DK Goel Solutions Chapter 4 Admission of a Partner

Read below DK Goel Solutions for Class 12 Chapter 4 Admission of a Partner. These solutions have been designed based on the latest Class 12 DK Goel Accountancy book used by commerce stream students issued for the current year and the questions given in each chapter.

From time to time in any type of partnership firm, there are requirements to keep on adding new partners because of various reasons stop. Whenever this happens this is called admission of a partner in accounting terms. in this chapter, you will be able to understand what is accounting impact of getting a new partner in a firm as well as how the accounting should be performed.

The chapter contains a lot of questions which can be very helpful for Class 12 commerce students of Accountancy and will also help build strong concepts which will be really helpful in your career. These solutions are free and will help you to prepare for Class 12 Accountancy. Just scroll down and read through the answers provided below

Admission of a Partner DK Goel Class 12 Accountancy Solutions

Short Answer Questions

Question 1. Mention the various matters that need adjustments at the time of admission of a partner.

Solution 1
Here are the problems that need be changed at the time of a partner’s admission:
(i) Net Gains, Reserves and Losses Adjustment.
(ii) Goodwill Change

Question 2. Explain the accounting treatment of goodwill when the new partner brings his share of goodwill in cash.

Solution 2
(i) New partner brings his share of goodwill in cash:
Bank A/c Dr.
Premium for goodwill A/c
(Partners bring his share of goodwill in cash)

(ii) Amount of goodwill brought in new partner; (in sacrificing ratio)
Premium for goodwill A/c Dr.
Sacrificing Partner’s Capital A/c
(Goodwill is sacrificed by partners)

Question 3. Explain the accounting treatment of goodwill when goodwill account already appears in the books of the firm and new partner bring his share of goodwill in cash.

Solution 3
(i) Goodwill account already appearing in the book:
Old Partner’s Capital A/c Dr.
Goodwill A/c
(Amount of goodwill appearing in book distributed in old partners)

(ii) Goodwill in cash:
Bank A/c Dr.
To Premium for goodwill A/c
(New partner bring his share of goodwill in cash)

(iii) Amount of goodwill brought in new partner (in sacrificing ratio)
Premium for goodwill A/c Dr.
To Sacrificing Partner’s Capital A/c
(New partner bring his share of goodwill in cash)

Question 4. Explain the accounting treatment of goodwill when new partner cannot bring his share of goodwill in cash.

Solution 4
New Partner’s Current A/c Dr. (Share of goodwill)
Sacrificing Partner’s Capital A/c (sacrificing ratio)

Question 5. What is hidden goodwill? How is it adjusted on the admission of a partner?

Solution 5
Goodwill’s worth is hidden in the query. In such situations, the sum of goodwill is measured on the basis of the firm’s gross resources and the partners’ profit-sharing ratio.

Question 6. Why is Revaluation Account prepared? Draw an imaginary Revaluation Account.

Solution 6
When a new partner is added, assets are revalued and liabilities are reassessed such that the benefit or damage arising from any revaluation up the date of entry of a new partner will be ascertained and balanced in their old profit-sharing ratio in the Capital Account of the old partners and the new partner does not gain or lose due adjustments in the value of assets or sum of assets

Class 12 Chapter 4 Admission of a partner

Question 7. If new partner brings in proportionate Capital, how can it be calculated? Give a suitable example.

Solution 7
The new partner’s Capital is often not provided in the issue. He will be expected to put in Capital proportionately. In both s, the Capital of the new partner would be determined on the basis of the old partner’s Capital left after all the changes and revaluations.

Question 8. Disha and Gayatri were partners with Capital contribution of Rs. 30,00,000 and Rs. 20,00,000. They admitted Puja in partnership but did not enter in partnership deed. At the end of the accounting year, Puja insisted that the profit should be shared equally and convinced both Disha and Gyatri. Expalin how Puja would have convinced Disha and Gaytri.

Solution 8
Puja may have made the statement that Disha and Gayatri were persuaded by the absence of the Partnership Deed Partnership Act 1932, which prevailed.

Question 9. Mohan and Naresh was partners sharing profit in the ratio of 2:1. On 1st April, 2018 they admitted Om in partnership of 1/5th share in profits. On that date, the Balance Sheet showed General Reserve of Rs. 1,50,000. Om was of the opinion that if should be credited all partner’s Capital accounts in their profit sharing ratio. Mohan and Naresh convinced Om that the General Reserve should be credited only their Capital accounts. Explain what argument must have been put forward Mohan and Naresh that convinced Om.

Solution 9
Mohan and Naresh may have argued that, while Om was not a collaborator, the General Reserve came into being. In their old profit-sharing mix, it should then be shared only by Mohan and Naresh.

Question 10. Arun and Bimal were partners sharing profit in the ration of 2:1. They admitted Dushyant in partnership for 1/4th share. On that date, Balance Sheet of the firm showed Rs. 25,000 as Workmen Compensation Reserve against which there was a liability of Rs. 1,00,000. Arun and Bimal were of the opinion that the excess liability of Rs. 75,000 should be borne all the partners, including incoming partner in their new profit sharing ratio whereas Dushyant was of the opinion that it should be borne old partners in their old profit sharing ratio. Dushyant was able convince both Arun and Bimal. Explain how Dushaynt would have convinced Arun and Bimal.

Solution 10
Dushaynt may have argued that the time where he was not a partner was part of the responsibility. Therefore, in their old benefit sharing ratio, old partners should be born.

Numerical Question
Question 1.
(A)
A and B are partners sharing profits in the ratio of 5:3. C is admitted the partnership for 1/4th share of future profits. Calculate the new profit sharing ratio.
Solution 1
(A)
C’s Share = 1/4
Remaining Share = 1 – 1/4 = 3/4
A’s New Share = 5/8 of 3/4 = 15/32
B’s New Share = 3/8 of 3/4 = 9/32
C’s Share = 1/4

Thus, the new profit sharing ratio = 15/32 : 9/32 : 1/4
New profit = (15 ∶ 9 ∶ 8)/32
New profit = 15 : 9 : 8

(A). Points for Students:-
Sometimes the old partners surrender a particular fraction of their share in favour of the new partner. In such cases the new partner’s share is calculated by adding the surrendered portion of share by the old partners. Old partner’s shares are calculated by deducting the surrendered share from their old shares.

Question 1.
(B)
A and B were partners sharing profits in the ratio of 21 : 9. C was admitted on 9/21 share in the profits. Calculate new profit sharing ratio of the partners.
Solution 1
(B)
C’s Share = 9/21
Remaining Share = 1 – 9/21 = 12/21
A’s New Share = 21/30 of 12/21 = 2/5
B’s New Share = 9/30 of 12/21 = 6/35
C’s Share = 9/21

Thus, the new profit sharing ratio = 2/5 : 6/35 : 9/21
New profit = (42 ∶ 18 ∶ 45)/105
New profit = 42 : 18 : 45 or 14 : 6 : 15

(B).Points for Students:-
Sometimes the new partner ‘Purchases’ his share of profit from the old partners equally. In such cases the new profit sharing ratio of the old partners will be ascertained by deducting the sacrifice made by them from their existing share of profit.

Question 2.
(A)
P and Q are partners sharing profits and losses in the ratio of 4:3. They admit R as partner for a 1/7th share in profits which he acquires equally from P and Q. Calculate new profit sharing ratio of the partners.
Solution 2
(A)
R is acquires 1/7th share equally form P and Q.
R acquires form P = 1/2 × 1/7 = 1/14
R acquires form Q = 1/2 × 1/7 = 1/14

Computation of New Share:-
P’s Share = 4/7-1/14=(8 – 1)/14= 7/14
Q’s Share = 3/7-1/14=(6 – 1)/14= 5/14

R’s Share = 1/7
Thus, the new profit sharing ratio = 7/14 : 5/14 : 1/7
New profit = (7 ∶ 5 ∶ 2)/14
New profit = 7 : 5 : 2

(A).Points for Students:-
Whenever there is an admission of a new partner, old partners have to surrender some of their old shares in favour of the new partner. The ratio in which they surrender their profits is called sacrifice ratio. Goodwill is paid to the old partners in their sacrifice ratio because the goodwill is the amount of compensation to be paid by the new partner to the old partners for acquiring the share of profits which they have surrendered in favour of the new partner.
Calculation of Sacrifice Ratio is calculated as follows:
Sacrifice Ratio = Old Ratio – New Ratio

Question 2.
(B)
R and S share profits in the ratio of 3 : 2. They admitted T as partner for 1/8th share which will be borne R and S equally. Find out the new profit sharing ratio.
Solution 2
(B)
Profit Share give T = 1/8
T acquires form R = 1/2 × 1/8 = 1/16
T acquires form S = 1/2 × 1/8 = 1/16

Computation of New Share:-
R’s Share = 3/5-1/16=(48 – 5)/80= 43/80
S’s Share = 2/5-1/16=(32 – 5)/80= 27/80

T’s Share = 1/16+1/16=(1 + 1)/16=2/16
Thus, the new profit sharing ratio = 43/80 : 27/80 : 2/16
New profit = (43 ∶ 27 ∶ 10)/80
New profit = 43 : 27 : 10

(B). Points for Students:-
Calculation of Sacrifice Ratio is calculated as follows: Sacrifice Ratio = Old Ratio – New Ratio

Question 2.
(C)
P, Q and R were partners in a firm sharing profits in the ratio of 3:2:1. They admitted S as a new partner for 1/8th share in the profits which he acquired /16th from P and 1/16th from Q. Calculate new profit sharing ratio of P, Q, R and S.
Solution 2
(C)
New Share = Old Share – Sacrificing Share
P’s new share = 3/6-1/16=(24 – 3)/48= 21/48
Q’s new share = 2/6-1/16=(16 – 3)/48= 13/48
R’s new share = 1/6

S’s new share = 1/8
Thus, the new profit sharing ratio = 21/48 : 13/48 : 1/16 : 1/8
New profit = (21 ∶ 13 ∶ 8 ∶ 6)/48
New profit = 21 : 13 : 8 : 6

(C). Points for Students:-
When only the ratio of new partners is given in the question, then in the absence of any other agreement, it is presumed that the old partners will continue to share the remaining profits in the same ratio in which they were sharing before the admission of the new partner.

Question 3. A and B were partners in a firm sharing profits in 3:2. On 1-4-2018 they admitted C as a new partner for 1/4th share. On 1-4-2019 D was admitted as a new partner for 1/5th share which he acquired equally from A, B and C. Calculate the new profit sharing ratio.
Solution 3
C’s Share = 1/4
Remaining Share = 1-1/4= 3/4
A’s new share = 3/5 of 3/4 = 9/20
B’s new share = 2/5 of 3/4 = 6/20
C’s new share = 1/4

New Ratio of A, B and C = 9/20:6/20:1/4
New profit = (9 ∶ 6 ∶ 5)/20
New profit = 9 : 6 : 5

D’s Share = 1/5
He will acquire 1/3 of 1/5 = 1/15 each from A, B and C
A’s new share = 9/20-1/15 = (27 – 4)/60 = 23/60
B’s new share = 6/20-1/15 = (18 – 4)/60 = 14/60
C’s new share = 5/20-1/15 = (15 – 4)/60 = 11/60
D’s new share = 1/5

New Ratio of A, B , C and D = 23/60:14/60:11/60:1/5
New profit = (23 ∶ 14 ∶ 11 ∶ 12 )/60
New profit of A, B, C and D = 23 : 14 : 11 : 12

Points for Students:-
Sometimes the new partner ‘Purchases’ his share of profit from the old partners equally. In such cases the new profit sharing ratio of the old partners will be ascertained by deducting the sacrifice made by them from their existing share of profit.

