac{3}{6} - \frac{3}{10} = \frac{15-9}{30} = \frac{6}{30} \)
B's New Share \( = \frac{2}{6} - \frac{1}{10} = \frac{10-3}{30} = \frac{7}{30} \)
C's New Share \( = \frac{1}{6} - \frac{1}{4} = \frac{2-3}{12} = -\frac{1}{12} \) (This gives a negative share for C, which is not possible and indicates the interpretation of direct surrender is likely wrong or the question is flawed).

Let's try the common interpretation of "D acquires 1/4 of his share from C" combined with "A surrenders 3/10 of his share" and "B surrenders 1/10 of his share." This phrasing is problematic as "D acquires 1/4 of his share from C" implies D's share is known and he receives *part* of it from C, while the other two phrases describe A and B's contribution *to D's share*. The problem is ambiguous.

Given the OCR solution, it seems the intention was as follows, though the question's phrasing is difficult:
Sacrifice Ratio of A, B and C = 27:6:11
A's old share = \( \frac{3}{6} = \frac{90}{180} \)
B's old share = \( \frac{2}{6} = \frac{60}{180} \)
C's old share = \( \frac{1}{6} = \frac{30}{180} \)
The OCR solution leads to new profit sharing ratio: 63:54:19:44. This means D's share is 44/180.
A's sacrifice = Old - New = \( \frac{3}{6} - \frac{63}{180} = \frac{90-63}{180} = \frac{27}{180} \)
B's sacrifice = Old - New = \( \frac{2}{6} - \frac{54}{180} = \frac{60-54}{180} = \frac{6}{180} \)
C's sacrifice = Old - New = \( \frac{1}{6} - \frac{19}{180} = \frac{30-19}{180} = \frac{11}{180} \)
Sacrificing ratio A:B:C = 27:6:11.
D's share = Sum of sacrifices = \( \frac{27+6+11}{180} = \frac{44}{180} \)
New shares are directly calculated from the original total shares and sacrifices:
A's New Share \( = \frac{3}{6} - \frac{27}{180} = \frac{90-27}{180} = \frac{63}{180} \)
B's New Share \( = \frac{2}{6} - \frac{6}{180} = \frac{60-6}{180} = \frac{54}{180} \)
C's New Share \( = \frac{1}{6} - \frac{11}{180} = \frac{30-11}{180} = \frac{19}{180} \)
D's Share \( = \frac{44}{180} \)
New Profit Sharing Ratio = 63:54:19:44.
In simple words: This problem asks to find the new shares and how much profit old partners give up when a new partner joins and gets parts of their share from each old partner. We subtract each old partner's surrendered portion from their original share to find their new share. The total amount given up by old partners is the new partner's share.

🎯 Exam Tip: When faced with complex surrender conditions, always calculate the exact amount each old partner gives up first. Then, derive the new shares and verify that the sum of sacrifices equals the new partner's share.

RBSE Class 12 Accountancy Chapter 2 Short Answer Questions

Question 1. State the rights acquired by a newly admitted partner.
Answer: A newly admitted partner acquires two main rights in the firm:

• To get profit share in the firm: A new partner is entitled to receive a share of the firm's future profits. This is usually specified in the new partnership agreement.
• To get share in firm's assets: A new partner is also entitled to claim a share in the total assets of the firm. This claim typically corresponds to the capital they contribute to the partnership.

🎯 Exam Tip: Clearly list both rights (share in profits and share in assets) as these are fundamental benefits for a new partner.

Question 2. Why profit and loss adjustment account or revaluation account is prepared?
Answer: A Profit and Loss Adjustment Account, also known as a Revaluation Account, is prepared to record changes in the value of a firm's assets and liabilities during events like a partner's admission. This account helps to determine any profit or loss from revaluation. If the revaluation leads to a loss, the Revaluation Account is debited. If it results in a profit, the account is credited. This ensures that the true and fair value of assets and liabilities is reflected in the books. It also prevents the new partner from benefiting from hidden profits or suffering from undisclosed losses related to past asset values.
In simple words: We prepare a revaluation account to update the value of a business's assets and liabilities. This shows if there is any hidden profit or loss from these changes, making sure the accounts are correct when a new partner joins.

🎯 Exam Tip: Mention that it's prepared to ascertain profit/loss on revaluation and to ensure the new partner is not unfairly impacted by past revaluations. It’s a nominal account.

Question 7. When the partners decide to change the value of assets and liabilities, then which account prepared is:
(a) revaluation account
(b) realization account
(c) memorandum revaluation
(d) none of these
Answer: (a) revaluation account
In simple words: When partners change the value of their assets and liabilities, they create a special account called a "revaluation account" to record these changes. This account helps them see the true worth of everything before a new partner joins or any other changes happen.

🎯 Exam Tip: Remember that a revaluation account is a nominal account, meaning it records gains and losses related to changes in asset and liability values.

Question 8. All undistributed losses are transferred to capital account of the old partners in the ratio of:
(a) new profit sharing ratio
(b) gaining ratio
(c) old profit sharing ratio
(d) sacrificing ratio
Answer: (c) old profit sharing ratio
In simple words: When a firm has losses that haven't been shared yet, these losses are given to the original partners using their old profit-sharing ratio. This is done to clear up all old accounts before any big changes, like a new partner joining.

🎯 Exam Tip: Always distribute accumulated profits, reserves, and losses among old partners in their old profit-sharing ratio before admitting a new partner.

Question 9. Nature of goodwill is
(a) cat goodwill
(b) dog goodwill
(c) rat goodwill
(d) all of them
Answer: (d) all of them
In simple words: Goodwill is the good name or reputation of a business, which helps it earn more profit. It can have different 'natures' or types based on how it is valued or acquired, like "cat," "dog," or "rat" goodwill, which represent different characteristics of a business's reputation and its tie to the owner or location.

🎯 Exam Tip: The "nature of goodwill" refers to how much it is tied to the owner's personal reputation or the business's location; for example, "cat goodwill" stays even if the owner leaves, "dog goodwill" follows the owner, and "rat goodwill" is tied to location.

Question 10. Adjusted capital of X and Y is Rs 30,000 and Rs 25,000 respectively. Z brings in Rs 25,000 as capital for 1/4 share of profits in the firm. Calculate value of goodwill.
Answer:
Total capital of the firm based on Z's capital \( = \text{Rs } 25,000 \times \frac{4}{1} = \text{Rs } 1,00,000 \)
Total adjusted capital of old partners X and Y \( = \text{Rs } 30,000 + \text{Rs } 25,000 = \text{Rs } 55,000 \)
Combined capital of all partners after Z's admission \( = \text{Rs } 55,000 (\text{X and Y}) + \text{Rs } 25,000 (\text{Z}) = \text{Rs } 80,000 \)
Value of goodwill \( = \text{Total capital of the firm based on Z's share} - \text{Actual combined capital} \)
\( = \text{Rs } 1,00,000 - \text{Rs } 80,000 = \text{Rs } 20,000 \). This is the hidden goodwill, calculated when the new partner's capital implies a higher total firm value.
In simple words: First, figure out how much the whole company should be worth if the new partner's capital is a fair share. Then, subtract the actual money (capital) that all partners have put in. The difference is the hidden value of goodwill.

🎯 Exam Tip: Hidden goodwill is calculated when a new partner's capital implies a total firm valuation higher than the combined capital of all partners, including the new one.

Question 11. Balance of Capital account of A and B were Rs 40,000 and Rs 30,000 respectively. For the year ended 31-12-2016. Balance of general reserve stood at Rs 20,000. C is admitted on 01-01-2017 for 1/3rd share in profits. C brings in Rs 50,000 for his share of capital. Calculate value of goodwill.
Answer:
Adjusted capital of old partners (A and B) \( = \text{A's Capital} + \text{B's Capital} + \text{General Reserve} \)
\( = \text{Rs } 40,000 + \text{Rs } 30,000 + \text{Rs } 20,000 = \text{Rs } 90,000 \)
Total capital of the firm based on C's capital \( = \text{C's Capital} \times \frac{1}{\text{C's Share}} \)
\( = \text{Rs } 50,000 \times \frac{3}{1} = \text{Rs } 1,50,000 \)
Goodwill \( = \text{Total capital of firm based on C's share} - (\text{Adjusted capital of old partners} + \text{C's Capital}) \)
\( = \text{Rs } 1,50,000 - (\text{Rs } 90,000 + \text{Rs } 50,000) \)
\( = \text{Rs } 1,50,000 - \text{Rs } 1,40,000 = \text{Rs } 10,000 \). The general reserve is added to existing capital to get the adjusted capital.
In simple words: First, add the old partners' capital and their reserve money. Then, find out the total value of the company using the new partner's capital and his share. Finally, subtract the actual total capital (old adjusted plus new partner's) from this calculated total value to find the goodwill.

🎯 Exam Tip: Always include general reserves and any undistributed profits or losses when calculating the adjusted capital of old partners to determine hidden goodwill.

Question 12. Super Profit of a firm is Rs 10,000. The present value of an annuity of Rs 1 for five years at 10% per annum may taken at 3.791. Find the value of goodwill of the firm.
Answer:
Goodwill \( = \text{Super Profit} \times \text{Present Value of Annuity} \)
\( = \text{Rs } 10,000 \times 3.791 \)
\( = \text{Rs } 37,910 \). This method considers the present worth of future super profits, making it a fair valuation.
In simple words: To find the value of goodwill using the annuity method, simply multiply the extra profit the business makes (super profit) by a special number called the present value of annuity. This number helps us understand what future extra profits are worth today.

🎯 Exam Tip: The annuity method for goodwill is useful because it discounts future super profits to their present value, giving a more accurate current worth.

Question 14. A and B are partners in a firm, sharing profits in the ratio of 2 : 1. They admitted C as a new partner. C brought in Rs 40,000 for his share of capital and Rs 15,000 as goodwill for 1/6th share in profits of the firm. Goodwill withdrawn by A and B from the firm. On C's admission goodwill appeared in the books of the firm at Rs 30,000. Record necessary journal entries.
Answer:
**1. Calculation of Sacrificing Ratio:**
Old Ratio of A : B \( = 2 : 1 \)
C's Share \( = \frac{1}{6} \)
Remaining Share \( = 1 - \frac{1}{6} = \frac{5}{6} \)
A's New Share \( = \frac{5}{6} \times \frac{2}{3} = \frac{10}{18} \)
B's New Share \( = \frac{5}{6} \times \frac{1}{3} = \frac{5}{18} \)
A's Sacrifice \( = \text{Old Share} - \text{New Share} = \frac{2}{3} - \frac{10}{18} = \frac{12-10}{18} = \frac{2}{18} \)
B's Sacrifice \( = \text{Old Share} - \text{New Share} = \frac{1}{3} - \frac{5}{18} = \frac{6-5}{18} = \frac{1}{18} \)
Sacrificing Ratio of A : B \( = 2 : 1 \)

Total Goodwill of the firm \( = \text{C's Goodwill} \times \text{Reciprocal of C's Share} = \text{Rs } 15,000 \times \frac{6}{1} = \text{Rs } 90,000 \)
Goodwill existing in books \( = \text{Rs } 30,000 \)
C's share of goodwill \( = \frac{1}{6} \times \text{Rs } 90,000 = \text{Rs } 15,000 \)

**Journal Entries:**
(i) For writing off existing goodwill:
Old Partners' Capital A/c Dr. (in old ratio)
A's Capital A/c Dr. \( \frac{2}{3} \times \text{Rs } 30,000 = \text{Rs } 20,000 \)
B's Capital A/c Dr. \( \frac{1}{3} \times \text{Rs } 30,000 = \text{Rs } 10,000 \)
    To Goodwill A/c \( \text{Rs } 30,000 \)
(Being existing goodwill written off)

(ii) For cash brought in by C for capital and goodwill:
Cash A/c Dr. \( (\text{Rs } 40,000 + \text{Rs } 15,000) = \text{Rs } 55,000 \)
    To C's Capital A/c \( \text{Rs } 40,000 \)
    To Premium for Goodwill A/c \( \text{Rs } 15,000 \)
(Being cash brought in by C for capital and premium for goodwill)

(iii) For distributing C's share of goodwill (premium) to sacrificing partners:
Premium for Goodwill A/c Dr. \( \text{Rs } 15,000 \)
    To A's Capital A/c \( \frac{2}{3} \times \text{Rs } 15,000 = \text{Rs } 10,000 \)
    To B's Capital A/c \( \frac{1}{3} \times \text{Rs } 15,000 = \text{Rs } 5,000 \)
(Being premium for goodwill distributed to old partners in their sacrificing ratio)

(iv) For withdrawal of goodwill by A and B:
Old Partners' Capital A/c Dr.
A's Capital A/c Dr. \( (\frac{1}{2} \times \text{Rs } 10,000) = \text{Rs } 5,000 \)
B's Capital A/c Dr. \( (\frac{1}{2} \times \text{Rs } 5,000) = \text{Rs } 2,500 \)
    To Cash A/c \( \text{Rs } 7,500 \)
(Being half the amount of goodwill withdrawn by sacrificing partners)
In simple words: We first calculate how much A and B give up when C joins, which is their sacrificing ratio. Then, we write off any goodwill that was already in the books. Next, we record the cash C brings for his capital and for his share of goodwill. This goodwill amount is then shared between A and B based on what they sacrificed. Finally, we record if A and B take out any of this goodwill money from the firm.

🎯 Exam Tip: When goodwill is withdrawn, ensure to debit the sacrificing partners' capital accounts and credit the cash account, recording the actual cash outflow.

Question 15. A and B are partners in a firm, sharing profits in the ratio of 3 : 2. They admitted G as a new partner for 1/5th share in profits of the firm. C acquires his entire share from A. C brought in Rs 50,000 as his capital and Rs 10,000 as goodwill. On C's admission goodwill appeared in the books of the firm at Rs 25,000. Record necessary journal entries.
Answer:
**Calculation of Sacrificing Ratio:**
Old Ratio of A : B \( = 3 : 2 \)
C's Share \( = \frac{1}{5} \)
C acquires his entire share from A, so A is the only sacrificing partner. Sacrifice Ratio A : B \( = 1 : 0 \).
Goodwill existing in books \( = \text{Rs } 25,000 \)
C's share of goodwill brought in cash \( = \text{Rs } 10,000 \)
C's capital brought in cash \( = \text{Rs } 50,000 \)

**Journal Entries:**

In simple words: First, we remove any old goodwill from the books by reducing the capital of A and B in their old profit ratio. Next, we record the cash that the new partner C brings for his capital and for his share of goodwill. Since only A sacrifices profit share, all of C's goodwill is given to A's capital account.

🎯 Exam Tip: When a new partner acquires their share entirely from one existing partner, that partner alone is the sacrificing partner and receives the full premium for goodwill.

Question 16. A and B are partners in a firm sharing profits in the ratio of 3 : 2. They admitted C as a new partner for 1/5th share in profits of the firm. On the date of C's admission goodwill was valued at Rs 25,000. C contributed the following assets to his capital and his share of goodwill. Debtors Rs 10,000 and Stock Rs 15,000. Record necessary journal entries.
Answer:
**Calculation of Sacrificing Ratio:**
Old Ratio of A : B \( = 3 : 2 \)
C's Share \( = \frac{1}{5} \)
Assuming A and B continue to share the remaining profit in their old ratio, the sacrificing ratio will be the old ratio, i.e., \( 3 : 2 \).
Total Goodwill of the firm \( = \text{Rs } 25,000 \)
C's share of goodwill \( = \frac{1}{5} \times \text{Rs } 25,000 = \text{Rs } 5,000 \)
Assets contributed by C: Debtors \( \text{Rs } 10,000 \), Stock \( \text{Rs } 15,000 \)
Total Assets contributed \( = \text{Rs } 10,000 + \text{Rs } 15,000 = \text{Rs } 25,000 \)
C's Capital \( = \text{Total Assets contributed} - \text{C's Share of Goodwill} \)
\( = \text{Rs } 25,000 - \text{Rs } 5,000 = \text{Rs } 20,000 \)

**Journal Entries:**

In simple words: First, we record the assets (debtors and stock) that C brings into the firm, separating them into his capital and his share of goodwill. Then, we distribute C's share of goodwill to the old partners, A and B, in their sacrificing profit-sharing ratio. This ensures that the new partner's contribution is correctly accounted for.

🎯 Exam Tip: When a new partner brings assets other than cash for capital and goodwill, ensure you correctly value those assets and allocate the value between capital and premium for goodwill.

Question 17. A, B and C are partners in a firm sharing profits in the ratio of 3 : 2 : 1. They admitted D as a new partner for 1/7th share in profits of the firm. D brought in Rs 1,00,000 as his capital and Rs 45,000 as goodwill. Record necessary journal entries.
Answer:
**Calculation of Sacrificing Ratio:**
Old Ratio of A : B : C \( = 3 : 2 : 1 \)
D's Share \( = \frac{1}{7} \)
If D acquires his share without specifying how, and the new profit sharing ratio is not given, it is assumed that the old partners sacrifice in their old profit sharing ratio.
So, Sacrificing Ratio of A : B : C \( = 3 : 2 : 1 \).
D's capital brought in cash \( = \text{Rs } 1,00,000 \)
D's share of goodwill brought in cash \( = \text{Rs } 45,000 \)

**Journal Entries:**
(i) For cash brought in by D for capital and goodwill:
Cash A/c Dr. \( (\text{Rs } 1,00,000 + \text{Rs } 45,000) = \text{Rs } 1,45,000 \)
    To D's Capital A/c \( \text{Rs } 1,00,000 \)
    To Premium for Goodwill A/c \( \text{Rs } 45,000 \)
(Being cash brought in by D for capital and premium for goodwill)

(ii) For distributing D's share of goodwill (premium) to sacrificing partners:
Premium for Goodwill A/c Dr. \( \text{Rs } 45,000 \)
    To A's Capital A/c \( (\frac{3}{6} \times \text{Rs } 45,000) = \text{Rs } 22,500 \)
    To B's Capital A/c \( (\frac{2}{6} \times \text{Rs } 45,000) = \text{Rs } 15,000 \)
    To C's Capital A/c \( (\frac{1}{6} \times \text{Rs } 45,000) = \text{Rs } 7,500 \)
(Being premium for goodwill distributed to old partners in their sacrificing ratio)
In simple words: First, we record the total cash D brings into the business, which includes both his capital and his share of goodwill. Then, we divide D's goodwill amount among the old partners (A, B, and C) in their sacrificing ratio. This recognizes that the old partners have given up some of their future profit share.

🎯 Exam Tip: If the problem does not specify how a new partner acquires their share, assume the old partners sacrifice in their original profit-sharing ratio.

Question 19. X, Y and Z were partners sharing profits in the ratio of 5 : 3 : 2. They decided to share future profits in the ratio of 2 : 3 : 5 with effect from 01-04-2017. They decide to record the effect of the following without affecting their book value.
1. Profit and Loss A/c Rs 24,000,
2. Advertisement Suspense A/c Rs 12,000.
Pass the necessary adjustment entry.
Answer:
**1. Calculation of Sacrificing and Gaining Ratio:**
Old Ratio (X : Y : Z) \( = 5 : 3 : 2 \) (Total 10)
New Ratio (X : Y : Z) \( = 2 : 3 : 5 \) (Total 10)

X's Sacrifice/Gain \( = \text{Old Share} - \text{New Share} = \frac{5}{10} - \frac{2}{10} = \frac{3}{10} \) (Sacrifice)
Y's Sacrifice/Gain \( = \text{Old Share} - \text{New Share} = \frac{3}{10} - \frac{3}{10} = 0 \) (No Change)
Z's Sacrifice/Gain \( = \text{Old Share} - \text{New Share} = \frac{2}{10} - \frac{5}{10} = -\frac{3}{10} \) (Gain)

Sacrifice of X \( = \frac{3}{10} \)
Gain of Z \( = \frac{3}{10} \)

**2. Calculation of Net Effect of Reserves and Accumulated Profits/Losses:**
Profit and Loss A/c (Credit Balance/Profit) \( = \text{Rs } 24,000 \)
Advertisement Suspense A/c (Debit Balance/Loss) \( = \text{Rs } 12,000 \)
Net Effect \( = \text{Rs } 24,000 - \text{Rs } 12,000 = \text{Rs } 12,000 \) (Net Profit)

This net profit is to be adjusted among the partners in their sacrificing/gaining ratio without affecting book value.

Z's Share of Net Profit (Gain) \( = \frac{3}{10} \times \text{Rs } 12,000 = \text{Rs } 3,600 \)
X's Share of Net Profit (Sacrifice) \( = \frac{3}{10} \times \text{Rs } 12,000 = \text{Rs } 3,600 \)

**Adjustment Entry:**
Z's Capital A/c Dr. \( \text{Rs } 3,600 \)
    To X's Capital A/c \( \text{Rs } 3,600 \)
(Being adjustment for change in profit sharing ratio for undistributed profit and loss)
In simple words: First, we find out who gains and who sacrifices profit share due to the new ratio. Then, we combine the profit and loss amounts to get a single net figure. Since we don't want to change the book values, we pass one adjustment entry: the partner who gains capital (Z) is debited, and the partner who sacrifices capital (X) is credited, based on their share of the net profit.

🎯 Exam Tip: When an adjustment entry is required without affecting book values, always calculate the net effect of accumulated profits/losses and then pass a single entry debiting the gaining partner's capital account and crediting the sacrificing partner's capital account.

RBSE Class 12 Accountancy Chapter 2 Essay Type Questions

Question 1. What is meant by admission of a partner? Explain and illustrate the different methods of calculation of goodwill.
Answer:
**Admission of a Partner:** This means a new person joins an existing partnership firm. When a new partner comes in, the old partnership agreement ends, and a new one starts. This change affects how profits are shared, and the new partner usually brings in capital and pays for goodwill.

**Methods of Calculation of Goodwill:** Goodwill is the firm's good reputation, which helps it earn more profits. Here are the main ways to calculate it:

1. **Year's Purchase Method:** This method calculates goodwill based on how many years the firm expects to earn its past average profits in the future.