Q4.
(A)
X and Y are partners sharing profits in the ratio of 2 : 1. Z is admitted with 5/11th share which he takes 3/11th from X and 2/11th from Y. Calculate the new profit sharing ratio of the partners.
Solution 4
(A)
Z is acquire = 5/11 , X is surrender = 3/11 , Y is surrender = 2/11

Computation of New Profit sharing ratio:-
New Ratio = Old Ratio – Surrender Share
X’s New Share = 2/3-3/11=(22 – 9)/33= 13/33

Y’s New Share = 1/3-2/11=(11 – 6)/33= 5/33
Z’s New Share = 5/11

New Profit Sharing Ratio = 13/33 ∶ 5/33 ∶ 5/11
New Profit Sharing Ratio = (13 ∶ 5 ∶ 15)/33
New Profit Sharing Ratio = 13 ∶ 5 ∶ 15

(A). Points for Students:-
Calculation of New profit Sharing Ratio:-
New Ratio = Old Ratio – Surrender Share

Q4.
(B)
A and B are partners sharing profits in the ratio of 5:3. They admit C on 1/4th share which he acquires 1/6th from A and 1/12th from B. Calculate the new profit sharing ratio of the partners.
Solution 4
(B)
C is acquire = 1/4 , A is surrender = 1/6 , B is surrender = 1/12

Computation of New Profit sharing ratio:-
New Ratio = Old Ratio – Surrender Share
A’s New Share = 5/8-1/6=(15 – 4)/24= 11/24
B’s New Share = 3/8-1/12=(9 – 2)/24= 7/24
C’s New Share = 1/4

New Profit Sharing Ratio = 11/24 ∶ 7/24 ∶ 1/4
New Profit Sharing Ratio = (11 ∶ 7 ∶ 6)/24
New Profit Sharing Ratio = 11 ∶ 7 ∶ 6

(B). Points for Students:-
Following adjustments are needed at the time of the admission of a new partner:
1. Calculation of new profit sharing ratio.
2. Accounting treatment of Goodwill.
3. Accounting treatment of revaluation of assets and liabilities.
4. Accounting treatment of reserves and accumulated profits.
5. Adjustment of Capital on the basis of new profit sharing ratio.

Question 5. A, B and C were partners in a firm sharing profits in 1:2:3 ratio. They admitted D as a new partner for 1/6 th share. D acquired his share 1/24 from A, 1/24 from B and 1/12 from C. Calculate new profit sharing ratio.
Solution 5. Profit Sharing ratio of A, B and C = 1 : 2 : 3.
D’s Share = 1/6
A’s Share = 1/6-1/24=(4-1)/24=3/24
B’s Share = 2/6-1/24=(8-1)/24=7/24
C’s Share = 3/6-1/12=(6-1)/12=5/12
New Ratio of A, B, C and D = 3/24:7/24:5/12:1/6
New Ratio of A, B, C and D = (3∶7∶10∶4)/24
New Ratio of A, B, C and D = 3 : 7 : 10 : 4.

Points for Students:-
New Ratio = Old Ratio – Sacrificing Ratio
We can calculate below formulas also by above formula:-
Old Ratio = New Ratio + Sacrificing Ratio
Sacrificing Ratio = Old Ratio – New Ratio

Question 6. A and B are partners sharing profits in the ratio of 3:2. They admit C in partnership giving him 1/2 share in profits which he acquires from A and B in the ratio of 3 : 1. Calculate the new profit ratio.
Solution 6
C is acquire = 1/2 from A and B in the ratio of 3:1.
A is surrender = 3/4 , B is surrender = 1/4
A’s share = 1/2 of 3/4 = 3/8
B’s share = 1/2 of 1/4 = 1/8

Computation of New Profit sharing ratio:-
New Ratio = Old Ratio – Surrender Share
A’s New Share = 3/5-3/8=(24 – 15)/40= 9/40

B’s New Share = 2/5-1/8=(16 – 5)/40= 11/40
C’s New Share = 1/2

New Profit Sharing Ratio = 9/40 ∶ 11/40 ∶ 1/2
New Profit Sharing Ratio = (9 ∶ 11 ∶ 20)/40
New Profit Sharing Ratio = 9 ∶ 11 ∶ 20

Points for Students:-
Computation of New Profit sharing ratio:-
New Ratio = Old Ratio – Surrender Share

Question 7. X and Y are partners sharing profits and losses in the ratio of 3: 2.They admit Z as a new partner who gets 1/5th share. Calculate the new profit sharing ratio in each of the following s :
(i) If Z acquires his share from X and Y in their profit sharing ratio;
(ii) If he acquires 3/20th from X and 1/20th from Y;
(iii) If he acquires 1/10th from X and 1/10th from Y;
(iv) If he acquires 1/20th from X and 3/20th from y;
(v) If he acquires his share entirely from X;
(vi) If he acquires his share entirely from Y.
Solution 7
(i) If Z acquires his share from X and Y in their profit sharing ratio:-
Z is acquire = 1/5 from X and Y in the ratio of 3:2.
X is surrender = 3/5 , Y is surrender = 2/5
X’s share = 1/5 of 3/5 = 3/25
Y’s share = 1/5 of 2/5 = 2/25

Computation of New Profit sharing ratio:-
New Ratio = Old Ratio – Surrender Share
X’s New Share = 3/5-3/25=(15 – 3)/25= 12/25

Y’s New Share = 2/5-2/25=(10 – 2)/25= 8/25
Z’s New Share = 1/5
New Profit Sharing Ratio = 12/25 ∶ 8/25 ∶ 1/5

New Profit Sharing Ratio = (12 ∶ 8 ∶ 5)/25
New Profit Sharing Ratio = 12∶8∶5

(ii) If he acquires 3/20th from X and 1/20th from Y:-
X is surrender = 3/20 , Y is surrender = 1/20

Computation of New Profit sharing ratio:-
New Ratio = Old Ratio – Surrender Share
X’s New Share = 3/5-3/20=(12 – 3)/20= 9/20
Y’s New Share = 2/5-1/20=(8 – 1)/20= 7/20
Z’s New Share = 1/5

New Profit Sharing Ratio = 9/20 ∶ 7/20 ∶ 1/5
New Profit Sharing Ratio = (9 ∶ 7 ∶ 4)/20
New Profit Sharing Ratio = 9∶7∶4

(iii) If he acquires 1/10th from X and 1/10th from Y;
X is surrender = 1/10 , Y is surrender = 1/10

Computation of New Profit sharing ratio:-
New Ratio = Old Ratio – Surrender Share
X’s New Share = 3/5-1/10=(6 – 1)/10= 5/10
Y’s New Share = 2/5-1/10=(4 – 1)/10= 3/10
Z’s New Share = 1/5
New Profit Sharing Ratio = 5/10 ∶ 3/10 ∶ 1/5

New Profit Sharing Ratio = (5∶ 3 ∶ 2)/10
New Profit Sharing Ratio = 5∶3∶2

(iv) If he acquires 1/20th from X and 3/20th from y;
X is surrender = 1/20 , Y is surrender = 3/20

Computation of New Profit sharing ratio:-
New Ratio = Old Ratio – Surrender Share
X’s New Share = 3/5-1/20=(12 – 1)/20= 11/20

Y’s New Share = 2/5-3/20=(8 – 3)/20= 5/20
Z’s New Share = 1/5
New Profit Sharing Ratio = 11/20 ∶ 5/20 ∶ 1/5

New Profit Sharing Ratio = (11 ∶ 5 ∶ 4)/20
New Profit Sharing Ratio = 11∶5∶4

(v) If he acquires his share entirely from X;
Z is given 1/5th share which he acquires entirely from X.

Computation of New Profit sharing ratio:-
New Ratio = Old Ratio – Surrender Share
X’s New Share = 3/5-1/5=(3 – 1)/5= 2/5
Y’s New Share = 2/5
Z’s New Share = 1/5
New Profit Sharing Ratio = 2/5 ∶ 2/5 ∶ 1/5

New Profit Sharing Ratio = (2 ∶ 2 ∶ 1)/5
New Profit Sharing Ratio = 2∶2∶1

(vi) If he acquires his share entirely from Y.
Z is given 1/5th share which he acquires entirely from Y.

Computation of New Profit sharing ratio:-
New Ratio = Old Ratio – Surrender Share
X’s New Share = 3/5

Y’s New Share = 2/5-1/5=(2 – 1)/5= 1/5
Z’s New Share = 1/5

New Profit Sharing Ratio = 3/5 ∶ 1/5 ∶ 1/5
New Profit Sharing Ratio = (3 ∶ 1 ∶ 1)/5
New Profit Sharing Ratio = 3∶1∶1

Points for Students:-
Following Journal entry is passed for this purpose:
New Partner’s Current A/c Dr. (From his share of goodwill)
To Old Partner’s Capital A/c (In sacrificing ratio)
(Current Account of new partner debited from his share of goodwill on his admission and Capital Accounts of old partner’s Credited in their sacrificing ratio)

Question 8 (new). A and B are partners sharing profits in the ratio of 3:2. C is admitted for 1/5^th share of profit out of which half share of profit out of which half share was gifted by A and the remaining share was taken by C equally from A and B. Calculate new profit sharing ratio.
Solution 8 (new). Profit Sharing ratio of A and B = 3 : 2.
Share gifted by A = 1/5×1/2=1/10
Share acquired by C = 1/10×1/2=1/20
A’s Share = Old Share – Share Gifted – Share Acquired by C
= 3/5-1/10-1/20
= (12-2-1)/20
= 9/20
B’s Share = 2/5-1/20=(8-1)/20=7/20
C’s Share = 1/5
New Ratio of A, B and C = 9/20:7/20:1/5

New Ratio of A, B, C and D = (9∶7∶4)/20
New Ratio of A, B, C and D = 9 : 7 : 4.

Question 8.
(A)
A and B are partners in a firm sharing profits in the ratio of 2:1. C joins the firm. A surrenders 1/4th of his share and B 1/5th of his share in favour of C. Find the new profit sharing ratio.
Solution 8
(A)
A is surrender = 1/4 , B is surrender = 1/5
A’s share = 1/4 of 2/3 = 2/12 = 1/6
B’s share = 1/5 of 1/3 = 1/15

Computation of New Profit sharing ratio:-
New Ratio = Old Ratio – Surrender Share
A’s New Share = 2/3-1/6=(4 – 1)/6= 3/6

B’s New Share = 1/3-1/15=(5 – 1)/15= 4/15
C’s New Share = 1/6+1/15=(5 + 2)/30=7/30
New Profit Sharing Ratio = 3/6 ∶ 4/15 ∶ 7/30

New Profit Sharing Ratio = (15 ∶ 8 ∶ 7)/30
New Profit Sharing Ratio = 15∶8∶7

Question 8.
(B)
A and B share profits in the ratio of 3:2. They agreed admit C on the condition that A will sacrifice 3/20th of his share of profit in favour of C and B will sacrifice 1/20th of his profits in favour of C. Calculate new profit sharing ratio.
Solution 8
(B)
A is surrender = 3/20 , B is surrender = 1/20
A’s share = 3/20 of 3/5 = 9/100

B’s share = 1/20 of 2/5 = 2/100

Computation of New Profit sharing ratio:-
New Ratio = Old Ratio – Surrender Share
A’s New Share = 3/5-9/100=(60 – 9)/100= 51/100
B’s New Share = 2/5-2/100=(40 – 2)/100= 38/100
C’s New Share = 9/100+2/100=(9 + 2)/100=11/100

New Profit Sharing Ratio = 3/6 ∶ 4/15 ∶ 11/100
New Profit Sharing Ratio = (51 ∶ 38 ∶ 11)/100
New Profit Sharing Ratio = 51∶38∶11

Question 8.
(C)
X and Y are partners in a firm sharing profits and losses in the ratio of 9: 6. A new partner Z is admitted. X surrenders 3/15th share of his profit in favour of Z and Y 6/15th of his share in favour of Z. Calculate new profit sharing ratio.
Solution 8
(C)
X is surrender = 3/15 , Y is surrender = 6/15
X’s share = 3/15 of 9/15 = 27/225 = 3/25
Y’s share = 6/15 of 6/15 = 36/225 = 4/25

Computation of New Profit sharing ratio:-
New Ratio = Old Ratio – Surrender Share
X’s New Share = 9/15-3/25=(45 – 9)/75= 36/75
Y’s New Share = 6/15-4/25=(30 – 12)/75= 18/75
Z’s New Share = 3/25+4/25=(3 + 4)/25=7/25

New Profit Sharing Ratio = 36/75 ∶ 18/75 ∶ 7/25
New Profit Sharing Ratio = (36 ∶ 18 ∶ 21)/75
New Profit Sharing Ratio = 36 ∶ 18 ∶ 21 or 12 : 6 : 7

Points for Students:-
Revaluation Account: Sometimes this account is called as ‘Profit & Loss Adjustment A/c’. This account is a nominal account in nature. Therefore, if there is a loss due to revaluation, revaluation account is debited and if the revaluation results in a profit, the revaluation account is credited.