    (i) **Average Profit Base:**

        (A) **Simple Average Method:** Under this method, goodwill is calculated by multiplying the simple average profit of the last few years by the "number of years' purchase." The average profit is often called Future Maintainable Profit or Expected Profits.

        **Points to be Noted for Simple Average Method:**

        (a) If profits show a clear increasing or decreasing trend, it's better to use the weighted average method instead of the simple average. This is because recent profits are more relevant.

        (b) Income earned from investments that are not part of the main business activities should be removed from net profits. These are non-trading incomes.

        (c) Any unusual profit from a specific year, like profit from selling an old land or speculative gains, should be removed from that year's profit. These are abnormal profits.

        (d) Any unusual loss or expense, like loss due to fire or theft, should be added back to the net profit. These are abnormal losses.

        (e) A fair salary or payment for the owner's work should also be subtracted from the average profits. This makes the profit more realistic.

        After these adjustments, the adjusted profits are used for valuing goodwill, known as Average Maintainable Profits.

        **Formulas:**
        Average Profit \( = \frac{\text{Total Adjusted Profits}}{\text{No. of Years}} \)
        Actual Average Profit \( = \text{Average Profit} - \text{Remuneration of Partners} \)
        Goodwill \( = \text{Actual Average Profit} \times \text{No. of Years Purchases} \)

        **Example for Simple Average Method (Profits from 2012-2016):**
        Profits: 2012: Rs 30,000, 2013: Rs 25,000, 2014: Rs 40,000, 2015: Rs 35,000, 2016: Rs 20,000
        Average Profit \( = \frac{\text{Rs } 30,000 + \text{Rs } 25,000 + \text{Rs } 40,000 + \text{Rs } 35,000 + \text{Rs } 20,000}{5} = \frac{\text{Rs } 1,50,000}{5} = \text{Rs } 30,000 \)
        Goodwill \( = \text{Average Profit} \times \text{No. of Years Purchased} \)
        If years purchased = 3, Goodwill \( = \text{Rs } 30,000 \times 3 = \text{Rs } 90,000 \)

        (B) **Weighted Average Profit:** This method gives more importance (weight) to recent years' profits, assuming they are more relevant to future earnings. Each year's profit is multiplied by an assigned weight (like 1, 2, 3, etc.), the products are summed, and then divided by the total of the weights to get the weighted average profit. Goodwill is then calculated by multiplying this weighted average profit by the "number of years' purchase."

        **Formula:**
        Weighted Average Profit \( = \frac{\text{Total Products of Profits}}{\text{Total of Weights}} \)
        Goodwill \( = \text{Weighted Average Profit} \times \text{Agreed Number of Years' Purchase} \)
        This method is preferred when profits show a consistent upward or downward trend because it gives more significance to recent performance.

        **Example for Weighted Average Method (Profits for 5 years):**

Weighted Average Profit \( = \frac{\text{Rs } 3,48,000}{15} = \text{Rs } 23,200 \)
If years purchased = 3, Goodwill \( = \text{Rs } 23,200 \times 3 = \text{Rs } 69,600 \)

    (ii) **Super Profit Base:** Super profit is the extra profit a business earns above the normal profit that businesses in the same industry usually make. Goodwill is calculated using this extra profit.

    **Formula:**
    Super Profit \( = \text{Average Profit} - \text{Normal Profit} \)

    To calculate normal profit, two things are needed:         * The capital invested in the business during the year.         * The normal rate of return expected in that type of business, considering available interest rates.

    Normal profits are calculated by applying the normal rate of return to the capital invested.

    **Steps to compute Super Profit and Goodwill:**
    (a) First, calculate the annual average profit (Future Maintainable Profit).
    (b) Calculate Normal Profit \( = \frac{\text{Capital Invested} \times \text{Normal Rate of Return}}{100} \)
    (c) Calculate Super Profit \( = \text{Average Profit} - \text{Normal Profit} \)
    Capital Employed \( = \text{Assets Employed} - \text{Outside Liabilities} \)
    Normal Rate of Return \( = \text{Rate of Interest} + \text{Risk Factor} \)
    Goodwill \( = \text{Super Profit} \times \text{No. of Years Purchase} \)

    **Example for Super Profit Method:**
    Capital of the firm: Rs 2,00,000, Normal rate of return: 10%, Average profit: Rs 30,000. Goodwill at 3 years' purchase of super profits.
    Normal Profit \( = \text{Rs } 2,00,000 \times \frac{10}{100} = \text{Rs } 20,000 \)
    Super Profit \( = \text{Average Profit} - \text{Normal Profit} = \text{Rs } 30,000 - \text{Rs } 20,000 = \text{Rs } 10,000 \)
    Goodwill \( = \text{Super Profit} \times \text{No. of Years Purchase} = \text{Rs } 10,000 \times 3 = \text{Rs } 30,000 \)

2. **Capitalization Method:** This method determines the value of goodwill by figuring out how much capital would be needed to earn the firm's average or super profits, based on the normal rate of return.

    (i) **Capitalizing the Average Profit Method:** In this method, the firm's average profit is converted into a capitalized value by using the normal rate of return. The difference between this capitalized value and the actual capital employed is the goodwill. The capitalized value of average profit represents the capital required to earn the average profit at the normal rate.

    **Formula:**
    Capitalized Value of Average Profit \( = \text{Average Profit} \times \frac{100}{\text{Normal Rate of Return}} \)
    Goodwill \( = \text{Capitalized Value of Profit} - \text{Capital Employed} \)

    **Example for Capitalizing Average Profit Method:**
    Average profit: Rs 25,000, Capital employed: Rs 2,00,000, Normal rate of return: 10%.
    Capitalized Value of Average Profit \( = \frac{\text{Rs } 25,000 \times 100}{10} = \text{Rs } 2,50,000 \)
    Goodwill \( = \text{Rs } 2,50,000 - \text{Rs } 2,00,000 = \text{Rs } 50,000 \)

    (ii) **Capitalization of Super Profit Method:** Here, super profit is directly capitalized to find goodwill. This is because super profit is the extra earning power, which is directly related to goodwill. This method values goodwill as the amount of capital needed to earn the super profit at the normal rate of return.

    **Formula:**
    Goodwill \( = \frac{\text{Super Profit} \times 100}{\text{Normal Rate of Return}} \)

    **Example for Capitalizing Super Profit Method:**
    Super Profit: Rs 10,000, Normal Rate of Return: 10%.
    Goodwill \( = \frac{\text{Rs } 10,000 \times 100}{10} = \text{Rs } 1,00,000 \)

3. **Hidden Goodwill Method:** Sometimes, goodwill is not directly stated in the problem. It is "hidden" and must be calculated. This happens when a new partner's capital contribution implies a higher total value for the firm than the sum of all partners' actual capital. The difference is the hidden goodwill, reflecting the firm's unrecorded value.

    **Example for Hidden Goodwill Method:**
    A and B's capital account balance: A-Rs 15,000, B-Rs 25,000. Undistributed reserve: Rs 10,000. C brings Rs 25,000 for 1/4th share of capital.
    Total Capital of firm based on C's Capital \( = \text{Rs } 25,000 \times \frac{4}{1} = \text{Rs } 1,00,000 \)
    Adjusted Capital of A and B \( = (\text{A's Capital} + \text{B's Capital}) + \text{Undistributed Reserve} \)
    \( = (\text{Rs } 15,000 + \text{Rs } 25,000) + \text{Rs } 10,000 = \text{Rs } 50,000 \)
    Total Actual Capital of Firm \( = \text{Adjusted Capital of A and B} + \text{C's Capital} \)
    \( = \text{Rs } 50,000 + \text{Rs } 25,000 = \text{Rs } 75,000 \)
    Goodwill \( = \text{Total Capital of Firm based on C's Capital} - \text{Total Actual Capital of Firm} \)
    \( = \text{Rs } 1,00,000 - \text{Rs } 75,000 = \text{Rs } 25,000 \)

4. **Purchase Consideration Method:** This method applies when one business buys another. Goodwill is the extra amount paid over the net assets (assets minus liabilities) acquired. If a buyer pays more than the fair value of the assets minus liabilities, that extra amount is considered goodwill, reflecting the value of the acquired business's reputation and other intangible factors.

    **Formula:**
    Goodwill \( = \text{Purchase Consideration} - \text{Net Assets} \)
    Net Assets \( = \text{Assets} - \text{Liabilities} \)

    **Example for Purchase Consideration Method:**
    Purchase Consideration: Rs 2,60,000. Net Assets acquired: Rs 2,25,000.
    Goodwill \( = \text{Rs } 2,60,000 - \text{Rs } 2,25,000 = \text{Rs } 35,000 \)

5. **Annuity Method:** This method calculates the present value of the firm's super profits over a specific future period, discounted at a fixed interest rate. It uses annuity tables or a formula to find the present worth of these future super profits, which is then taken as the value of goodwill. This approach is useful for long-term profit estimations.

    **Formula:**
    P.V. of Annuity \( = \frac{1 - \left( \frac{100}{100+r} \right)^n}{\frac{r}{100}} \)
    Where: `r` stands for annual rate of interest, `n` stands for number of years.

    **Example for Annuity Method:**
    Average profit: Rs 40,000, Capital employed: Rs 2,00,000, Normal rate of return: 10%, Present Value of Annuity of Rs 1 for the relevant period is 2.487.
    Normal Profit \( = \text{Capital Employed} \times \text{Normal Rate of Return} = \text{Rs } 2,00,000 \times \frac{10}{100} = \text{Rs } 20,000 \)
    Super Profit \( = \text{Average Profit} - \text{Normal Profit} = \text{Rs } 40,000 - \text{Rs } 20,000 = \text{Rs } 20,000 \)
    Goodwill \( = \text{Super Profit} \times \text{Present Value of Annuity} = \text{Rs } 20,000 \times 2.487 = \text{Rs } 49,740 \)
In simple words: Admission of a partner means a new person joins a business, leading to a new agreement. Goodwill, which is the business's good name, can be figured out in several ways: by looking at average profits over a few years, by the extra profits earned (super profit), by how much capital is needed to make those profits (capitalization), by the extra money paid when buying a business (purchase consideration), or by calculating the current value of future extra profits (annuity method). Each method gives a different way to estimate the value of the business's reputation.

🎯 Exam Tip: When explaining goodwill methods, always define the method, provide its formula, and clearly state its applicability (e.g., simple average for stable profits, weighted average for trending profits).

Question 2. What is revaluation account? Why is it prepared? What entries are passed for revaluation of assets and re-assessment of liabilities of admission of a new partner?
Answer:
**What is Revaluation Account?**
A Revaluation Account is a special accounting record created to adjust the values of assets and liabilities of a partnership firm to their current market values or fair values. It is a nominal account, meaning it is used to record gains and losses related to these revaluations.

**Why is it prepared?**
The Revaluation Account is prepared when there's a change in the partnership agreement, such as the admission of a new partner. It serves several key purposes:
1. **To reflect True Values:** Over time, the book values of assets and liabilities may differ significantly from their actual market values. Revaluation updates these values to their true worth.
2. **To Ensure Fairness:** A new partner should not benefit from any unrecorded increase in the value of assets or suffer from any unrecorded decrease in their value or increase in liabilities that happened before their admission. Revaluation ensures that past profits or losses from these value changes are shared only among the old partners.
3. **To Determine True Profit/Loss:** The account helps determine the exact profit or loss arising from the revaluation of assets and liabilities. This profit or loss is then transferred to the old partners' capital accounts in their old profit-sharing ratio.

**Journal Entries passed for Revaluation:**
The following journal entries are passed to record the revaluation of assets and re-assessment of liabilities:

In simple words: A revaluation account is a temporary account used to update the values of a firm's assets and liabilities to their real worth. It's made when a new partner joins to make sure fairness, as any gains or losses from these changes belong to the old partners before the new one joins. Entries are made to increase assets, decrease liabilities, or record new assets on one side, and to decrease assets, increase liabilities, or record new liabilities on the other. The final balance (profit or loss) is then shared among the old partners.

🎯 Exam Tip: Always remember that any profit or loss from a revaluation account is distributed only among the old partners in their old profit-sharing ratio, ensuring equity upon a new partner's admission.

Question 3. What problems occur at the time of admission of a new partner, for which what adjustments are made? Explain.
Answer: When a new partner joins a firm, several adjustments are needed to ensure fairness and proper accounting. These include:

• Determining new profit sharing ratio: The incoming partner gets a share of future profits, which changes the old partners' profit sharing ratio.
• Calculating sacrificing ratio: Old partners give up some of their profit share for the new partner. This ratio is important for distributing goodwill.
• Revaluation of assets and reassessment of liabilities: Assets and liabilities are revalued to their current market values. Any profit or loss from this revaluation is shared among the old partners in their old profit sharing ratio.
• Treatment of goodwill: Goodwill, which is the firm's reputation value, needs to be adjusted. The new partner usually brings their share of goodwill, which is then distributed among the sacrificing partners.
• Adjustment for reserves and accumulated profits/losses: Undistributed profits (reserves) and losses from before the new partner's admission are transferred to the old partners' capital accounts.
• Adjustment of capital: The capital accounts of the partners might need to be adjusted to align with the new profit-sharing ratios or to ensure the new partner brings in a proportionate capital.

These adjustments are crucial to reflect the change in ownership and ensure the financial position of the firm is accurately presented to the new partner.
In simple words: When a new person joins a business, the old partners need to make some changes. They have to decide how to share profits with the new person, how to value the business's good name (goodwill), and update the values of everything the business owns and owes. This makes sure everything is fair for everyone.

🎯 Exam Tip: Always remember that revaluation profit or loss and distribution of reserves/accumulated profits/losses are typically shared among old partners only, in their old profit-sharing ratio, before the new partner joins.

Question 4. What is memorandum revaluation account? How does it differ from revaluation account?
Answer: A Memorandum Revaluation Account is used when partners want to show assets and liabilities at their original values in the balance sheet, even after revaluation. This account is prepared in two parts:
In the first part, increases or decreases in asset and liability values are recorded, and any resulting profit or loss is transferred to the old partners' capital accounts using their old profit sharing ratio.
In the second part, these entries are reversed. The profit or loss from this second part is then transferred to the capital accounts of *all* partners, including the new one, based on the new profit sharing ratio. This allows the balance sheet to reflect original values while still accounting for revaluation effects among partners.
Here are the entries passed in this condition for profit on revaluation:
1. Memorandum Revaluation A/c Dr.
    To Old Partners Capital A/c
    (Being profit on revaluation transferred to old partners' capital account)
2. All Partners Capital A/c Dr.
    To Memorandum Revaluation A/c
    (Being memorandum revaluation account closed by transferring to capital account)
Alternatively, one entry can be passed for the adjustment: Old Partner's Capital A/c Dr. To All Partner's Capital A/c (Adjustment on revaluation made).

The main difference between a Memorandum Revaluation Account and a regular Revaluation Account is how they treat asset and liability values in the final balance sheet:

🎯 Exam Tip: Remember that a Memorandum Revaluation Account is split into two parts because it aims to adjust partners' capital for revaluation while keeping the original values of assets and liabilities in the balance sheet.

Question 5. State the treatment of goodwill at the time of admission of a new partner as per Accounting Indian AS-26/Indian AS-38.
Answer: Goodwill represents the intangible value of a business's reputation and its ability to earn higher profits. At the time of a new partner's admission, goodwill is treated in several ways, as per Accounting Standards (like Indian AS-26/AS-38, which deal with intangible assets):

1. Private Payment of Goodwill: If the new partner pays for their share of goodwill privately to the old partners outside the business, no journal entry is recorded in the firm's books. This method is usually not preferred as it lacks formal evidence.
2. New Partner Brings Goodwill (Premium) in Cash:
   (i) When the new partner brings cash for their share of goodwill:
       Cash A/c Dr.
           To Goodwill (Premium) A/c
       (Being amount of goodwill brought in cash)
   (ii) The goodwill brought in is then credited to the old partners' capital accounts in their sacrificing ratio:
       Goodwill (Premium) A/c Dr.
           To Sacrificing Partners' Capital A/c
       (Being amount of goodwill transferred to sacrificing partners' capital account)
   (iii) If the old partners withdraw the goodwill amount:
       Sacrificing Partners' Capital A/c Dr.
           To Cash A/c
       (Being amount of goodwill withdrawn by sacrificing partners)
3. New Partner Does Not Bring His Share of Goodwill In Cash:
   If the new partner cannot bring their share of goodwill in cash, their Current Account is debited, and the sacrificing partners' capital accounts are credited.
       New Partner's Current A/c Dr.
           To Sacrificing Partners' Capital A/c
       (Being share of goodwill of new partner is adjusted through capital account)
4. New Partner Brings His Share of Goodwill in Part:
   If the new partner brings only a portion of their goodwill in cash, the cash received is recorded first, and the remaining unpaid portion is debited to their Current Account. The total goodwill (cash + current A/c) is then distributed to sacrificing partners.
   (i) Cash A/c Dr.
           To Goodwill (Premium) A/c
       (Being amount of goodwill brought in cash)
   (ii) Goodwill (Premium) A/c Dr. (for cash part)
       New Partner's Current A/c Dr. (for unpaid part)
           To Sacrificing Partners' Capital A/c
       (Being amount of goodwill adjusted to old partners)
5. New Partner Brings His Share of Goodwill in the Form of Assets:
   (i) Assets A/c Dr.
           To Goodwill (Premium) A/c
       (Being assets contributed by new partner for his share of goodwill)
   (ii) Goodwill (Premium) A/c Dr.
           To Sacrificing Partners' Capital A/c
       (Being goodwill transfer to sacrificing partners' capital account)
6. Accounting Treatment of Hidden Goodwill:
   Sometimes, the goodwill value is not explicitly stated. In such cases, it's calculated based on the total capital of the firm and the new partner's capital contribution. The entry is similar to when goodwill is not brought in cash:
       New Partner's Current A/c Dr.
           To Sacrificing Partners' Capital A/c
       (Being amount of goodwill adjusted through sacrificing partners' capital account)
7. Adjusted Goodwill Due to Change in Profit Sharing Ratio:
   If goodwill is adjusted due to a change in the profit sharing ratio among existing partners, the gaining partner's capital account is debited, and the sacrificing partner's capital account is credited.
       Gaining Partners' Current A/c Dr.
           To Sacrificing Partners' Capital A/c
       (Being adjustment goodwill due to change in profit sharing ratio)
   In simple words: Goodwill is the extra value of a business because it's well-known. When a new person joins, they might pay for this 'good name'. This payment can be in cash or through their current account. This money then goes to the old partners who gave up some of their share. If the goodwill is not clearly mentioned, it's calculated and adjusted.

   🎯 Exam Tip: Always identify the sacrificing ratio first, as goodwill brought in by a new partner is always distributed to the old partners in their sacrificing ratio.

   RBSE Class 12 Accountancy Chapter 2 Numerical Questions

    

   Question 1. A and B are partners, sharing profits in the ratio of 3 : 1. They admit C for \( \frac {1}{4} \)th share in profits of the firm. Goodwill of the firm is valued at Rs 40,000 on the date of admission of C. Pass Journal Entries in the following cases :
   (a) C pays for his share of goodwill privately to A and B,
   (b) C brings his share of goodwill in cash,
   (c) C brings his share of goodwill in cash. A and B withdrawn half of the goodwill,
   (d) C brings Rs 6,000 in cash out of his share of goodwill,
   (e) C is unable to bring his share of goodwill in cash.
   Answer:
   Given: Old Ratio of A and B = 3:1
   C's share in profit = \( \frac {1}{4} \)
   Total goodwill of the firm = Rs 40,000
   C's share of goodwill = \( \text{Rs } 40,000 \times \frac {1}{4} = \text{Rs } 10,000 \)
   New Profit Sharing Ratio of A, B and C = 9:3:4 (calculated when C takes his share from A and B in their old ratio, or remaining profit is distributed in old ratio. Here, the sacrificing ratio is 3:1, same as old ratio).
   Sacrificing Ratio = 3:1
   
   Journal Entries:
   (a) If C pays for his share of goodwill privately to A and B, no entry will be passed in the firm's books as the transaction is outside the business.

   (b) (i) When C brings his share of goodwill in cash:
       Cash A/c Dr. 10,000
           To Goodwill (Premium) A/c 10,000
       (Being amount of goodwill brought in cash by C)
   (ii) When goodwill is transferred to sacrificing partners (A and B in 3:1 ratio):
       Goodwill (Premium) A/c Dr. 10,000
           To A's Capital A/c 7,500 (\( \text{Rs } 10,000 \times \frac {3}{4} \))
           To B's Capital A/c 2,500 (\( \text{Rs } 10,000 \times \frac {1}{4} \))
       (Being goodwill transferred to sacrificing partners' capital account)

   (c) (i) When C brings his share of goodwill in cash:
       Cash A/c Dr. 10,000
           To Goodwill (Premium) A/c 10,000
       (Being amount of goodwill brought in cash by C)
   (ii) When goodwill is transferred to sacrificing partners:
       Goodwill (Premium) A/c Dr. 10,000
           To A's Capital A/c 7,500
           To B's Capital A/c 2,500
       (Being goodwill transferred to sacrificing partners' capital account)
   (iii) When A and B withdraw half of the goodwill:
       A's Capital A/c Dr. 3,750 (\( \frac {1}{2} \text{ of Rs } 7,500 \))
       B's Capital A/c Dr. 1,250 (\( \frac {1}{2} \text{ of Rs } 2,500 \))
           To Cash A/c 5,000
       (Being half amount of goodwill withdrawn by sacrificing partners)

   (d) (i) When C brings Rs 6,000 in cash out of his share of goodwill (total share Rs 10,000):
       Cash A/c Dr. 6,000
           To Goodwill (Premium) A/c 6,000
       (Being amount of goodwill brought in cash by C)
   (ii) Adjustment for the remaining goodwill and transfer to sacrificing partners' capital:
       Goodwill (Premium) A/c Dr. 6,000 (cash brought)
       C's Current A/c Dr. 4,000 (remaining unpaid goodwill)
           To A's Capital A/c 7,500 (\( \text{Rs } 10,000 \times \frac {3}{4} \))
           To B's Capital A/c 2,500 (\( \text{Rs } 10,000 \times \frac {1}{4} \))
       (Being goodwill transferred to sacrificing partners' capital account, partly in cash and partly as current account adjustment)

   (e) If C is unable to bring his share of goodwill in cash:
       C's Current A/c Dr. 10,000
           To A's Capital A/c 7,500
           To B's Capital A/c 2,500
       (Being C's share of goodwill adjusted through his current account)
   In simple words: This problem shows different ways to record goodwill when a new partner joins. If they pay privately, nothing is written in the books. If they pay cash, the cash comes in, and old partners get their share. If old partners take out the cash, that's also recorded. If the new partner can't pay cash, their current account is adjusted instead.