Question 9. A, B and C are partners in a firm sharing profits in 4:3 : 3 ratio. They decided admit their manager D in partnership. A surrendered 1/4 of his share in favour of D; B surrendered 1/(5 ) of his share in favour of D and C surrendered 1/6 of his share in favour of D. Calculate new profit sharing ratio.
Solution 9
A B C
Old Ratio 4/10 : 3/10 : 3/10
Surrender Share 1/4 1/5 1/6
A’s share = 4/10 of 1/4 = 4/40 = 1/10
B’s share = 3/10 of 1/5 = 3/50 = 3/50
C’s share = 3/10 of 1/6 = 1/20

Computation of New Profit sharing ratio:-
New Ratio = Old Ratio – Surrender Share
A’s New Share = 4/10-1/10=(4 – 1)/10= 3/10
B’s New Share = 3/10-3/50=(15 – 3)/50= 12/50
C’s New Share = 3/10-1/20=(6 – 1)/20=5/20
D’s New Share = 1/10+3/50+1/20= (10+6+5)/100=21/100

New Profit Sharing Ratio = 3/10 ∶ 12/50 ∶ 5/20:21/100
New Profit Sharing Ratio = (30 ∶ 24 ∶ 25 ∶21)/100
New Profit Sharing Ratio = 30 ∶ 24 ∶ 25 ∶21

Points for Students:-
At the time of admission, if there is any General Reserve, Reserve Fund or the balance of Profit and Loss Account appearing in the balance sheet, it must be transferred to Old Partner’s Capital Accounts in their old profit sharing ratio. The new partner is not entitled to any share of such reserves of profits, as these are undistributed profits earned by the old partners.

Question 10. A and B are partners sharing profits and losses in the ratio of 3 : 2. They admit X and Y as new partners. A surrendered 1/3rd of his share in favour of X and B surrendered 1/4th of his share in favour of Y. Calculate the new profit sharing ratio A, B, X and Y.
Solution 10
A B
Old Ratio 3/5 : 2/5
Surrender Share 1/3 1/4
A’s share = 3/5 of 1/3 = 3/15 = 1/5
B’s share = 2/5 of 1/4 = 2/20 = 1/10

Computation of New Profit sharing ratio:-
New Ratio = Old Ratio – Surrender Share
A’s New Share = 3/5-1/5=(3 – 1)/5= 2/5
B’s New Share = 2/5-1/10=(4 – 1)/10= 3/10
X’s New Share = 1/5
Y’s New Share = 1/10
New Profit Sharing Ratio = 2/5 ∶ 3/10 ∶ 1/5:1/10
New Profit Sharing Ratio = (4 ∶ 3 ∶ 2 ∶1)/10
New Profit Sharing Ratio = 4 ∶ 3 ∶ 2 ∶1

Points for Students:-
A new partnership deed is prepared at the time of admission of a new partner, as the old partnership deed comes to an end. According to Section 31 of the Indian partnership act, a new partner can be admitted only with the consent of all the existing partners.

Question 11. A and B share profits and losses in the ratio of 3:2. They admit C as a new partner for 1/3rd share the profits of the firm which he acquired from A and B in the ratio of 2:3. After some time, they admitted D as a new partner for 1/5th share in the profits which he acquired equally from A and C.
Calculate:
(i) New profit sharing ratio of A, B and C;
(ii) New profit sharing ratio of A, B, C and D.

Solution 11
(i) New profit sharing ratio of A, B and C:-
A’s share = 2/5 of 1/3 = 2/15

B’s share = 3/5 of 1/3 = 3/15
Computation of New Profit sharing ratio:-
New Ratio = Old Ratio – Surrender Share
A’s New Share = 3/5-2/15=(9 – 2)/15= 7/15

B’s New Share = 2/5-3/15=(6 – 3)/15= 3/15

C’s New Share = 1/3

New Profit Sharing Ratio = 7/15 ∶ 3/15 ∶ 1/3
New Profit Sharing Ratio = (7 ∶ 3 ∶ 5)/15
New Profit Sharing Ratio = 7 ∶ 3 ∶ 5

(ii) New profit sharing ratio of A, B, C and D:-
A B C
Old Ratio 7/15 : 3/15 : 5/15
Surrender Share 1/2 1/2
A’s share = 1/2 of 1/5 = 1/10

C’s share = 1/2 of 1/5 = 1/10
Computation of New Profit sharing ratio:-
New Ratio = Old Ratio – Surrender Share
A’s New Share = 7/15-1/10=(14 – 3)/30= 11/30

B’s New Share = 3/15
C’s New Share = 5/15-1/10=(10 – 3)/30= 7/30
D’s New Share = 1/5

New Profit Sharing Ratio = 11/30 ∶ 3/15 ∶ 7/30 ∶ 1/5
New Profit Sharing Ratio = (11 ∶ 6 ∶ 7 ∶ 6)/30
New Profit Sharing Ratio = 11 ∶ 6 ∶ 7 ∶ 6

Points for Students:-
Computation of New Profit sharing ratio:-
New Ratio = Old Ratio – Surrender Share
We can calculate other formulas by the above formulas:-
Old Ratio = New Ratio + Surrender Share
Surrender Ratio = Old Ratio – New Share

Question 12. P and Q share profits in 3 : 2. On 1st April, 2016, they admit R and S with 1/4th and 1/5th share respectively. The profit of the firm for the year ended 31st March 2017 amounted Rs. 2,00,000. Prepare necessary journal entries for the distribution of profit.
Solution 12
Total Share of R and S = 1/4+1/5=(5 + 4)/20= 9/20
Remaining Share for P and Q = 1-9/20=11/20
P’s Share = 11/20× 3/5= 33/100
Q’s Share = 11/20× 2/5= 22/100

New Profit Sharing Ratio of P : Q : R : S = 33/100 ∶ 22/100 ∶ 1/4 ∶ 1/5
New Profit Sharing Ratio = (33 ∶ 22 ∶ 25 ∶ 20)/100
New Profit Sharing Ratio = 33 ∶ 22 ∶ 25 ∶ 20

Profit of the Firm Rs. 2,00,000 is distributed in new profit sharing ratio.
P’s Share in Profit = Rs. 2,00,000 × 33/100 = Rs. 66,000
Q’s Share in Profit = Rs. 2,00,000 × 22/100 = Rs. 44,000
R’s Share in Profit = Rs. 2,00,000 × 25/100 = Rs. 50,000
S’s Share in Profit = Rs. 2,00,000 × 20/100 = Rs. 40,000

Points for Students:-
Following adjustments are needed at the time of the admission of a new partner:
1. Calculation of new profit sharing ratio.
2. Accounting treatment of Goodwill.
3. Accounting treatment of revaluation of assets and liabilities.
4. Accounting treatment of reserves and accumulated profits.
5. Adjustment of Capital on the basis of new profit sharing ratio.

Question 13.
(A)
Saurabh and Gaurav are equal partners. They admit Chunmun as a partner in their firm and the new ratio of all the three has been decided upon as 4:3:2. Find the sacrificing ratio.

Solution 13
(A)
Sacrifice Ratio = Old Ratio – New Ratio
Saurabh’s Sacrificing Ratio = 1/2-4/9=(9 – 8)/18=1/18
Gaurav’s Sacrificing Ratio = 1/2-3/9=(9 – 6)/18=3/18
Sacrificing Ratio = 1 ∶ 3

(A) Points for Students:-
Calculation of Sacrifice Ratio:-
Sacrifice Ratio = Old Ratio – New Ratio

Question 13.
(B)
A, B and C share profit and losses in the ratio of 3: 2: 1. Upon admission of D, they agreed share as follows:
(i) 4 : 4 : 2 : 2
(ii)2 : 4 : 2 : 4
Calculate sacrificing ratios.
Solution 13
(B)
(i) 4 : 4 : 2 : 2
Sacrifice Ratio = Old Ratio – New Ratio
A’s Sacrificing Ratio = 3/6-4/12=(6 – 4)/12=2/12
B’s Sacrificing Ratio = 2/6-4/12=(4 – 4)/12=0

C’s Sacrificing Ratio = 1/6-2/12=(2 – 2)/12=0
Sacrificing Ratio = Only A Sacrifices = 2/12=1/6

(ii) 2 : 4 : 2 : 4
Sacrifice Ratio = Old Ratio – New Ratio
A’s Sacrificing Ratio = 3/6-2/12=(6 – 2)/12=4/12
B’s Sacrificing Ratio = 2/6-4/12=(4 – 4)/12=0

C’s Sacrificing Ratio = 1/6-2/12=(2 – 2)/12=0
Sacrificing Ratio = Only A Sacrifices = 4/12=1/3

(B) Points for Students:-
Calculation of Sacrifice Ratio:-
Sacrifice Ratio = Old Ratio – New Ratio

Question 14.
(A)
A, B and C are partners sharing profits in the ratio of 2 : 2:1 respectively. They admit D for 1/6th share in the firm. Calculate the sacrificing ratio.

Solution 14
(A)
D’s Share = 1/6
Remaining Share = 1-1/6=5/6
A’s Share = 2/5 of 5/6 = 2/6
B’s Share = 2/5 of 5/6 = 2/6
C’s Share = 1/5 of 5/6 = 1/6
D’s Share = 1/6

Computation of Sacrificing Ratio:-
Sacrifice Ratio = Old Ratio – New Ratio
A’s Sacrificing Ratio = 2/5-2/6=(12 – 10)/30=2/30
B’s Sacrificing Ratio = 2/5-2/6=(12 – 10)/30=2/30
C’s Sacrificing Ratio = 1/5-1/6=(6 – 5)/30=1/20
Sacrificing Ratio = 2 : 2 : 1.

(A) Points for Students:-
Entries will be passed for distribution of profit:-
Profit and Loss A/c Dr.
To Profit and Loss Appropriation A/c
(Profit transfer to Profit and loss appropriation Account)
Profit and Loss Appropriation A/c Dr.
To Partner Capital A/c
(profit distributed to partners in profit sharing ratio)

Question 14.
(B)
A and B are partners sharing profit in the ratio of 5:3. C is admitted the partnership for 1/4th share of future profits. Calculate the new profit sharing ratio and the sacrificing ratio.

Solution 14
(B)
C’s Share = 1/4
Remaining Share = 1-1/4=3/4
A’s Share = 5/8 of 3/4 = 15/32
B’s Share = 3/8 of 3/4 = 9/32
C’s Share = 1/4

New Profit Sharing Ratio = 15/32 : 9/32 ∶ 1/4
New Profit Sharing Ratio = (15 ∶ 9 ∶ 8)/32
New Profit Sharing Ratio =15 ∶ 9 ∶ 8

Computation of Sacrificing Ratio:-
Sacrifice Ratio = Old Ratio – New Ratio
A’s Sacrificing Ratio = 5/8-15/32=(20 – 15)/32=5/32
B’s Sacrificing Ratio = 3/8-9/32=(12 – 9)/32=2/32
Sacrificing Ratio = 5 : 3.

(B) Points for Students:-
Entry for profit transfer:-
Profit and Loss A/c Dr.
To Profit and Loss Appropriation A/c
(Profit transfer to Profit and loss appropriation Account)

Question 15. A and B are partners sharing profits in the ratio of 7 : 3.C was admitted. A surrendered 1/7th of his share and B 1/3rd of his share in favour of C. Calculate the sacrificing ratio and the new profit-sharing ratios of the partners.
Solution 15
A’s Surrendered = 1/7 of 7/10 = 1/10
B’s Surrendered = 1/3 of 3/10 = 1/10
Sacrificing Ratio = 1/10 ∶ 1/10
Sacrificing Ratio = 1 : 1

Computation of New Ratio :-
A’s New Share = 7/10-1/10=(7 – 1)/10= 6/10
B’s New Share = 3/10-1/10=(3 – 1)/10= 2/10
C’s New Share = 1/10+1/10=(1+ 1)/10= 2/10

New Ratio of A, B and C = 6/10:2/10:2/10
New Ratio of A, B and C = 6 : 2 : 2
New Ratio of A, B and C = 3 : 1 : 1

Question 16.
(A)
A and B are partners in a firm sharing profits and losses in the ratio of 3:2. C is admitted in partnership. A sacrifices 1/3 of his share and B 1/10 from his share in favour of C. Determine the sacrificing ratio and the new profit sharing ratio.
Solution 16
(A)
A’s Surrendered = 1/3 of 3/5 = 1/5
B’s Surrendered = 1/10

Sacrificing Ratio = 1/5 ∶ 1/10
Sacrificing Ratio = (2 ∶ 1)/10
Sacrificing Ratio = 2 : 1

Computation of New Ratio :-
A’s New Share = 3/5-1/5=(3 – 1)/5= 2/5
B’s New Share = 2/5-1/10=(4 – 1)/10= 3/10
C’s New Share = 1/5+1/10=(2 + 1)/10= 3/10

New Ratio of A, B and C = 2/5:3/10:3/10
New Ratio of A, B and C = (4 ∶ 3 ∶ 3)/10
New Ratio of A, B and C = 4 : 3 : 3.