   🎯 Exam Tip: When a new partner does not bring goodwill in cash, always debit their Current Account, not their Capital Account, for the amount of goodwill due.

    

   Question 2. A and B share the profits of a business in the ratio of 5 : 3. They admitted C into the firm for \( \frac {1}{4} \)th share in profits which is to be contributed equally by A and B. On the date of admission of C, the balance sheet of the firm was as follows:

   Liabilities	Amount (Rs)	Assets	Amount (Rs)
   A's Capital	50,000	Goodwill	10,000
   B's Capital	30,000	Machinery	35,000
   General Reserve	16,000	Furniture	15,000
   Creditors	14,000	Stock	10,000
   Employee's Provident Fund	10,000	Debtors	10,000
   		Bank	40,000
   	1,20,000		1,20,000

   
   Terms of C's admission were as follows:
   1. C will bring Rs 30,000 for his share of capital and goodwill. Half of the goodwill shall be withdrawn by the old partners.
   2. Goodwill of the firm has been valued at 3 years purchase of the super profit Rs 8,000.
   3. Machinery, furniture and stock are revalued at Rs 30,000, Rs 12,000 and Rs 8,000 respectively.
   4. An old customer whose account was written off as bad debts has promised to pay Rs 1,200.
   
   From the above prepare Revaluation, Account, Partners, Capital Account and Balance Sheet of the new firm. If it has been agreed that assets and liabilities are to be shown at old values. Prepare Memorandum Revaluation Account, Partners' Capital Account and Balance Sheet.
   Answer:
   
   Working Note 1: Calculation of Goodwill
   Goodwill of the firm = Super Profit \( \times \) No. of Years Purchase
   Goodwill of the firm = \( \text{Rs } 8,000 \times 3 = \text{Rs } 24,000 \)
   C's share of goodwill = \( \text{Rs } 24,000 \times \frac {1}{4} = \text{Rs } 6,000 \)
   Sacrificing Ratio: Since C's \( \frac {1}{4} \)th share is contributed equally by A and B, the sacrificing ratio is 1:1.
   A's Sacrifice = \( \frac {1}{4} \times \frac {1}{2} = \frac {1}{8} \)
   B's Sacrifice = \( \frac {1}{4} \times \frac {1}{2} = \frac {1}{8} \)
   Sacrificing Ratio = 1:1
   
   Revaluation Account
   

   Dr. Particulars	Amount (Rs)	Particulars	Amount (Rs)
   To Machinery A/c	5,000	By Bad-Debts Recovered A/c	1,200
   To Furniture A/c	3,000	By Loss transferred to:
   To Stock A/c	2,000	A's Capital A/c	5,500
   		B's Capital A/c	3,300
   	10,000		8,800
   			10,000

   
   
   Partners Capital Account
   

   Dr. Particulars	A (Rs)	B (Rs)	C (Rs)	Particulars	A (Rs)	B (Rs)	C (Rs)	Cr.
   To Revaluation A/c (Loss)	5,500	3,300	-	By Balance b/d	50,000	30,000	-
   To Goodwill A/c (written off)	6,250	3,750	-	By Cash A/c (Capital)	-	-	24,000
   To Cash A/c (withdrawal)	1,500	1,500	-	By General Reserve	10,000	6,000	-
   To Balance c/d	49,750	30,450	24,000	By Goodwill A/c (Premium)	3,000	3,000	-
   	63,000	39,000	24,000		63,000	39,000	24,000

   
   
   Balance Sheet of the New Firm
   

   Liabilities	Amount (Rs)	Assets	Amount (Rs)
   A's Capital	49,750	Machinery	30,000
   B's Capital	30,450	Furniture	12,000
   C's Capital	24,000	Stock	8,000
   Creditors	14,000	Debtors	10,000
   Employees Provident Fund	10,000	Add: Bad Debts Recovered	1,200
   		Bank	40,000
   		Cash in hand	27,000
   	1,28,200		1,28,200

   
   
   Working Note: Cash Account
   

   Dr. Particulars	Amount (Rs)	Particulars	Amount (Rs)
   To Balance b/d	Nil	By A's Capital	1,500
   To Goodwill (Premium)	6,000	By B's Capital	1,500
   To C's Capital	24,000	By Balance c/d	27,000
   	30,000		30,000

   
   In simple words: A and B let C join their business. They valued their business's goodwill at Rs 24,000. C brings Rs 30,000 as capital and his share of goodwill, Rs 6,000. This goodwill goes to A and B. They revalued some items, causing a loss of Rs 8,800, which A and B share. After all these changes, new financial records like the capital accounts and a new balance sheet are prepared.

   🎯 Exam Tip: When assets and liabilities are to be shown at old values, a Memorandum Revaluation Account is prepared. It has two parts: the first part distributes profit/loss among old partners, and the second part reverses entries to maintain old values in the balance sheet while distributing profit/loss among all partners (old and new).

    

   Question 3. X and Y are partners sharing profit in the ratio of 2 : 1. Their balance sheet as on 31st March, 2017 is as under:

   Liabilities	Amount (Rs)	Assets	Amount (Rs)
   General Reserve	9,000	Stock	43,000
   Capital:		Plant and Machinery	42,000
   X	60,000	Building	36,000
   Y	50,000	Goodwill	3,000
   	1,10,000
   	1,56,000		1,56,000

   
   They admitted Z in the firm from 1st April, 2017 for \( \frac {1}{4} \)th share, which he will receive from X. Following decisions were taken on that time:
   1. Z brings Rs 36,000 in cash and share of Ram Ltd. worth Rs 14,000 as his capital,
   2. The present value of firm's goodwill is Rs 12,000. Z brings his share of goodwill in cash,
   3. Provision for bad debts on debtors be increased to 10% and outstanding salary is not required now.
   4. Plant and machinery overvalued by 5% and stock to be increased by Rs 2,400.
   5. Building undervalued by 10%.
   6. Sundry creditors were written back by Rs 4,000.
   7. Liability against workmen compensation determined at Rs 9,000.
   
   Prepare Profit and Loss Adjustment Account, Partners' Capital Account and Balance Sheet on the admission of Z.
   Answer:
   
   Working Notes:
   1. Z's share of goodwill = \( \text{Rs } 12,000 \times \frac {1}{4} = \text{Rs } 3,000 \)
   2. Sacrificing Ratio: Z receives his \( \frac {1}{4} \)th share entirely from X. So, X is the only sacrificing partner. Sacrificing Ratio = X:Y = 1:0.
   3. Revaluation Adjustments:
       - Provision for bad debts: Debtors = Rs 10,000. New provision = 10% of Rs 10,000 = Rs 1,000. (No old provision given, so new provision is an increase of Rs 1,000).
       - Outstanding salary: Not required (liability decreased by Rs 1,000).
       - Plant & Machinery overvalued by 5%: Original value \( = \text{Rs } 42,000 \). Correct value \( = \frac {\text{Rs } 42,000}{105} \times 100 = \text{Rs } 40,000 \). Decrease in value = \( \text{Rs } 42,000 - \text{Rs } 40,000 = \text{Rs } 2,000 \).
       - Stock to be increased by Rs 2,400.
       - Building undervalued by 10%: Original value \( = \text{Rs } 36,000 \). Correct value \( = \frac {\text{Rs } 36,000}{90} \times 100 = \text{Rs } 40,000 \). Increase in value = \( \text{Rs } 40,000 - \text{Rs } 36,000 = \text{Rs } 4,000 \).
       - Sundry creditors written back: Decrease in liability by Rs 4,000.
       - Workmen compensation liability: Determined at Rs 9,000 (increase in liability).
   
   Profit and Loss Adjustment Account (Revaluation Account)
   

   Dr. Particulars	Amount (Rs)	Particulars	Amount (Rs)	Cr.
   To Bad Debt Provision	1,000	By Outstanding Salary (written back)	1,000
   To Plant & Machinery (decrease)	2,000	By Building (increase)	4,000
   To Workmen Compensation Reserve (increase in liability)	9,000	By Stock (increase)	2,400
   To Profit on Revaluation (transferred to X's Capital A/c):		By Creditors (written back)	4,000
   X's Capital A/c	4,000
   Y's Capital A/c	2,000
   	18,000		11,400
   		By Loss on Revaluation:
   		X's Capital A/c	4,000
   		Y's Capital A/c	2,000
   	18,000		18,000

   
   
   Partners Capital Account
   

   Dr. Particulars	X (Rs)	Y (Rs)	Z (Rs)	Particulars	X (Rs)	Y (Rs)	Z (Rs)	Cr.
   To Goodwill A/c (written off)	2,000	1,000	-	By Balance b/d	60,000	50,000	-
   To Balance c/d	71,000	54,000	50,000	By Cash A/c (Z's Capital)	-	-	36,000
   				By Investment (Z's Capital)	-	-	14,000
   				By P/L Adjustment A/c (Loss)	4,000	2,000	-
   				By General Reserve	6,000	3,000	-
   				By Z's Current A/c (Goodwill)	3,000	-	-
   	73,000	55,000	50,000		73,000	55,000	50,000

   
   
   Balance Sheet (as on 1st April 2017)
   

   Liabilities	Amount (Rs)	Assets	Amount (Rs)
   Creditors	26,000	Bank Balance (17,200 + 39,000)	56,200
   Workmen Compensation Reserve	9,000	Investment	14,000
   Capital:		Debtors	16,000
   X	71,000	Less: Provision	1,600
   Y	54,000	Stock	45,400
   Z	50,000	Plant & Machinery	40,000
   	1,75,000	Building	40,000
   	2,10,000		2,10,000

   
   In simple words: X and Y, who share profits in a 2:1 ratio, admit Z for a \( \frac {1}{4} \)th share from X. Z brings capital and goodwill. The firm's assets and liabilities are revalued, leading to a revaluation loss that X and Y share. Goodwill is adjusted, and existing goodwill is written off. Then, new capital accounts are prepared for all partners, and a new balance sheet is created for the firm showing all updated figures.

   🎯 Exam Tip: When a new partner's share is acquired entirely from one existing partner, that existing partner is the sole sacrificing partner, and the sacrificing ratio for others is zero.

    

   Question 4. On the above date, O was admitted as a new partner and it was decided that :
   1. The new profit sharing ratio between L, M, N and O will be 2:2:1:1.
   2. Goodwill of the firm was valued at Rs 1,80,000 and O brought his share of goodwill (premium) in cash.
   3. The market value of investments was Rs 36,000.
   4. Machinery will be reduced to Rs 58,000.
   5. A creditor of Rs 6,000 was not likely to claim the amount and hence was to be written off.
   6. O will bring proportionate capital so as to give him \( \frac {1}{6} \)th share in the profits of the firm,
   7. Provision for doubtful debts to be maintained @ 5% and provision for discount on debtors be made @ 2%.
   
   Prepare Revaluation Account, Partners' Capital Account and Balance Sheet of the new firm.
   Answer:
   
   Working Notes:
   1. O's share of Goodwill:
   Firm's Goodwill = Rs 1,80,000
   O's share = \( \frac {1}{6} \)
   O's share of Goodwill = \( \text{Rs } 1,80,000 \times \frac {1}{6} = \text{Rs } 30,000 \)
   
   2. Sacrifice Ratio of L, M, N:
   Old Ratio (L:M:N) = 3:2:1 (from the balance sheet capital figures)
   New Ratio (L:M:N:O) = 2:2:1:1
   Sacrificing Share = Old Share - New Share
   L's Sacrifice = \( \frac {3}{6} - \frac {2}{6} = \frac {1}{6} \)
   M's Sacrifice = \( \frac {2}{6} - \frac {2}{6} = 0 \)
   N's Sacrifice = \( \frac {1}{6} - \frac {1}{6} = 0 \)
   So, only L is the sacrificing partner, and he will receive the full amount of goodwill premium. Sacrifice Ratio (L:M:N) = 1:0:0.
   
   3. Revaluation Adjustments:
   - Market value of investments: From Rs 60,000 to Rs 36,000 (decrease of Rs 24,000).
   - Machinery: From Rs 70,000 to Rs 58,000 (decrease of Rs 12,000).
   - Creditors: Rs 6,000 written off (decrease in liability).
   - Provision for doubtful debts: Debtors = Rs 40,000. New provision = 5% of Rs 40,000 = Rs 2,000. (Increase from nil to Rs 2,000).
   - Provision for discount on debtors: 2% of Debtors (after PBD) = 2% of (Rs 40,000 - Rs 2,000) = 2% of Rs 38,000 = Rs 760 (new liability).
   - General Reserve (Rs 42,000) will be distributed among old partners (L:M:N) in 3:2:1 ratio.
   
   Revaluation Account
   

   Dr. Particulars	Amount (Rs)	Particulars	Amount (Rs)	Cr.
   To Investments A/c	24,000	By Creditors (written off)	6,000
   To Machinery A/c	12,000	By Loss on Revaluation:
   To Provision for Doubtful Debts A/c	2,000	L's Capital A/c	16,380
   To Provision for Discount on Debtors A/c	760	M's Capital A/c	10,920
   		N's Capital A/c	5,460
   	38,760		38,760

   
   
   Partners Capital Account
   

   Dr. Particulars	L (Rs)	M (Rs)	N (Rs)	O (Rs)	Particulars	L (Rs)	M (Rs)	N (Rs)	O (Rs)	Cr.
   To Profit & Loss A/c	6,000	4,000	2,000	-	By Balance b/d	1,20,000	80,000	40,000	-
   To Reval. A/c (Loss)	16,380	10,920	5,460	-	By General Res.	21,000	14,000	7,000	-
   To Balance c/d	1,48,620	79,080	39,540	53,448	By Goodwill (Premium)	30,000	-	-	-
   					By Bank A/c (O's Capital)	-	-	-	53,448
   	1,71,000	94,000	47,000	53,448		1,71,000	94,000	47,000	53,448

   
   
   Balance Sheet
   

   Liabilities	Amount (Rs)	Assets	Amount (Rs)
   Creditors	1,62,000	Bank (28,000 + 30,000 + 53,448)	1,11,448
   Capitals:		Debtors	40,000
   L	1,48,620	Less: P.B.D.	(20,000)
   M	79,080	P.D.D.	(760)
   N	39,540	Stock	2,20,000
   O	53,448	Investment	36,000
   	3,20,688	Furniture	20,000
   		Machinery	58,000
   	4,82,688		4,82,688

   
   In simple words: L, M, and N are partners, and O joins the firm. Goodwill is valued, and O brings his share in cash, which only L receives since he is the sole sacrificing partner. Investments and machinery values decrease, while a creditor's claim is written off. Provisions for doubtful debts and discount on debtors are created. After these adjustments, O brings in proportionate capital. Finally, the Revaluation Account, partners' capital accounts, and a new balance sheet are prepared to reflect all changes.

   🎯 Exam Tip: Always calculate the sacrificing ratio carefully. If only one partner sacrifices, they receive the full goodwill premium, even if other partners were part of the old profit-sharing ratio.

    

   Question 5. A, B and C are partners in a firm, sharing profits in the ratio 2:2:1. Their balance sheet on 31-03-2017 was as follows :

   Particulars	P (Rs)	Q (Rs)	R (Rs)	Particulars	P (Rs)	Q (Rs)	R (Rs)
   To Loss on Revaluation	300	100	-	By Balance b/d	16,000	14,000	-
   To Goodwill A/c	3,000	1,000	-	By Cash A/c	10,000	-	10,000
   To Current A/c (Balancing Figure)	-	6,650	-	By Workmen Com. Fund	2,250	750	-
   To Balance c/d	30,000	10,000	10,000	By General Reserve	1,500	500	-
   				By Goodwill	7,500	2,500	-
   				By Current A/c (Balancing Figure)	6,050	-	-
   	33,300	17,750	10,000		33,300	17,750	10,000

   
   Answer: The question describes a scenario where A, B, and C are partners with a profit-sharing ratio of 2:2:1. Their balance sheet is provided for March 31, 2017. The remaining parts of the solution were not provided in the source text. To fully answer this, we would need the terms of admission for any new partner or changes in the firm structure, similar to the previous questions. For instance, we would need to know the new profit sharing ratio and the details of goodwill treatment.
   In simple words: This problem shows how a partnership's money is laid out. To solve it, we need to know what changes are happening in the partnership, like new partners joining or profit shares changing.

   🎯 Exam Tip: When a problem provides only a balance sheet and a profit-sharing ratio, it's a setup for further adjustments related to partner admission, retirement, or changes in profit sharing. Ensure you have all the 'terms of admission' or 'conditions for change' to proceed.

    

   Question 16. A and B are partners in a firm, sharing profits in the ratio of 3 : 2. C is admitted for 1/5th share in profits of the firm. On the date of C's admission goodwill was valued at Rs 25,000. C contributed the following assets to his capital and his share of goodwill. Debtors Rs 10,000 and Stock Rs 15,000. Record necessary journal entries.
   Answer:

   Date	Particulars	L.F.	Amount (Dr.) (Rs)	Amount (Cr.) (Rs)
   	Debtors A/c Dr.		10,000
   	Stock A/c Dr.		15,000
   	To C's Capital A/c			10,000
   	To Goodwill A/c			15,000
   	(Being assets contributed by C for his capital and goodwill)
   	Goodwill A/c Dr.		15,000
   	To A's Capital A/c			9,000
   	To B's Capital A/c			6,000
   	(Being goodwill transferred to old partner capital A/c)

   Particulars	A (Rs)	B (Rs)	C (Rs)	Particulars	A (Rs)	B (Rs)	C (Rs)
   To Memo Rev.	5,500	3,300		By Balance b/d	50,000	3,000
   To Goodwill A/c	6,250	3,750		By General Res.	10,000	6,000
   To Cash A/c	1,500	1,500		By Memo Rev.	4,400	2,200	2,200
   To Balance c/d	54,150	32,650	26,200	By Goodwill A/c	3,000	3,000
   				By Cash A/c			24,000
   	67,400	41,200	26,200		67,400	41,200	26,200

   
   

   Liabilities	Amount (Rs)	Assets	Amount (Rs)
   A's Capital	54,150	Machinery	35,000
   B's Capital	32,650	Furniture	15,000
   C's Capital	26,200	Stock	10,000
   Creditors	14,000	Debtors	10,000
   Employees Providend Fund	10,000	Bank	67,000
   	1,37,000		1,37,000

   
   

   Answer:
   Journal entries and the Balance Sheet are prepared as follows:

   Date	Particulars	L.F.	Amount (Dr.) (Rs)	Amount (Cr.) (Rs)
   	Debtors A/c Dr.		10,000
   	Stock A/c Dr.		15,000
   	To C's Capital A/c			10,000
   	To Goodwill A/c			15,000
   	(Being assets contributed by C for his capital and goodwill)
   	Goodwill A/c Dr.		15,000
   	To A's Capital A/c		9,000
   	To B's Capital A/c			6,000
   	(Being goodwill transferred to old partner capital A/c)

   
   

   Particulars	A (Rs)	B (Rs)	C (Rs)	Particulars	A (Rs)	B (Rs)	C (Rs)
   To Memo Rev.	5,500	3,300		By Balance b/d	50,000	3,000
   To Goodwill A/c	6,250	3,750		By General Res.	10,000	6,000
   To Cash A/c	1,500	1,500		By Memo Rev.	4,400	2,200	2,200
   To Balance c/d	54,150	32,650	26,200	By Goodwill A/c	3,000	3,000
   				By Cash A/c			24,000
   	67,400	41,200	26,200		67,400	41,200	26,200

   
   

   Liabilities	Amount (Rs)	Assets	Amount (Rs)
   A's Capital	54,150	Machinery	35,000
   B's Capital	32,650	Furniture	15,000
   C's Capital	26,200	Stock	10,000
   Creditors	14,000	Debtors	10,000
   Employees Providend Fund	10,000	Bank	67,000
   	1,37,000		1,37,000

   In simple words: The journal entries record the new partner's assets and goodwill, and how existing goodwill is adjusted among partners. The capital accounts show how each partner's balance changes, and the final balance sheet gives a clear picture of the firm's financial health after the new partner joins.

   🎯 Exam Tip: Always ensure that the total of the Debit and Credit columns in journal entries match, and that the Assets and Liabilities sides of the Balance Sheet are equal to avoid errors.

    

   Question 8. M and N are partners in the firm in equal profit sharing ratio. On 31st March, 2017, their balance sheet was as follows:

   Liabilities	Amount (Rs)	Assets	Amount (Rs)
   General Reserve	8,000	Cash in Hand	1,500
   Investment Fluctuation Reserve	2,000	Investment	30,000
   Bank Overdraft	40,000	Debtors	57,000
   Creditors	36,000	Furniture	4,000
   Capital :		Stock	10,500
   M	30,000	Building	30,000
   N	20,000	Patent	3,000
   	1,36,000		1,36,000

   They admit O in the partnership on the following terms :
   1. Create provision for doubtful debts by 10% on debtors,
   2. Furniture will be depreciated by 25%.
   3. Increase the value of investment by Rs 5,000.
   4. O shall bring Rs 25,000 as his capital and his share in profit and loss will be 1/3rd and he will bring Rs 5,000 as his share of goodwill,
   5. A creditor for Rs 1,700 is dead. No liability shall arise in future on this account,
   6. Patents are valueless,
   7. Building will be appreciated by 25%. Stock is reduced to Rs 9,000.
   Prepare Revaluation Account, Partners' Capital Account and Balance Sheet on the admission of Z.