(A) Points for Students:-
Whenever there is an admission of a new partner, old partners have to surrender some of their old shares in favour of the new partner. The ratio in which they surrender their profits is called sacrifice ratio. Goodwill is paid to the old partners in their sacrifice ratio because the goodwill is the amount of compensation to be paid by the new partner to the old partners for acquiring the share of profits which they have surrendered in favour of the new partner.
Calculation of Sacrifice Ratio is calculated as follows:
Sacrifice Ratio = Old Ratio – New Ratio

Question 16.
(B)
A and B are partners in a firm sharing profits and losses in the ratio of 5:3. They admit C and D as new partners. A sacrifices ½ of his share in favour of C and B sacrifices ¼ from his share in favour of D. Calculate their new profit sharing ratio.
Solution 16
(B)
A’s sacrifices 1/2 of 5/8 = 5/16
B’s sacrifices = 1/4
Computation of New Ratio :-
A’s New Share = 5/8-5/16=(10 – 5)/16= 5/16
B’s New Share = 3/8-1/4=(3 – 2)/8= 1/8

New share of A, B, C and D = 5/16:1/8:5/16:1/4
New Ratio of A, B and C = (5 ∶ 2 ∶ 5 ∶4)/16
New Ratio of A, B and C = 5 ∶ 2 ∶ 5 ∶4.

(B) Points for Students:-
Calculation of Sacrifice Ratio:-
Sacrifice Ratio = Old Ratio – New Ratio

Question 17. Find out the sacrificing ratio and new ratio in the followings:
(i) A and B are partners sharing profits and losses in the ratio of 4:3. C is admitted for 1/5th share. A and B decided share equally in future. Calculate the new ratio and sacrificing ratio.
(ii) A, B, C and D are in partnership sharing profits and losses in the ratio of 36 : 24 : 20 : 20 respectively. E joins the partnership for 20% share A, B, C, and D would in future share profits among themselves as 3/10 : 4/10: 2/10 and 1/10 . Calculate the new profit sharing ratio after E’s admission.
[Ans. (i) New Ratio 2:2: 1; Sacrificing Ratio 6: 1.
(ii) New Ratio 6 : 8 : 4 : 2 : 5]
Solution 17
(i) Computation of new profit sharing ratio:-
C’s Share = 1/5
Remaining Share = 1-1/5 = 4/5

A’s New Share = 1/2 of 4/5 = 4/10 = 2/5

B’s New Share = 1/2 of 4/5 = 4/10 = 2/5

C’s New Share = 1/5

New Profit Sharing Ratio = 2/5 ∶ 2/5 ∶1/5
New Profit Sharing Ratio = 2 : 2 : 1.

Computation of Sacrificing Ratio:-
Sacrificing Ratio = Old Ratio – New Ratio

A’s Sacrificing Ratio = 4/7-2/5=(20 – 14)/35= 6/35

B’s Sacrificing Ratio = 3/7-2/5=(15 – 14)/35= 1/35
Sacrificing Ratio = 6 : 1.

(ii) Computation of Sacrificing Ratio:-
E’s Share = 20% or 20/100 or 1/5
Remaining Share = 1-1/5=4/5
Profit shared A, B, C and D in the ratio of 3/10:4/10:2/10:1/10

A’s New Ratio = 4/5 of 3/10 = 12/50

B’s New Ratio = 4/5 of 4/10 = 16/50

C’s New Ratio = 4/5 of 2/10 = 8/50

D’s New Ratio = 4/5 of 1/10 = 4/50

E’s New Ratio = 1/5
New Profit Sharing Ratio = 12/50:16/50:8/50:4/50:1/5
New Profit Sharing Ratio = (12 ∶ 16 ∶ 8 ∶ 4 ∶ 5)/50
New Profit Sharing Ratio = 12 ∶ 16 ∶ 8 ∶ 4 ∶ 5

Points for Students:-
The following two entries are passed for this purpose.
(a) Cash/Bank A/c Dr.
To Premium for Goodwill A/c
(The amount of goodwill/premium brought in cash by new partner)
(b) Premium for Goodwill A/c Dr.
To Old Partner’s Capital A/c
(The amount of goodwill/premium transferred to old partner’s capital accounts in sacrificing ratio)

Question 18. A and B are partners in a firm sharing profits in the ratio of 3:1. They admit C and decide that the profit-sharing ratio between B and C shall be same as Existing between A and B. Calculate new profit-sharing ratio and the sacrificing ratio.

Solution 18
Old Ratio of A and B = 3:1
New Ratio of B and C = 3:1.
C’s share = 1/4
Remaining Share = 1-1/4 = 3/4

A’s New Ratio = 3/4× 3/4=9/16

B’s New Ratio = 3/4× 1/4=3/16

C’s New Ratio = 1/4
New Ratio of A, B and C = 9 : 3 : 1.

Computation of Sacrificing Ratio:-
Sacrificing Ratio = Old Ratio – New Ratio
A’s Sacrificing Ratio = 3/4-3/16=(12 – 9)/16= 3/16
B’s Sacrificing Ratio = 1/4-3/16=(4 – 3)/16= 1/16
Sacrificing Ratio = 3 : 1.

Points for Students:-
Computation of Sacrificing Ratio:-
Sacrificing Ratio = Old Ratio – New Ratio

Question 19. A, B and C are partners sharing in the ratio of 4 : 3 : 2. They admit D for, 1/9th share. It is agreed that A would retain his original share. Calculate the new and sacrificing ratios.

Solution 19
Old Ratio of A, B and C = 4 : 3 : 2
D’s Share = 1/9
Remaining Share = 1-1/9=8/9

A’s New share = 4/9

Remaining Share = 8/9-4/9=4/9

B’s New Share = 3/5 of 4/9 = 12/45

C’s New Share = 2/5 of 4/9 = 8/45

The New Ratio A, B, C and D = 4/9:12/45:8/45:1/9
The New Ratio A, B, C and D = (20 ∶ 12 ∶ 8 ∶ 5)/45
The New Ratio A, B, C and D = 20 ∶ 12 ∶ 8 ∶ 5

Computation of Sacrificing Ratio:-
B’s Sacrificing = 3/9-12/45=(15 – 12)/45=3/45

C’s Sacrificing = 2/9-8/45=(10 – 8)/45=2/45

Sacrificing Ratio among B and C = 3:2

Points for Students:-
If new partner brings his share of goodwill in cash, and if the Goodwill Account already appears in the books of the firm, first of all the existing Goodwill Account will have to be written off. For this purpose old partner’s Capital Account are debited in their old profit sharing ratio and Goodwill Account is credited. Thus, the following entry is passed to write off the existing goodwill:
Old Partner’s Capital A/c Dr.
To Goodwill A/c
(Goodwill written off in old ratio)

Question 20. P, Q and R are partners sharing profits and losses in the ratio of 5:3:2. S is admitted as a new partner for 1/5th share. P sacrifices 1/10th from his share in favour of S and remaining sacrifice was made Q and R in the ratio of 2 : 1. Calculate sacrificing ratio and new profit sharing ratio.

Solution 20
Computation of Sacrificing Ratio:-
S’s Share = 1/5
P surrender for S = 1/10
Remaining Share of S = 1/5-1/10=(2 – 1)/10= 1/10
1/10 share of sacrificed Q and R in the ratio of 2:1
Q’s Sacrifice = 1/10 of 2/3 = 2/30

R’s Sacrifice = 1/10 of 1/3 = 1/30

Sacrifice Ratio of P, Q and R = 1/10:2/30:1/30
Sacrifice Ratio of P, Q and R = (3 ∶ 2 ∶ 1)/30
Sacrifice Ratio of P, Q and R = 3 ∶ 2 ∶ 1

Computation of New Ratio:-
P’s New Share = 5/10- 3/30=(15 – 3)/30=12/30
Q’s New Share = 3/10- 2/30=(9 – 2)/30=7/30
R’s New Share = 2/10- 1/30=(6 – 1)/30=5/30

S’s New Share = 1/5
New Ratio of P, Q, R and S = 12/30:7/30:5/30:1/5

New Ratio of P, Q, R and S = (12 ∶ 7 ∶ 5 ∶ 6)/30
New Ratio of P, Q, R and S = 12∶ 7∶ 5 ∶ 6

Points for Students:-
When the new partner does not bring his share of goodwill/premium in Cash: Accounting Standard (AS) 26 (Intangible Assets) Specifies that goodwill can be recorded in the books only when some consideration in money or money’s worth has been paid for it. It means that only purchased goodwill can be recorded in the books. At the time of admission, retirement or death of a partner or in case of change in profit sharing ratio among existing partners, goodwill account cannot be raised in the books of the firm because it will be non-purchased goodwill and no consideration in money or money’s worth has been for it.

Question 21. L, M and N are partners sharing profits in the ratio of 3:2:1. They admit O in partnership. O brings in cash Rs. 4,50,000 as Capital and Rs. 1,50,000 as goodwill for 1/5th share of profits. Pass journal entries and find out new profit sharing ratios when: (a) Goodwill is retained in the firm; (b) goodwill is withdrawn old partners.
Solution 21
(a) Goodwill is retained in the firm:-

Working Note:-
O’s Share = 1/5
Remaining Share = 1-1/5=4/5

L’s New Ratio = 3/6 of 4/5 = 12/30=2/5

M’s New Ratio = 2/6 of 4/5 = 8/30=4/15

N’s New Ratio = 1/6 of 4/5 = 4/30=2/15

O’s New Ratio = 1/5

New Profit Sharing Ratio = 2/5:4/15:2/15:1/5
New Profit Sharing Ratio = (6 ∶ 4 ∶ 2 ∶ 3)/15
New Profit Sharing Ratio = 6 ∶ 4 ∶ 2 ∶ 3

Points for Students:-
New partner’s current account is debited from his share of goodwill and the old partner’s capital accounts are credited in their sacrificing ratio. Following Journal entry is passed for this purpose:
New Partner’s Current A/c Dr. (From his share of goodwill)
To Old Partner’s Capital A/c (In sacrificing ratio)
(Current Account of new partner debited from his share of goodwill on his admission and Capital Accounts of old partner’s credited in their sacrificing ratio)

Question 22. P and Q are partners sharing profits and losses in the ratio of 2:1. They admit R in from partnership for 4/9th share in profit which he acquires equally from P and Q. R brings in cash Rs. 2,50,000 as a Capital and Rs. 1,80,000 as goodwill. Pass journal entries and find new profit sharing ratio.
Solution 22
(a) Goodwill is retained in the firm:-

Working Note:-
R’s Share = 4/9 which he acquires from P and Q.
P’s surrender = 1/2 of 4/9 = 2/9
Q’s surrender = 1/2 of 4/9 = 2/9

Computation of New Profit Sharing Ratio:-
P’s New Ratio = 2/3 – 2/9 = (6 – 2)/9=4/9
Q’s New Ratio = 1/3 – 2/9 = (3 – 2)/9=1/9
R’s New Ratio = 4/9

New Profit Sharing Ratio = 4/9:1/9:4/9
New Profit Sharing Ratio = (4 ∶ 1∶ 4)/9
New Profit Sharing Ratio = 4 ∶ 1 ∶ 4

Points for Students:-
When the amount of goodwill/premium brought by the new partner is retained in the business: If the new partner brings in his share of goodwill in cash and this amount is retained in the business, the amount is credited to the Capital Accounts of old partners in their sacrificing ratio. The following two entries are passed for this purpose.
(a) Cash/Bank A/c Dr.
To Premium for Goodwill A/c
(The amount of goodwill/premium brought in cash by new partner)
(b) Premium for Goodwill A/c Dr.
To Old Partner’s Capital A/c
(The amount of goodwill/premium transferred to old partner’s capital accounts in sacrificing ratio)

Question 23. X and Y are partners Sharing profits in the ratio of 4:3. Z joins partnership for 2/7th share in the profits of which he acquires 3/4th from X and 1/4th from Y. Z brings in Rs. 3,00,000 for his Capital and Rs.1,20,000 for goodwill. Half of the amount of goodwill is withdrawn the old partners. Pass necessary Journal entries and find out new profit sharing ratio.
Solution 23

Working Note:-
Z’s Share = 4/9 which he acquires 3/4th from P and 1/4th from Q.