   Answer:

   Working Note 2.

   Capital of Firm \( = \frac{56,000 \times 6}{1} = \text{Rs } 3,36,000 \)
   Capital of Ishu \( = \frac{3,36,000 \times 3}{6} = \text{Rs } 1,68,000 \)
   Capital of Vishu \( = \frac{3,36,000 \times 2}{6} = \text{Rs } 1,12,000 \)

   Dr.	Revaluation A/c	Cr.
   Particulars	Amount (Rs)	Particulars	Amount (Rs)
   To Provision for Bad Debts	5,700	By Investment A/c	5,000
   To Furniture A/c	1,000	By Creditors	1,700
   To Patent	3,000	By Building	7,500
   To Stock	1,500
   To Profit on Revaluation :
   M's Capital A/c	1,500
   N's Capital A/c	1,500
   	14,200		14,200

   
   

   Dr.	Partner's Capital A/c	Cr.
   Particulars	M (Rs)	N (Rs)	O (Rs)	Particulars	M (Rs)	N (Rs)	O (Rs)
   To Cash A/c	14,000	4,000		By Balance b/d	30,000	20,000
   To Balance c/d	25,000	25,000	25,000	By Cash A/c			25,000
   				By Goodwill A/c	2,500	2,500
   				By Reval. A/c	1,500	1,500
   				By General Reserve	4,000	4,000
   				By Investment Fluctuation Reserve	1,000	1,000
   	39,000	29,000	25,000		39,000	29,000	25,000

   
   

   Liabilities	Amount (Rs)	Assets	Amount (Rs)
   Bank Overdraft	40,000	Cash in Hand	13,500
   Creditors	34,300	Investment	35,000
   Capital :		Debtors	57,000
   M	25,000	Less : Provision	5,700
   N	25,000	Furniture	3,000
   O	25,000	Stock	9,000
   	75,000	Building	37,500
   	1,49,300		1,49,300

   [Note : Cash in Hand = \( 1,500 + (25,000 + 5,000) - (14,000 + 4,000) = \text{Rs } 13,500 \)]
   In simple words: The Revaluation Account helps record changes in asset and liability values. The Capital Accounts show how each partner's balance is affected by these changes and the new partner's entry. The Balance Sheet then shows the firm's financial position after all these adjustments.

   🎯 Exam Tip: When preparing the Revaluation Account, remember to correctly identify items that increase or decrease in value and make sure profits or losses are transferred to partners' capital accounts.

    

   Question 13. A and B, who are partners in a firm, sharing profits in the ratio of 3 : 2 on 31st December, 2017. The balance sheet was as follows :

   Liabilities	Amount (Rs)	Assets	Amount (Rs)
   Capital :		Plant & Machinery	10,000
   A	34,000	Land & Building	18,000
   B	24,000	Debtors	12,000
   C	11,600	Less : Prov. for D.D.	3,000
   	69,600	Stock	9,000
   Creditors	12,000	Cash (9,000 + 11,600 + 10,000)	30,600
   Workmen's Comp. Fund	2,000
   	83,600		83,600

   They agreed to admit C into partnership for 1/5th share of profits on the following terms :
   1. Provision for doubtful debts be increased by Rs 2,000.
   2. The value of stock be increased by Rs 4,000 and land and building be increased to Rs 18,000.
   3. The liability against workmen compensation fund is determined at Rs 2,000.
   4. C brought in as his share of goodwill Rs 10,000 in cash,
   5. C would bring cash as would make his capital equal to 20% of combined capital of A and B, after the above revaluation and adjustments are carried out.
   Prepare Revaluation Account, Partners' Capital Account and the Balance Sheet of the firm after C's admission.

   Answer:

   Working Note: Sacrifice ratio of A and B = 3:2

   So, New Profit & Loss ratio = 12:8:5

   Dr.	Revaluation A/c	Cr.
   Particulars	Amount (Rs)	Particulars	Amount (Rs)
   To Provision for D.D.	2,000	By Stock	4,000
   To Profit on Revaluation :		By Land & Building	10,000
   A's Capital A/c	7,200
   B's Capital A/c	4,800
   	12,000
   	14,000		14,000

   
   

   Dr.	Partner's Capital A/c	Cr.
   Particulars	A (Rs)	B (Rs)	C (Rs)	Particulars	A (Rs)	B (Rs)	C (Rs)
   To Balance c/d	34,000	24,000	11,600	By Balance b/d	10,000	8,000
   				By Cash A/c			11,600
   				By General Reserve	9,000	6,000
   				By Workmen Comp. Fund	1,800	1,200
   				By Goodwill A/c	6,000	4,000
   				By Revaluation A/c	7,200	4,800
   	34,000	24,000	11,600		34,000	24,000	11,600

   C's Capital \( = \frac{(34,000 + 24,000)}{100} \times 20 = \text{Rs } 11,600 \)

   Balance Sheet (as on 31st Dec. 2016)
   Liabilities	Amount (Rs)	Assets	Amount (Rs)
   Capital A/c-		Plant & Machinery	10,000
   A	34,000	Land & Building	18,000
   B	24,000	Debtors	12,000
   C	11,600	Less : Prov. for D.D.	3,000
   	69,600	Stock	9,000
   Creditors	12,000	Cash (9,000 + 11,600 + 10,000)	30,600
   Workmen's Comp. Fund	2,000
   	83,600		83,600

   In simple words: The Revaluation Account updates asset and liability values. The Partner's Capital Accounts show how each partner's share changes due to revaluation, goodwill, and new capital. The Balance Sheet then provides a snapshot of the firm's financial state after all these adjustments and the new partner's admission.

   🎯 Exam Tip: Pay close attention to the new partner's capital calculation based on the combined capital of old partners to ensure accuracy in the final balance sheet.

    

   Question 14. R is admitted on 1/5th share in profit on the following terms :
   1. Market value of investment is taken as Rs 4,200.
   2. Accrued interest amounts to Rs 200.
   3. Provision for doubtful debts was in excess to Rs 200.
   4. A claim of workmen compensation for Rs 1,000 be provided,
   5. R is to bring Rs 10,000 as goodwill share,
   6. Total capital of the firm was agreed as Rs 50,000 to be adjusted in their profit sharing ratio.
   R brings his capital in cash but capital of other partners be adjusted by opening current account. Prepare Revaluation Account, Capital Account and the Balance Sheet of new firm.

   Answer:

   Working Note:
   1. New Profit Sharing Ratio
   Sacrifice Ratio of P and Q = 3:1
   Remaining Profit after R's Admission \( = 1-\frac{1}{5} = \frac{4}{5} \)
   Profit of P \( = \frac{4}{5} \times \frac{3}{4} = \frac{12}{20} = \frac{3}{5} \)
   Profit of Q \( = \frac{4}{5} \times \frac{1}{4} = \frac{1}{5} \)
   New Profit Ratio \( = \frac{3}{5} : \frac{1}{5} : \frac{1}{5} = 3:1:1 \)

   2. Calculation of Capital:

   Particulars	P (Rs)	Q (Rs)	R (Rs)	Particulars	P (Rs)	Q (Rs)	R (Rs)
   To Loss on Revaluation	300	100		By Balance b/d	16,000	14,000
   To Goodwill A/c	3,000	1,000		By Cash A/c			10,000
   To Current A/c (Balancing Figure)		6,650		By Workmen Com. Fund	2,250	750
   To Balance c/d	30,000	10,000	10,000	By General Reserve	1,500	500
   				By Goodwill	7,500	2,500
   				By Current A/c (Balancing Figure)	6,050
   	33,300	17,750	10,000		33,300	17,750	10,000

   
   

   Balance Sheet
   Liabilities	Amount (Rs)	Assets	Amount (Rs)
   Creditors	11,000	Cash (4,000 + 10,000 + 10,000)	24,000
   Workmen's Compensation Fund	1,000	Debtors	16,000
   Capital A/c		Less : Provision for D.D.	300
   P	30,000	Stock	15,700
   Q	10,000	Investment	18,500
   R	10,000	Accrued Interest	4,200
   	50,000	P's Current A/c	200
   Q's Current A/c	6,650		6,050
   	68,650		68,650

   In simple words: The new profit sharing ratio is calculated first. Then, the Revaluation Account tracks asset and liability changes. The Partner's Capital Account reflects all capital adjustments, and finally, the Balance Sheet presents the firm's financial status after the new partner's admission.

   🎯 Exam Tip: Remember to include the new partner's capital contribution in the Cash Account and adjust old partners' capital based on the agreed total capital, transferring any surplus or deficit to their current accounts.

    

   Question 15. A, B and C are partners, sharing profits in the ratio 2:2:1. Their balance sheet on 31-03-2017 was as follows :

   Capital :			Stock	50,000
   A	40,000		Furniture	30,000
   B	40,000		Plant	80,000
   C	30,000	1,10,000	Deferred Revenue Expenditure	10,000
   		2,38,000		2,38,000

   The partners agreed to share profits in the ratio 1:1:1 from 01-04-2017. They further agreed that:
   1. Stock be valued at 20% more,
   2. Doubtful debts provision be increased by Rs 1,000.
   3. Depreciate furniture and plant by 10%.
   4. Rent outstanding is Rs 2,000.
   5. Goodwill of the firm is valued at Rs 51,000.
   Partners decided not to alter the values of assets, liabilities and reserves. They also decided not to show goodwill in the books. Pass a single entry to give the effect to above changes.

   Answer:

   Working Note 1.
   Sacrifice of A \( = \frac{2}{5} - \frac{1}{3} = \frac{6-5}{15} = \frac{1}{15} \)
   Sacrifice of B \( = \frac{2}{5} - \frac{1}{3} = \frac{1}{15} \)
   Increase in Profit of C \( = \frac{1}{3} - \frac{1}{5} = \frac{5-3}{15} = \frac{2}{15} \)

   2. Net Profit & Loss of Revaluation :

   Item of Loss	Rs	Item of Profit	Rs
   Outstanding Rent	2,000	Stock	10,000
   Provision for D.D.	1,000
   Furniture	3,000
   Plant	8,000
   	14,000

   Loss on Revaluation = \( 14,000 - 10,000 = \text{Rs } 4,000 \)
   Profit on Adjustment = Goodwill + General Reserve + Profit & Loss - Deferred Revenue Exp. - Loss on Revaluation
   \( = 51,000 + 68,000 + 30,000 - 10,000 - 4,000 = \text{Rs } 1,35,000 \)
   A \( = \frac{1,35,000 \times 1}{15} = \text{Rs } 9,000 \)
   B \( = \frac{1,35,000 \times 1}{15} = \text{Rs } 9,000 \)
   C \( = \frac{1,35,000 \times 2}{15} = \text{Rs } 18,000 \)
   In simple words: The working notes show the changes in profit sharing and the calculation of revaluation profit/loss. This helps determine each partner's share of the adjustment, ensuring fairness when new profit ratios are decided without changing book values.