X’s surrender = 3/4 of 2/7 = 3/14

Y’s surrender = 1/4 of 2/7 = 1/14

Computation of New Profit Sharing Ratio:-
X’s New Ratio = 4/7 – 3/14 = (8 – 3)/14=5/14

Y’s New Ratio = 3/7 – 1/14 = (6 – 1)/14=5/14
Z’s New Ratio = 2/7

New Profit Sharing Ratio = 5/14:5/14:2/7
New Profit Sharing Ratio = (5 ∶ 5 ∶ 4)/14
New Profit Sharing Ratio = 5 ∶ 5 ∶ 4

Question 24. K and Y were partners in a firm sharing profits in 3 : 2 ratio. They admitted Z as a new partner for 1/3rd share in the profits of the firm. Z acquired his share from K and Y in 2:3 ratio. Z brought Rs. 80,000 for his Capital and Rs. 30,000 for his 1/3rd share as premium. Calculate the new profit sharing ratio of K, Y and Z and pass necessary journal entries for the above transactions in the books of the firm.
Solution 24

Working Note:-
K’s surrender = 2/5 of 1/3 = 2/15

Z’s surrender = 3/5 of 1/3 = 3/15

Computation of New Profit Sharing Ratio:-
K’s New Ratio = 3/5 – 2/15 = (9 – 2)/15=7/15
Y’s New Ratio = 2/5 – 3/15 = (6 – 3)/15=3/15
Z’s New Ratio = 1/3

New Profit Sharing Ratio = 7/15:3/15:1/3
New Profit Sharing Ratio = (7 ∶ 3 ∶ 5)/15
New Profit Sharing Ratio = 7∶ 3 ∶ 5

Points for Students:-
If there is no claim against Workmen Compensation Reserve: In such a case, the entire amount of Workmen Compensation Reserve is credited to the Capital Accounts of old partners in their old profit sharing ratio:
The Journal entry passed is:
Workmen Compensation Reserve A/c Dr.
To Partner’s Capital A/c
(Workmen Compensation Reserve credited to old partner’s Capital Account in their old profit sharing ratio)

Question 25. Anju and Manju are partners, sharing profits and losses in the proportion of 7:5. They agreed admit Meenu, their manager, in partnership, who is get one sixth share in the business. Meenu brings in Rs. 2,00,000 for her Capital and Rs. 96,000 for 1/6th share of goodwill which she acquires 1/24th from Anju and 1/8th from Manju. The profit for the first year of the new partnership amount Rs. 4,80,000.
Make the necessary Journal entries in connection with Meenu’s admission and divide the profit between the partners.
Solution 25

Working Note:-
Computation of New Profit Sharing Ratio:-
Anju’s New Ratio = 7/12 – 1/24 = (14 – 1)/24=13/24
Manju’s New Ratio = 5/12 – 1/8 = (10 – 3)/24=7/24
Meenu’s New Ratio = 1/6

New Profit Sharing Ratio = 13/24:7/24:1/6
New Profit Sharing Ratio = (13 ∶ 7 ∶ 1)/24
New Profit Sharing Ratio = 13∶ 7 ∶ 4

Computation of Profit:-

Anju’s Profit = Rs. 4,80,000 × 13/24 = Rs. 2,60,000
Manju’s Profit = Rs. 4,80,000 × 7/24 = Rs. 1,40,000
Meenu’s Profit = Rs. 4,80,000 × 4/24 = Rs. 80,000

Points for Students:-
If the claim for workmen compensation is lower than the amount of Workmen Compensation Reserve: The amount of claim is credited to ‘Provision for Workmen Compensation Claim A/c’ and balance is credited to the Capital Accounts of old partners in their old profit sharing ratio (Suppose Workmen Compensation Reserve is Rs.50,000 and liability for claim is Rs.20,000). The Journal entry passed is:
Workmen Compensation Reserve A/c Dr. 50,000
To Provision for Workmen Compensation Claim A/c 20,000
To Partner’s Capital A/c 30,000

Q26. A, B and C were partners in a firm sharing profits and losses in the ratio of 3:2:1. They admit D in partnership with 1/4th share which he acquires from A and B in the ratio of 2 : 1. On D’s admission the goodwill of the firm is valued at Rs. 6,00,000. However. D is unable bring his share of goodwill in cash.
Pass necessary journal entry and also calculate the new profit sharing ratio.
Solution 26

Working Note:-
A’s surrender = 1/4 of 2/(3 ) = 2/12
B’s surrender = 1/4 of 1/3 = 1/12

Computation of New Profit Sharing Ratio:-
A’s New Ratio = 3/6 – 2/12 = (6 – 2)/12=4/12
B’s New Ratio = 2/5 – 3/15 = (4 – 1)/12=3/12
C’s New Ratio = 1/6
D’s New Ratio = 1/4

New Profit Sharing Ratio = 4/12:3/12:1/6:1/4
New Profit Sharing Ratio = (4 ∶ 3 ∶ 2 ∶ 3)/12|
New Profit Sharing Ratio = 4∶ 3 ∶ 2∶3
Value of Goodwill = Rs. 6,00,000 × 1/4 = Rs. 1,50,000
A’s Share = Rs. 1,50,000 × 2/3 = Rs. 1,00,000
B’s Share = Rs. 1,50,000 × 1/3 = Rs. 50,000

Points for Students:-
If the claim is equal to Workmen Compensation Reserve: Entire amount of Workmen Compensation Reserve is transferred to Provision for Workmen Compensation Claim A/c:
Workmen Compensation Reserve A/c Dr.
To Provision for Workmen Compensation Claim A/c
(Provision made for Workmen Compensation Claim)

Q27. X and Y share profits and losses in the ratio of 3:2. They admit Z as a partner who pays Rs. 72,000 as premium for goodwill for 1/4th share in the future profits of the firm.
Pass Journal entries appropriating the premium money and show the new profit sharing ratio in each of the following s :
(i) If he acquires his share of profits in the original ratio of existing partners.
(ii) If he acquires his share of profits in equal proportions from the existing partners.
(iii) If he acquires his share in the ratio of 2:3 from the existing partners
(iv) If he acquires his share of profits as 7/32th from X and 1/32th from Y.
[Ans. New Ratio : (i) 9: 6:5 (ii) 19: 11 : 10
(iii) 2:1:1 (iv) 61 : 59:40
Sacrificing Ratio for goodwill distribution:
(i) 3:2 (ii) 1:1
(iii) 2:3 (iv) 7:1]
Solution 27
First :-

Working Note:-
Old Ratio of X and Y = 3:2
Z’s Share = 1/4
Remaining Share = 1-1/4= 3/4

X’s New Share = 3/5 of 3/4 = 9/20
Y’s New Share = 2/5 of 3/4 = 6/20
Z’s New Share = 1/4

New Profit Sharing Ratio = 9/20:6/20:1/4
New Profit Sharing Ratio = (9 ∶ 6 ∶ 5)/20
New Profit Sharing Ratio = 9 ∶ 6 ∶ 5
Sacrificing Ratio = 3:2

Second :-

Working Note:-
Sacrificing Ratio = 1:1

Z acquires 1/2 of 1/4 = 1/8 from each of X and Y.
X’s New Ratio = 3/5- 1/8=(24 – 5)/40= 19/40

Y’s New Ratio = 2/5- 1/8=(16 – 5)/40= 11/40
Z’s New Ratio = 1/4

New Profit Sharing Ratio = 19/40:11/40:1/4
New Profit Sharing Ratio = (19 ∶ 11 ∶ 10)/40
New Profit Sharing Ratio = 19 ∶ 11 ∶ 10

Third :-

Points for Students:-
Concept Hidden Goodwill: Sometimes, the value of goodwill is hidden in the question. In such cases, the amount of goodwill is calculated on the basis of total capital of the firm and the profit sharing ratio of the partners. For example, A and B partners with capitals of Rs. 40,000 and Rs. 30,000 respectively. They admit C as a partner with 1/4 th share. C is to contribute Rs. 34,000 as his capital. In such a case, the total capital of the firm, based on C’s share ought to be Rs. 34,000 ×4/1 = 1,36,000. But the combined capital of A, B and C becomes only Rs.1,04,000 (Rs. 40,000 + Rs. 30,000 + Rs. 34,000). As such the value of total goodwill of the firm should be taken as Rs. 1,36,000 – Rs. 1,04,000 = Rs.32,000.

Question 28. A, B and C are partners in a firm sharing profits and losses in the ratio of 5:3:2. They admitted D as a new partner, who brings Rs. 5,00,000 as Capital and Rs. 2,10,000 as his share of goodwill in cash. A surrendered 1/5th of his share, B surrendered 1/6th of his share and C surrendered 1/8th of his share in favourof D.
Find out sacrifice ratio and Pass necessary journal entries for the above.
[Ans. Sacrificing Ratio 4:2:1]
Solution 28

Working Note:-
A’s Surrender = 5/10 of 1/5 = 1/10
B’s Surrender = 3/10 of 1/6 = 1/20
C’s Surrender = 2/10 of 1/8 = 1/40

Sacrificing Ratio = 1/10:1/20:1/40
Sacrificing Ratio = (4 ∶ 2 ∶ 1)/40
Sacrificing Ratio =4 ∶ 2 ∶ 1

Points for Students:-
When the new partner brings in proportionate capital: Sometimes the capital of the new partner is not given in the question. He may be required to bring in proportionate capital. In such cases the new partner’s capital will be calculated on the basis of the capitals of the old partners remaining after all adjustments and revaluation.

Question 29. Partners A, B and C share the profit of a business in the ratio of 3: 2: 1 respectively. For one-sixth share they admit D who brings in Rs. 2,00,000 including Rs.60,000 for his share of goodwill. Show the journal entries if A, B, C and D decide share the profits respectively in the ratio of (a) 15:10:5:6; (b) 5:3:2:2and (c) 2:2:1:1. Assume that the entire cash brought in D remains in the business. Give Journal entries.
Solution 29

Working Note:-
Computation of Sacrificing Ratios:-
Sacrificing Ratio = Old Ratio – New Ratio
(a)
A’s Sacrificing Ratio = 3/6-15/36=(18-15)/36=3/36
B’s Sacrificing Ratio = 2/6-10/36=(12-10)/36=2/36
C’s Sacrificing Ratio = 1/6-5/36=(6 – 5)/36=1/36
Sacrificing Ratio of A,B and C = 3/36:2/36:1/36
Sacrificing Ratio of A,B and C = 3∶2∶1

(b)
A’s Sacrificing Ratio = 3/6-5/12=(6 – 5)/12=1/12
B’s Sacrificing Ratio = 2/6-3/12=(4 – 3)/36=1/12
C’s Sacrificing Ratio = 1/6-2/12=(2 – 2)/12=0
Sacrificing Ratio of A,B and C = 1/12:1/12
Sacrificing Ratio of A,B and C = 1∶1

(c)
A’s Sacrificing Ratio = 3/6-2/6=(3 – 2)/6=1/6
B’s Sacrificing Ratio = 2/6-2/6=(2 – 2)/6=0
C’s Sacrificing Ratio = 1/6-1/6=(1 – 1)/6=0
A alone has sacrificed.

Question 30. X and Y are partners sharing profits and losses in the ratio of 3 : 2. They admit Z in partnership, Z paying a premium of Rs.1,00,000 for 1/4 share of the profits while X and Y as between themselves sharing profits and losses equally. Give journal entries.

Solution 30

Working Note:-
Computation of New Profit Sharing Ratio:-
Z’s Share = 1/4
Remaining Share = 1-1/4= 3/4

X’s New Profit Ratio = 3/4 of 1/2 = 3/8

Y’s New Profit Ratio = 3/4 of 1/2 = 3/8

Computation of Sacrificing Ratio:-
X’s Sacrificing Ratio = 3/5 – 3/8 = (24 -15)/40 = 9/40

Y’s Sacrificing Ratio = 2/5 – 3/8 = (16 -15)/40 = 1/40

Sacrificing Ratio of X and Y is 9:1.

Question 31. A, B and C are partners sharing profits and losses in the ratio of 3:2:1. They admit D for 1/4th share in the profits and he brought in Rs. 1,50,000 as his share of goodwill which was credited the Capital Accounts of B and C respectively with Rs. 1,25,000 and Rs. 25,000. Calculate the new profit sharing ratio.

Solution 31
Sacrificing Ratio B and C = 1,25,000 : 25,000, Which is 5 : 1.
B’s surrender = 1/4 of 5/6 = 5/24
C’s surrender = 1/4 of 1/6 = 1/24

Computation of New Profit Sharing Ratio:-
A’s New Ratio = 3/6
B’s New Ratio = 2/6 – 5/24 = (8 – 5)/24=3/24
C’s New Ratio = 1/6 – 1/24 = (4 – 1)/24=3/24
D’s New Ratio = 6/24

New Profit Sharing Ratio = 3/6:3/24:3/24:1/4
New Profit Sharing Ratio = (12 ∶ 3 ∶ 3 ∶ 6)/24
New Profit Sharing Ratio = 12∶ 3 ∶ 3∶6
New Profit Sharing Ratio = 4∶ 1 ∶ 1∶2

Points for Students:-
Adjustment of Old Partner’s Capital Accounts on the basis of new partner’s capital: Sometimes, on the admission of a new partner it is decided that the capitals of the old partners will be adjusted on the basis of new partner’s capital to make them proportionate to their share of profits. In such questions, first of all the entire Capital of the new firm should be determined on the basis of new partner’s capital. Then the Capital of each partner is ascertained by dividing the total Capital according to his profit sharing ratio

Question 32. X and Y are partners sharing profits and losses in the ratio of 2 : 1. They agree admit Z in partnership who gets 1/3rd share in the profits. Z brings in Rs. 50,000 for his Capital and the necessary amount for goodwill in cash. Goodwill of the firm is valued at Rs. 36,000. X, Y and Z agree share future profits equally. The amount of goodwill is withdrawn from the business. Pass Journal entries.
Solution 32

Working Note:-
Computation of Sacrificing Ratio:-
Sacrificing Ratio = Old Ratio – New Ratio
X’s Ratio = 2/3-1/3=(2 – 1)/3=1/3
Y’s Ratio = 1/3-1/3=0

Points for Students:-
Sometimes, the value of goodwill is hidden in the question. In such cases, the amount of goodwill is calculated on the basis of total capital of the firm and the profit sharing ratio of the partners.

Question 33. A and B are partners sharing profit and losses as 2:1. On 1st April, 2018 they admit C as a partner for 1/4th share who pays Rs.4,50,000 as goodwill privately. On 1st April, 2019, they take D as a partner for 3/5th share who brings Rs. 4,00,000 as goodwill, out of which half is withdrawn the existing partners. On 1st April,2020, E is admitted as a partner for 1/6th share who bring Rs. 5,00,000 as goodwill which is retained in the business.
Journalise the above transactions in the books of the firm.
Solution 33

Computation of New Profit Sharing Ratio:-
(i) C admitted for 1/4th Share
Remaining Share = 1-1/4= 3/4
A’s Share = 2/3 of 3/4 = 2/4
B’s Share = 1/3 of 3/4 = 1/4
C’s Share = 1/4
New Share = 2:1:1

(ii) D admitted for 3/5th Share
Remaining Share = 1-3/5= 2/5
A’s Share = 2/4 of 2/5 = 4/20=2/10
B’s Share = 1/4 of 2/5 = 2/20=1/10
C’s Share = 1/4 of 2/5 = 1/10
D’s Share = 3/5=6/10
New Share = 2:1:1:6

(iii) E admitted for 1/6th Share
Remaining Share = 1-1/6= 5/6
A’s Share = 2/10 of 5/6 = 10/60=1/6
B’s Share = 1/10 of 5/6 = 5/60=1/12
C’s Share = 1/10 of 5/6 = 5/60=1/12
D’s Share = 6/10 of 5/6 = 5/10
E’s Share = 1/6

New Profit Sharing Ratio = 1/6:1/12:1/12:5/10:1/6
New Profit Sharing Ratio = (10 ∶ 5 ∶ 5 ∶ 30 ∶10)/60
New Profit Sharing Ratio = 10 ∶ 5 ∶ 5 ∶ 30 ∶10
New Profit Sharing Ratio = 2∶ 1 ∶ 1∶6∶2

Points for Students:-
Whenever there is an admission of a new partner, old partners have to surrender some of their old shares in favour of the new partner. The ratio in which they surrender their profits is called sacrifice ratio. Goodwill is paid to the old partners in their sacrifice ratio because the goodwill is the amount of compensation to be paid by the new partner to the old partners for acquiring the share of profits which they have surrendered in favour of the new partner.

Question 34. P and Q are partners sharing profits and losses as 2:3. R and S are admitted and profit sharing ratio becomes 3:4:3:2. Goodwill is valued at Rs. 3,00,000, R brings required goodwill and Rs. 2,00,000 cash for Capital. S brings in Rs.1,00,000 cash and Mor Vehicle for Rs. 80,000 as as his Capital in addition the required amount of goodwill in cash. Show the necessary journal entries.
Solution 34

Working Note:-
1.) Computation of goodwill of R’s Share and S’s Share:-
Total goodwill of the firm = Rs. 3,00,000
R’s Share of goodwill = Rs. 3,00,000 × 3/12 = Rs. 75,000
S’s Share of goodwill = Rs. 3,00,000 × 2/12 = Rs. 50,000

2.) Computation of Sacrificing Ratio:-
Sacrificing Ratio = Old Ratio – New Ratio
P’s Sacrificing Ratio = 2/5-3/12=(24 – 15)/60= 9/60
Q’s Sacrificing Ratio = 3/5-4/12=(36 – 20)/60= 16/60

Sacrificing Ratio = 9/60:16/60
Sacrificing Ratio = 9 : 16.

Question 35. Asha and Aditi are partners in a firm sharing profits and losses in the ratio of 3:2.
They admit Raghav as a partner for 1/4th share in the profits of the firm. Raghav brings Rs. 6,00,000 as his Capital and his share of goodwill in cash. Goodwill of the firm is be valued at two years’ purchase of average profits of the last four years.
The profits of the firm during the last four years are given below :

Year	Profit(Rs.)
2013-14	3,50,000
2014-15	4,75,000
2015-16	6,70,000
2016-17	7,45,000

The following additional information is given :
(i) cover management cost an annual charge of Rs. 56,250 should be made for the purpose of valuation of goodwill.
(ii) The closing Stock for the year ended 31.3.2017 was overvalued Rs. 15,000.
Pass necessary journal entries on Raghav’s admission showing the working notes clearly.

Solution 35

Working Note:-
Average Profit = Total Profit × (Total Profit)/(Number of Year)

Total Profit = Rs. 3,50,000 + Rs. 4,75,000 + Rs. 6,70,000 + Rs. 7,30,000

Average Profit = 22,25,000/4
Average Profit = Rs. 5,56,250

Net Average Profit = Average Profit –Management Cost
Net Average Profit = Rs. 5,56,250 – Rs. 56,250
Net Average Profit = Rs. 5,00,000

Value of Firm’s Goodwill = Rs. 5,00,000 × 2
Value of Firm’s Goodwill = Rs. 10,00,000
Raghav’s Share in Goodwill = Rs. 5,00,000 × 1/4 = Rs. 2,50,000

Question 36. Ram and Rahim are partners in a firm sharing profits in the ratio of 3 : 2. On April 1, 2016 they admit Raj as a new partner for 3/13th share in the profits. The new ratio will be 5:5: 3. Raj contributed the following assets wards his Capital and or his share of goodwill : Land Rs.2,50,000; Plant & Machinery Rs. 1,50,000; Stock Rs.80,000 and Debtors Rs. 70,000. On the date of admission of Raj, the goodwill of the firm was valued at Rs. 5,20,000. Record necessary journal entries in the book if the firm.
Solution 36

Working Note:-
Computation of Sacrificing Ratio:-
Ram’s Share = 3/5-5/13=(39-25)/65=14/65
Rahim’s Share = 2/5-5/13=(26-25)/65=1/65

Sacrificing Ratio = 14/65:1/65
Sacrificing Ratio = 14 : 1
Raj’s Share in Goodwill = Rs. 5,20,000 × 3/13 = Rs. 1,20,000

Question 37.
(A)
A and B are partners, sharing profit and losses in the ratio of 3 : 2. Goodwill appears in their Balance Sheet at Rs. 24,000, when C is admitted in partnership for 1/5th share in profit. He pays Rs. 50,000 for Capital and Rs. 8,000 as goodwill. The ratio of the partners A, B and C in the new firm would be 2:2:1.
Pass journal entries in the books of the new firm record above adjustments.

Solution 37
(A)

Working Note:-
Computation of Sacrificing Ratio:-
A’s Share = 3/5-2/5=(3-2)/5=1/5
B’s Share = 2/5-2/5=(2-2)/5=0
A’s alone has sacrificed.

(A) Points for Students:-
When the amount of goodwill/premium brought by the new partner is retained in the business: If the new partner brings in his share of goodwill in cash and this amount is retained in the business, the amount is credited to the Capital Accounts of old partners in their sacrificing ratio. The following two entries are passed for this purpose.
(a) Cash/Bank A/c Dr.
To Premium for Goodwill A/c
(The amount of goodwill/premium brought in cash by new partner)
(b) Premium for Goodwill A/c Dr.
To Old Partner’s Capital A/c
(The amount of goodwill/premium transferred to old partner’s capital accounts in sacrificing ratio)

Question 37.
(B)
P and S are partners sharing profits in the ratio of 3:2. Their books showed goodwill at Rs. 20,000, R is admitted with 1/5th share which he acquires equally from P and S. R brings Rs. 20,000 as his Capital and Rs. 10,000 as his share of goodwill. Profits at the end of the year were of the amount of Rs. 1,00,000. You are required give journal entries carry out the above arrangement.

Solution 37
(B)

Working Note:-
Computation of New Ratio:-
R’s Share = 1/5
P’s Sacrificing = 1/10

S’s Sacrificing = 1/10

P’s Share = 3/5-1/10=(6-1)/10=5/10

S’s Share = 2/5-1/10=(4-1)/10=3/10

R’s Share = 1/10+1/10=(1+1)/10=2/10
New Share = 5:3:2

Profit Division:-
P’s Share = Rs. 1,00,000 × 5/10 = Rs. 50,000
S’s Share = Rs. 1,00,000 × 3/10 = Rs. 30,000
R’s Share = Rs. 1,00,000 × 2/10 = Rs. 20,000

(B) Points for Students:-
When goodwill appearing in the books:-
Partner’s Capital A/c Dr.
To Goodwill A/c
When new partners brought his capital and goodwill:-
Bank A/c Dr.
To New partners Capital A/c
To Premium for Goodwill A/c
When Goodwill distributed old partners
Premium for Goodwill A/c Dr.
To P’s Capital A/c
To S’ s Capital A/c

Question 37.
(C)
A and B carrying on business as partners used share profits losses thus; A 4/7ths and B 3/7ths, and goodwill appeared in the books of the firm at Rs. 2,80,000 when C was admitted as a partner having 1/7th share in profits and losses. C was asked pay a premium of Rs. 75,000 for goodwill, and the profit-sharing ratio as between A and B remained unchanged.
Show entries in the journal of the firm.

Solution 37
(C)

(C) Points for Students:-
When goodwill appearing in the books:-
Partner’s Capital A/c Dr.
To Goodwill A/c
When new partners brought his capital and goodwill:-
Bank A/c Dr.
To New partners Capital A/c
To Premium for Goodwill A/c
When Goodwill distributed old partners
Premium for Goodwill A/c Dr.
To P’s Capital A/c
To S’ s Capital A/c

Question 38. A and B are partners sharing profits and losses in 3 : 2. They admit C in partnership for 1/5th share in the profits. C pays in cash Rs. 40,000 for his Capital. Goodwill of the firm is valued at Rs. 25,000 but C is unable bring his share of goodwill in cash. Pass the necessary journal entries.
Solution 38

Working Note:-
Goodwill = Rs. 25,000
C’s Share of goodwill = Rs. 25,000 × 1/5 = Rs. 5,000

Points for Students:-
When Goodwill/Premium brought in by the new partner is withdrawn by the old partners: Sometimes, the amount of goodwill brought in by new partner is withdrawn by the old partners. In this case, in addition to the two Journal entries explained above, one more Journal entry is required to be passed:
Old Partner’s Capital A/c Dr.
To Cash/Bank A/c
(The amount of goodwill/premium withdrawn by the old partners)
It must be noted that sometimes partners withdraw only 1/2 or 1/4 th amount of goodwill. In such cases, entry should be passed with the withdrawn amount only.

Question 39. A and B are partners sharing profits in the ratio of 3 : 2. On 1st April, 2018 they admit C as a new partner for 1/4th share. C acquires 1/5th of his share from A.
Goodwill on C’s admission is be valued on the basis of Capitalisation of average profits of the last five years. Profits were :
Year ended
31st March, 2014 Profit Rs. 50,000
31st March, 2015 Profit Rs. 1,20,000 (including gain of Rs. 40,000 from sale of fixed assets)
31st March, 2016 Loss Rs. 60,000 (after charging Loss Fire Rs. 50,000)
31st March, 2017 Loss Rs. 1,00,000 (after charging voluntary retirement compensation paid Rs. 1,50,000)
31st March, 2018 Profit Rs. 1,90,000
On 1st April, 2018, the firm had assets of Rs. 7,00,000 and external liabilities of Rs. 2,20,000.
The normal rate of return on Capital is 12%.
C brings in Rs. 1,25,000 for his Capital but is unable bring his share of goodwill in cash.
(i) You are required calculate C’s share of goodwill,
(ii) Pass necessary journal entries, and
(iii) Calculate new profit sharing ratios.