   🎯 Exam Tip: When partners agree not to alter asset/liability values, a single adjustment entry is made using the net effect of revaluation and goodwill, based on sacrificing/gaining ratios.

    

   Question 16. Suresh, Ramesh and Mahesh share profits in the ratio of 3 : 2 : 1 respectively. Their balance sheet as on 1st April, 2017 was as follows :

   Capital	Profit and Loss	36,000
   Suresh	1,80,000
   Ramesh	1,20,000
   Mahesh	88,000	3,88,000
   	6,56,000		6,56,000

   On that date they decided that Suresh, Ramesh and Mahesh will share profits in future in the ratio of 2 : 2 : 1 respectively. The goodwill of the firm was valued at Rs 72,000 on that date. Prepare Partners' Capital Account and Balance Sheet of the firm.

   Answer:

   Working Notes:
   Suresh's S.R. \( = \frac{3}{6} - \frac{2}{5} = \frac{15-12}{30} = \frac{3}{30} \)
   Ramesh's G.R. \( = \frac{2}{5} - \frac{2}{6} = \frac{12-10}{30} = \frac{2}{30} \)
   Mahesh's G.R. \( = \frac{1}{5} - \frac{1}{6} = \frac{6-5}{30} = \frac{1}{30} \)
   Profit on Adjustment = Goodwill + General Reserve – Profit & Loss A/c =
   \( 72,000 + 1,08,000 - 36,000 = \text{Rs } 1,44,000 \)

   Working Note : For Goodwill
   Ramesh \( \frac{72,000 \times 2}{30} = \text{Rs } 4,800 \)
   Mahesh \( \frac{72,000 \times 1}{30} = \text{Rs } 2,400 \)
   Suresh \( \frac{72,000 \times 3}{30} = \text{Rs } 7,200 \)

   Dr.	Partners Capital A/c	Cr.
   Particulars	Suresh (Rs)	Ramesh (Rs)	Mahesh (Rs)	Particulars	Suresh (Rs)	Ramesh (Rs)	Mahesh (Rs)
   To Suresh's Capital	-	4,800	2,400	By General Reserve	54,000	36,000	18,000
   To Balance c/d	2,23,200	1,39,200	97,600	By Ramesh's Cap. A/c		4,800	-
   				By Mahesh's Cap. A/c			2,400
   	2,41,200	1,56,000	1,06,000		2,41,200	1,56,000	1,06,000

   
   

   Balance Sheet (as on 1 April 2017)
   Liabilities	Amount (Rs)	Assets	Amount (Rs)
   Creditors	1,60,000	Cash	1,40,000
   Capitals :		Sundry Assets	4,80,000
   Suresh	2,23,200
   Ramesh	1,39,200
   Mahesh	97,600
   	6,20,000		6,20,000

   In simple words: The working notes show how goodwill and profits are distributed according to the new ratio. The Partner's Capital Account updates each partner's investment based on these changes, and the Balance Sheet gives a clear picture of the firm's financial status after the new profit-sharing agreement.

   🎯 Exam Tip: When goodwill is valued but not brought in cash, it is adjusted through the capital accounts of the sacrificing and gaining partners.

    

   Question 17. Nardeep, Hardeep and Gagandeep was partners in a firm sharing profits in 2 : 1 : 3 ratio. Their balance sheet as on 31.03.2017 was as follows :

   Capital :			Stock	80,000
   Nardeep	2,00,000		Debtors	60,000
   Hardeep	1,00,000		Bank	10,000
   Gagandeep	50,000	3,50,000
   		5,50,000		5,50,000

   From 01.04.2017, Nardeep, Hardeep and Gagandeep decided to share the future profits equally. For this purpose it was decided that :
   (a) Goodwill of the firm be valued at Rs 3,00,000.
   (b) Land be revalued at Rs 1,60,000 and building be depreciated by 6%.
   (c) Creditors of Rs 12,000 were not likely to be claimed and hence be written off.
   Prepare Revaluation Account, Partners' Capital Account and the Balance Sheet of the reconstituted firm.

   Answer:

   Working Note:

   Particulars	Amount (Rs)	Particulars	Amount (Rs)
   To Building	6,000	By Land	60,000
   To Profit on Revaluation :		By Creditors	12,000
   Nardeep	22,000
   Hardeep	11,000
   Gagandeep	33,000	66,000
   	72,000		72,000

   
   

   Dr.	Partners Capital A/c	Cr.
   Particulars	Nardeep (Rs)	Hardeep (Rs)	Gagandeep (Rs)	Particulars	Nardeep (Rs)	Hardeep (Rs)	Gagandeep (Rs)
   To Gagandeep's Capital A/c	-	50,000	-	By Balance b/d	2,00,000	1,00,000	50,000
   To Balance c/d	2,42,000	71,000	1,63,000	By Hardeep's Capital A/c	-	50,000	-
   				By Revaluation	22,000	11,000	33,000
   				By General Reserve	20,000	10,000	30,000
   	2,42,000	1,21,000	1,63,000		2,42,000	1,21,000	1,63,000

   
   

   Balance Sheet (as on 1st April 2017)
   Liabilities	Amount (Rs)	Assets	Amount (Rs)
   Creditors	88,000	Land	1,60,000
   Bills Payable	40,000	Building	94,000
   Capital :		Plant	2,00,000
   Nardeep	2,42,000	Stock	80,000
   Hardeep	71,000	Debtors	60,000
   Gagandeep	1,63,000	Bank	10,000
   	4,76,000
   	6,04,000		6,04,000

   In simple words: The Revaluation Account helps record changes in asset and liability values. The Partners' Capital Accounts show how each partner's balance is affected by these changes and the new profit-sharing ratio. The Balance Sheet then gives a clear picture of the firm's financial health after the reconstitution.

   🎯 Exam Tip: When partners change their profit-sharing ratio, all reserves and revaluation profits/losses are distributed among partners in their old profit-sharing ratio before the new ratio takes effect.

    

   Question 18. A and B are partners, sharing profit in the ratio of 3 : 2 in a firm. On 31.03.2017, their balance sheet was as follows:

    

   Question 14. A and B are partners in a firm, sharing profits in the ratio of 2 : 1. They admitted C as a new partner. C brought in Rs 40,000 for his share of capital and Rs 15,000 as goodwill for 1/6th share in profits of the firm. Goodwill withdrawn by A and B from the firm. On C's admission goodwill appeared in the books of the firm at Rs 30,000. Record necessary journal entries.
   Answer: To find the new profit sharing ratio and sacrifice ratio, we first calculate C's share and the remaining profit. Then we determine how A and B share this remaining profit. Finally, we record the journal entries for goodwill based on C's admission and the goodwill withdrawn by A and B.
   Remaining profit After 'C' \( = 1-\frac {1}{6} = \frac {5}{6} \)
   A's New Profit \( = \frac{5}{6} \times \frac{2}{3} = \frac{10}{18} \)
   B's New Profit \( = \frac{5}{6} \times \frac{1}{3} = \frac{5}{18} \)
   Sacrifice of A \( = \frac{2}{3} - \frac{10}{18} = \frac{12-10}{18} = \frac{2}{18} \)
   Sacrifice of B \( = \frac{1}{3} - \frac{5}{18} = \frac{6-5}{18} = \frac{1}{18} \)

   Particulars	Amount (Dr.) (Rs)	Amount (Cr.) (Rs)
   B's Capital A/c	10,000
   To Goodwill A/c		30,000
   (Being existing goodwill A/c is written off)

   Particulars	Amount (Dr.) (Rs)	Amount (Cr.) (Rs)
   Cash A/c	55,000
   To Goodwill A/c		15,000
   To C's Capital A/c		40,000
   (Being C's amount of goodwill brought in cash)

   Particulars	Amount (Dr.) (Rs)	Amount (Cr.) (Rs)
   Goodwill A/c	15,000
   To A's Capital A/c		10,000
   To B's Capital A/c		5,000
   (Being goodwill transferred to sacrificing partners capital A/c)

   Particulars	Amount (Dr.) (Rs)	Amount (Cr.) (Rs)
   A's Capital A/c	10,000
   B's Capital A/c	5,000
   To Cash A/c		15,000
   (Being amount of goodwill withdrawn by sacrificing partners)

   In simple words: The journal entries show how goodwill is handled when a new partner joins. It covers bringing in cash for goodwill, distributing it among old partners who give up their share, and old partners taking out some of that goodwill cash. These entries adjust the capital accounts to reflect the new ownership structure.

   🎯 Exam Tip: When recording journal entries for goodwill, always identify if it's new goodwill brought in, existing goodwill being written off, or goodwill being withdrawn. Each scenario has specific accounts affected and corresponding debit/credit rules.

    

   Question 15. A and B are partners in a firm, sharing profits in the ratio of 3 : 2. They admitted G as a new partner for 1/5th share in profits of the firm. C acquires his entire share from A. C brought in Rs 50,000 as his capital and Rs 10,000 as goodwill. On C's admission goodwill appeared in the books of the firm at Rs 25,000. Record necessary journal entries.
   Answer: First, we determine A's sacrifice for C's share. Then, we prepare the journal entries to record the write-off of existing goodwill, the capital and goodwill brought in by the new partner C, and the transfer of goodwill to A's capital account. This shows the initial changes in the firm's financial records.
   A's Sacrifice \( = \frac {1}{5} \)

   Particulars	Amount (Dr.) (Rs)	Amount (Cr.) (Rs)
   DS Capital A/c	10,000
   To Goodwill A/c		25,000
   (Being existing goodwill A/c is written off)

   Particulars	Amount (Dr.) (Rs)	Amount (Cr.) (Rs)
   Cash A/c	60,000
   To C's Capital A/c		50,000
   To Goodwill A/c		10,000
   (Being amount of goodwill and capital brought in cash)

   Particulars	Amount (Dr.) (Rs)	Amount (Cr.) (Rs)
   Goodwill A/c	10,000
   To A's Capital A/c		10,000
   (Being amount of goodwill transferred)

   In simple words: This solution shows three main steps: first, removing old goodwill from the books; second, recording the new partner's capital and goodwill contribution; and third, giving the new goodwill to the old partner who sacrificed a share. This sets up the accounts for the new partnership.

   🎯 Exam Tip: Always remember to write off existing goodwill before accounting for new goodwill. If the new partner acquires their share from only one existing partner, only that partner will receive the goodwill premium.

    

   Question 16. A and B are partners in a firm sharing profits in the ratio of 3 : 2. They admitted C as a new partner for 1/5th share in profits of the firm. On the date of C's admission goodwill was valued at Rs 25,000. C contributed the following assets to his capital and his share of goodwill. Debtors Rs 10,000 and Stock Rs 15,000. Record necessary journal entries.
   Answer: Solution not provided in the given text.

   🎯 Exam Tip: When a new partner brings assets other than cash as capital or goodwill, you must record these assets in the journal entries. Remember to correctly calculate the new partner's share of goodwill based on the firm's total goodwill.