Solution 39
(i) Computation of C’s Share of Goodwill:-

Years		Amount
31^st March, 2014		50,000
31^st March, 2015	(Rs. 1,20,000 – Rs. 40,000)	80,000
31^st March, 2016	(Rs. 60,000 – Rs. 50,000)	(10,000)
31^st March, 2017	(Rs. 1,00,000 – Rs. 1,50,000)	50,000
31^st March, 2018		1,90,000
	to Total Profit	3,60,000

Average Normal Profit = (toTotal Profit)/(Normal Year)
Average Normal Profit = 3,60,000/5
Average Normal Profit = Rs. 72,000
Capitalised Value of Average Profits = (Average Normal Profit)/(Normal Rate of Return)

Capitalised Value of Average Profits = 72,000/12 × 100 = Rs. 6,00,000
Capitalised Value of Average Profits = Rs. 6,00,000

Capital Employed = Total Assets – External Liabilities
Capital Employed = Rs. 7,00,000 – Rs. 2,20,000
Capital Employed = Rs. 4,80,000

Goodwill = Capitalised Value of Average Profits – Net Assets
Goodwill = Rs. 6,00,000 – Rs. 4,80,000
Goodwill = Rs. 1,20,000

C’s Share of Goodwill = Rs. 1,20,000 × 1/4 = Rs. 30,000
(ii)

Working Note:-
(1) C’s Share = 1/5
A’s Sacrificed = 1/4×1/5= 1/20
A’s Sacrificed = 1/4×4/5= 4/20
Sacrificing Ratio of A and B = 1 : 4

(2) Computation of New Profit Sharing Ratio:-
A’s New Ratio = 3/5-1/20=(12-1)/20=11/20
B’s New Ratio = 2/5-4/20=(8-4)/20=4/20
C’s New Ratio = 1/4

New Profit Sharing Ratio = 11/20:4/20:1/4
New Profit Sharing Ratio = (11 ∶ 4 ∶ 5 )/20
New Profit Sharing Ratio = 11 ∶ 4 ∶ 5

Question 40 (new). A and B are partners sharing profits in the ratio of 3:2. On 1st April, 2018 they admit C as a new partner for 1/4th share. C acquires 1/5th of his share from A.
Goodwill on C’s admission is to be valued on the basis of capitalisation of average profits of the last five years. Profit were:
Year ended

31^st March, 2014	Profit Rs. 50,000
31^st March, 2015	Profit Rs. 1,20,000 (including gain of Rs. 40,000 from sale of fixed assets)
31^st March, 2016	Loss Rs. 60,000 (after charging Loss by firm Rs. 50,000)
31^st March, 2017	Loss Rs. 1,00,000 (after charging voluntary retirement compensation paid Rs. 1,50,000)
31^st March, 2018	Profit Rs. 1,90,000

On 1^st April, 2018, the firm has assets of Rs. 7,00,000 and external liabilities of Rs. 2,20,000.
The normal rate of return on capital is 12%.
C bring in Rs. 1,25,000 for his capital but is unable to bring his share of goodwill in cash.
(i) You are required to calculate C’s share of goodwill,
(ii) Pass necessary journal entries, and
(iii) Calculate new profit sharing ratios.
Solution 40 (new). Profit of year 2014 = Rs. 50,000
Profit of year 2015 = Rs. 1,20,000 – Rs. 40,000 = Rs. 80,000
Profit of year 2016 = (Rs. 60,000) + Rs. 50,000 = (Rs. 10,000)
Profit of year 2017 = (Rs. 1,00,000) + (Rs. 1,50,000) = Rs. 50,000
Profit of year 2018 = Rs. 1,90,000
Total Profit = Rs. 50,000 + Rs. 80,000 – Rs. 10,000 + Rs. 50,000 + Rs. 1,90,000
Total Profit = Rs. 3,60,000
Average Profit = (Total Profit )/(Number of Years)
Average Profit = 3,60,000/5
Average Profit = Rs. 72,000
Net Assets = Assets – Liabilities
Net Assets = 7,00,000 – 2,20,000
Net Assets = 4,80,000
Capitalised Value = Average Profits × 100/(Normal rate of return)
Capitalised Value = Rs. 72000 × 100/12
Capitalised Value = Rs. 6,00,000

Calculation of Goodwill:-
Goodwill = Capitalised Value – Net Assets
Goodwill = Rs. 6,00,000 – Rs. 4,80,000
Goodwill = Rs. 1,20,000
a) C’s Goodwill = Rs. 1,20,000 × 1/4 = Rs. 30,000

Question 40. P, Q and R share profits in the ratio of 5:3:2. S was admitted in partnership. S brings in Rs. 30,000 as his Capital. S is entitled for 1/5th share in profits which he acquires equally from P, Q and R. Goodwill of the firm is be valued at three years’ purchase of last four years’ average profits. The profits of the last four years’ are Rs. 32,000, Rs. 38,000, Rs. 35,000 and Rs. 31,000 respectively. S cannot bring goodwill in cash. Goodwill already appears in the books at Rs. 50,000. Give Journal entries.
Solution 40

Working Note:-
Total Profit = Rs. 32,000 + Rs. 38,000 + Rs. 35,000 + Rs. 31,000 = Rs. 1,36,000

Average Profit = 1,36,000/4
Average Profit = Rs. 34,000
Goodwill = Rs. 34,000 × 3 = Rs. 1,02,000
S’s Share = Rs. 1,02,000 × 1/5 = Rs. 20,400

Question 41. A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. They admit C in partnership for 1/3rd share of profits. C brings Capital of Rs. 2,00,000. goodwill is valued at Rs. 1,50,000. Show what entries shall be made in the following s:
(i) Goodwill does not appear in the books;
(ii) Goodwill appears in the books at Rs. 90,000;
(iii) Goodwill appears in the books at Rs. 1,80,000.
Solution 41

Question 42. X and Y are partners sharing profits in the ratio of 3: 2. Goodwill appears in their balance sheet at Rs. 60,000. Z is admitted as a partner for 1/4th share in the profits. The Total goodwill of the firm is valued at Rs. 2,00,000.
Pass journal entries if :

Z cannot bring in cash his share of goodwill.
Z brings in cash his share of goodwill.

Solution 42

Question 43. X, Y and Z were partners sharing profits and loss, as X one half; Y one-third; and Z one-sixth. As from 1st April, 2019, they agreed admit A in partnership for one-sixth share in profits and losses, which is acquired equally from X and Y, and is bring in Rs. 50,000 for his Capital and Rs. 20,000 as premium for goodwill. A paid in his Capital money but in respect of premium for goodwill, he could bring in only Rs.15,000.
You are required :
i) Give the Journal entries carry out the above arrangements, and
ii) Work out the new profit-sharing ratio of the partners.
Solution 43

Working Note:-
A’s Share = 1/6
X’s Sacrifice = 1/12
Y’s Sacrifice = 1/12

Computation of New Share:-
X’s New Share = 1/2-1/12=(6-1)/12=5/12
Y’s New Share = 1/3-1/12=(4-1)/12=3/12
Z’s New Share = 1/6

A’s New Share = 1/6
New Ratio of X, Y, Z and A = 5/12:3/12:1/6:1/6
New Ratio of X, Y, Z and A = (5 ∶ 3 ∶ 2 ∶ 2)/12
New Ratio of X, Y, Z and A = 5 ∶ 3 ∶ 2 ∶ 2

Question 44. A and B are partners sharing profits in the ratio of 3:2. They admit C in the firm for 3/7th profits (which he takes 2/7th from A and 1/7th from B) and brings Rs. 6,00,000 as premium out of his share of Rs. 7,20,000. Goodwill account does not appear in the books of A and B.
Solution 44

Points for Students:-
Following two entries are passed for goodwill:-
(a) Cash/Bank A/c Dr.
To Premium for Goodwill A/c
(The amount of goodwill/premium brought in cash by new partner)
(b) Premium for Goodwill A/c Dr.
To Old Partner’s Capital A/c
(The amount of goodwill/premium transferred to old partner’s capital accounts in sacrificing ratio)

Question 45. A and B are partners sharing profits in the ratio 3:1. C is admitted as a partner with 2/9th share; A and B will in future get 4/9th and 3/9th share of profits. C pays Rs. 2,00,000 for goodwill. Pass the necessary journal entries.
Solution 45

Working Note:-
Old Ratio = 3 : 1
New Ratio = 4 : 3 : 2

Sacrificing or Gaining Ratio:-
A’s Share = 3/4-3/4=(27-16)/36=11/36 (Sacrifice)
B’s Share = 1/4-3/9=(9-12)/36=3/36 (Gain)
C’s Share = 2/9 (Gain)

Sacrificing Ratio = 11/(36 ):3/(36 ):2/9
Sacrificing Ratio = (11 ∶ 3 ∶8)/(36 )
Sacrificing Ratio = 11 : 3 : 8

C’s Share in Goodwill = Rs. 2,00,000 × 9/2 = Rs. 9,00,000
The amount of goodwill be contributed B will be Rs. 9,00,000 × 3/36 = Rs. 75,000

Question 46. X and Y are partners sharing profits in the ratio of 3 : 1. Z is admitted as a partner for which he pays Rs. 30,000 for goodwill in cash. X,Y and Z decided share future profits in equal proportion. You are required pass journal entries give effect the above.
Solution 46

Working Note:-
1) Sacrificing Ratio = Old Ratio-New Ratio
X’s Sacrificing Ratio = 3/4-1/3=(9-4)/12=5/12(Sacrifice)
Y’s Sacrificing Ratio = 1/4-1/12=(3 – 4)/12=-1/12 (Gain)

2) Goodwill of the firm = Rs. 30,000 × 3/1 = Rs. 90,000
Y’s Gain = Rs. 90,000 × 1/12 = Rs. 7,500

Question 47. A, B and C were partners in a firm sharing profits in the ratio of 2:2:1. They admitted D for 1/6th share in the profits. The new profit sharing ratio will be 13: 8:4:5 respectively. D brought Rs. 5,00,000 for his Capital and Rs. 60,000 for his share of goodwill. Pass necessary entries.
Solution 47

Working Note:-
Old ratio = 2:2:1
New ratio = 13:8:4:5
Sacrificing Ratio = Old Ratio – New Ratio
A’s Sacrificing Ratio = 2/5-13/30=(12 – 13)/30=-1/30(Gain)
B’s Sacrificing Ratio = 2/5-8/30=(12 – 8)/30=4/30 (Sacrifice)
C’s Sacrificing Ratio = 1/5-4/30=(6 – 4)/30=2/30 (Sacrifice)

Question 48. A and B were partners in a firm sharing profits in the ratio of 4: 1. They admitted C as a new partner on 1-3-2019 for 1/5th share. It was decided that A, B and C will share future profits in the ratio of 5: 3:2. C brought Rs. 20,000 in cash and machinery worth Rs. 60,000 for his share of profit as premium for goodwill. Showing
your Computations clearly, pass necessary journal entries in the books of the firm.
[Ans. A Gains 3/10, B Sacrifices 1/10 ,C Sacrifices 2/10. Entry will be:
Premium for Goodwill A/c Dr. 80,000
B’s Capital A/c Dr. 40,000
A’s Capital A/C 1,20,000]
Solution 48

Working Note:-
Old Ratio = 4 : 1
New Ratio = 5 : 3 : 2
Sacrificing Ratio = Old Ratio-New Ratio
A’s Sacrificing Ratio = 4/5-5/10=(8-5)/10=3/12(Sacrifice)
B’s Sacrificing Ratio = 1/5-3/10=(2 – 3)/10=-1/10 (Gain)

2) Goodwill of the firm = Rs. 80,000 × 5/1 = Rs. 4,00,000
Y’s Gain = Rs. 4,00,000 × 1/10 = Rs. 40,000

Points for Students:-
Premium for Goodwill A/c Dr.
Gaining partner’s Capital A/c Dr.
To Sacrificing partner’s Capital A/C

Question 49. Pass journal entries record the following transactions on the admission of a new partner:
(i) Land and Building is undervalued Rs. 2,00,000
(ii) Stock is overvalued 20% (Book Value of Stock Rs. 60,000)
(iii) Provision be made for compensation of Rs. 20,000 an ex-employee.
(iv) Sundry Debtors appeared in the books at Rs. 1,50,000. They are stimated produce not more than Rs. 1,30.000
(v) Creditors include an amount of Rs. 10,000 received as commission.
(vi) A bill of exchange of Rs. 40,000 which was previously discounted with the banker, was dishonoured on 31st March, 2018 but no entry has been passed for it.
(vii) Value of Machinery is be decreased Rs. 1,20,000 (Book Value Rs. 2,00,000). (viii) Value of Machinery is be decreased Rs. 1,20,000 (Book Value Rs. 2,00,000)
(ix) Expenses on revaluation amount Rs. 8,000 have been paid partner X.
Solution 49

Question 50. A and B were in partnership sharing profits and losses in the ratio of 3 : 1. On 1st April, 2018 they admit C as a partner on the following terms :
(a) That C brings Rs. 1,00,000 as his Capital and Rs. 50,000 for goodwill, half of which be withdrawn A and B.
(b) That the value of land and buildings be appreciated 15 per cent and that of Stocks and machinery & fixtures be reduced 7 and 5 per cent respectively.
(c) That provision for doubtful debts be made at 5 percent
(d) That Rs.15,000 be provided for an unforeseen liability.
(e) That C be given 1/5th share and the profit sharing ratio between A and B remain the same.
(f) That Rs. 11,000 is be received as commission, hence be accounted for.
The Balance Sheet of the old partnership as at 31st March 2018 sod as:

Liabilities	Rs.	Assets	Rs.
Sundry Creditors	3,50,000	Cash in hand	4,00,000
Capital Accounts: A 4,00,000 B 2,00,000	6,00,000	Book Debts Stock Machinery & Fixtures	2,00,000 1,80,000 2,00,000
		Land & Building	3,30,000
	9,50,000		9,50,000

Give necessary Journal entries, ledger accounts and the balance sheet of the newly constituted firm.
Solution 50

Working Note:-
Computation of Cash Balance:-

Opening Balance	40,000
Add: Amount of Capital brought in the new partner in cash	1,00,000
Add: Amount of Goodwill brought in the new partner in cash	50,000
	1,90,000
Less: Amount of goodwill withdrawn the old partners in cash	25,000
Closing Balance of Cash	1,65,000

Points for Students:-
Computation of Cash Balance:-
Opening Balance
Add: Amount of Capital brought in the new partner in cash
Add: Amount of Goodwill brought in the new partner in cash
Less: Amount of goodwill withdrawn the old partners in cash
Closing Balance of Cash

Question 51. Khushi and Sukhi are partners in a firm sharing profits in the ratio of 5:4. On April 1, 2019, they admit Muskan as a new partner and the new ratio is agreed at 3:2:1. On that date there was a balance of Rs. 63,000 in the profit and loss account and a balance of Rs. 45,000 in general reserve. Record the necessary journal entries.
Solution 51

Points for Students:-
If the existing capital of any partner is in excess of his newly calculated capital, the excess amount is either paid off immediately or credited to his current account. Following entry is passed for this purpose:
(i) Old Partner’s Capital A/c Dr.
To Bank A/c or Partner’s Current A/c
(ii) If the existing Capital of any partner is less than his newly calculated capital:
Bank A/c or Partner’s Current A/c
To Old Partner’s Capital A/c

Question 52. A and B were partners in a firm sharing profits in the ratio of 7 : 3. On 1-3-2019, they admitted C as a new partner for 1/6th share in the profits of the firm. They fixed the new profit sharing ratio as 3:2 : 1. The P & L A/c on the date of admission showed a balance of Rs. 20,000 (Cr.). The firm also had a reserve of Rs. 1,50,000. C is bring Rs. 40,000 as premium for his share of goodwill.
Showing your Computations clearly, pass necessary journal entries record the above transactions.
Solution 52

Working Note:-
Old Ratio of A and B = 7 : 3
New Ratio of A, B and C = 3:2:1

Computation of Sacrificing and Gaining Ratio:-
A’s Ratio = 7/10-3/6=(21-15)/30=6/30(Sacrifice)
B’s Ratio = 3/10-2/6=(9-10)/30=1/30(Gain)
B’s Ratio = 1/6 (Gain)

Goodwill of the firm = Rs. 40,000 × 6/1 = Rs. 2,40,000
B’s Compensation in Goodwill = Rs. 2,40,000 × 1/30 = Rs. 8,000

Question 53. X and Y are partners in a firm. On 1st April, 2020, they admitted Z as a partner and new profit sharing, ratio is agreed at 3:2:1. Their Balance Sheet disclosed ‘Workmen Compensation Reserve’ amounting Rs. 1,00,000 on this date. Show the Accounting treatment, if
(1) Claim for Workmen Compensation is estimated at Rs. 1,20,000.
(ii) Claim for Workmen Compensation is estimated at Rs. 90,000.
Solution 53

Question 54. A, B and C are partners sharing profits in 2:2:1. On 1st April, 2020, they admitted Z for 1/4th share. On the date of admission, the following items appeared in their Balance Sheet :
General Reserve Rs. 1,50,000
Workmen Compensation Reserve Rs. 40,000
Profit & Loss A/c (Cr.) Rs. 60,000
Advertisement Suspense A/c (Dr.) Rs. 25,000
Pass necessary journal entries.
Solution 54

Question 55. P and Q were partners sharing profits in the ratio of 2 : 1. On 1st April, 2020 they admitted R as a new partner and the new profit sharing ratio of P, Q and R is agreed at 3:1:1. R brought in Rs. 2,00,000 as his Capital and Rs. 60,000 as his share of premium for goodwill.
On the date of R’s admission, the Balance Sheet of P and Q showed a credit balance of Rs. 45,000 in Profit and Loss A/c and Workmen Compensation Reserve of Rs. 80,000. It was agreed that there was a claim of Workmen Compensation for Rs. 50,000. Pass necessary journal entries on R’s admission.
Solution 55

Points for Students:-
If there is no claim against Workmen Compensation Reserve: In such a case, the entire amount of Workmen Compensation Reserve is credited to the Capital Accounts of old partners in their old profit sharing ratio:
The Journal entry passed is:
Workmen Compensation Reserve A/c Dr.
To Partner’s Capital A/c
(Workmen Compensation Reserve credited to old partners Capital Account in their old profit sharing ratio)

Question 56. A and B sharing profits and losses in the ratio of 3 : 2 decide admit C for 1/3rd share. On this date, their Balance Sheet disclosed the following items :
Investments Fluctuation Reserve Rs.40,000
Investments (at cost) Rs. 3,00,000
Show the accounting treatment in the following s :
(i) If the market value of investments is Rs. 2,90,000
(ii) If the market value of investments is Rs. 2,45,000
(iii) If the market value of investments is Rs. 3,00,000
(iv) If the market value of investments is Rs. 3,25,000
Solution 56

Question 57. Charu and Deepika were partners sharing profits in the ratio 3 : 2. They admitted Esha, as a new partner and the new ratio is agreed at 4 : 3 : 2. On the date of Esha’s admission, the Balance Sheet of Charu and Deepika disclosed General Reserve Rs. 1,20,000; Dr. balance in Profit & Loss Account Rs. 40,000; Investments Rs. 2,00,000 and Investment Fluctuation Reserve Rs. 60,000.
The following was agreed upon Eshas’ admission:
(i) Esha will bring Rs. 3,00,000 as her Capital and her share of goodwill premium in cash.
(ii) Goodwill of the firm be valued Rs. 1,80,000.
(iii) The market value of investments was Rs. 2,30,000.
Pass the necessary journal entries.
Solution 57

Working Note:-
Computation of Sacrificing Ratio:-
Sacrificing Ratio = Old Ratio – New Ratio
Charu’s Share = 3/5-4/9=(27-20)/45=7/45
Deepika’s Share = 2/5-3/9=(18-15)/45=3/45
Sacrificing Ratio = 7 : 3

Question 58. A, B and C were partners in a firm sharing profits and losses in the ratio of 2:2:1. Their Balance Sheet as at 31st March, 2018 was as follows:

They admit D in partnership for 1/4th share on 1st April, 2018. Give necessary journal entries adjust the accumulated profits and losses.
Solution 58

Points for Students:-
Value of Investment brought down market value:-
Investment Fluctuation Reserves A/c Dr.
To Investments A/c
Reserves transfer partners’ Capital account:-
General Reserve A/c Dr.
Workmen Compensation Reserve A/c Dr.
Investment Fluctuation Reserve A/c Dr.
To A’s Capital A/c
To B’s Capital A/c
To C’s Capital A/c
Profit transfer partners’ Capital account:-
A’s Capital A/c Dr.
B’s Capital A/c Dr.
C’s Capital A/c Dr.
To Profit & Loss A/c

Question 59.
(A)
Vimal and Nirmal are partners sharing profits in the ratio of 3: 2. Following was the position of their business as at 31st March, 2018:

Liabilities	Rs.	Assets	Rs.
Sundry Creditors	20,000	Cash	14,000
Capital Accounts: Vimal Nirmal	60,000 32,000	Debtors Plant & Machinery Stock	18,000 50,000 40,000
Profit & Loss A/c	20,000	Goodwill	10,000
	1,32,000		1,32,000

On 1st April, 2018 Kailash agrees join the business on the following terms and conditions:
(i) He will introduce Rs. 40,000 as his Capital and pay $20,000 the existing partners for his share of goodwill.
(ii) The new profit sharing ratio will be 2:1: 1 respectively for Vimal, Nirmal and Kailash.
(iii) A revaluation of assets will be made reducing plant and machinery of Rs. 35,000 and Stock 10%. Provision of Rs. 1,000 is be created for bad and doubts debts.
Pass journal entries for the above arrangements and give the balance sheet of the newly constituted firm. Also specify the sacrificing ratio.
Solution 59
(A)

Working Note:-
Computation of Sacrificing Ratio:-
Sacrificing Ratio = Old Ratio – New Ratio
Charu’s Share = 3/5-2/4=(12-10)/20=2/20
Deepika’s Share = 2/5-1/4=(8-5)/20=3/20
Sacrificing Ratio = 2 : 3

(A) Points for Students:-
Revaluation Account: Sometimes this account is called as ‘Profit & Loss Adjustment A/c’. This account is a nominal account in nature. Therefore, if there is a loss due to revaluation, revaluation account is debited and if the revaluation results in a profit, the revaluation account is credited.

Question 59.
(B)
A and B are partners sharing profits in the ratio of 3 : 1. They admitted C as a partner giving him 1/4th share of profits which he acquired from A and B the ratio of 2 : 1. C brings in Rs. 1,00,000 as Capital and Rs. 36,000 as goodwill in cash. At the time of admission of C, general reserve appeared in their balance sheet at Rs. 50,000.
Following revaluations are also made :
Value of Plant is be reduced Rs. 10,000.
Bad Debts Provision is be reduced from Rs. 4,000 Rs. 3,000.
Rs. 2,000 Out of Total Creditors of Rs. 20,000 are not be paid.
There is an outstanding bill for repairs for Rs. 1,200.
Pass necessary journal entries and prepare a Revaluation Account. Also calculate the new profit sharing ratios.
Solution 59
(B)

Working Note:-
C’s Share = 1/4
A’s Sacrifice = 2/3 of 1/4 = 2/12
B’s Sacrifice = 2/3 of 1/4 = 1/12

Computation of New Share:-
A’s New Share = 3/4-2/12=(9-2)/12=7/12
B’s New Share = 1/4-1/12=(3-1)/12=2/12

New Ratio of A, B, and C = 7/12:2/12:1/4
New Ratio of A, B, and C = = (7 ∶ 2 ∶ 3)/12
New Ratio of A, B, and C = = 7 ∶ 2 ∶ 3

(B) Points for Students:-
New Ratio = Old Ratio – Surrender Share
We can calculate other formulas by the above formulas:-
Old Ratio = New Ratio + Surrender Share
Surrender Ratio = Old Ratio – New Share

Question 60. X and Y share profits in the ratio of 5 : 3. Their balance sheet as at 31st March, 2018 was as follows:

They admit Z in partnership on 1st April, 2018 with 1/8th share in profits. Z brings Rs. 20,000 as his Capital and Rs. 12,000 for goodwill in cash. Z acquires his share entirely from X.
Following revaluations are also made :

Provident fund is be increased Rs. 5,000.
Debtors are all good. Therefore, no provision is required on Debtors
Stock includes Rs. 3,000 for obsolete items.
Creditors are be paid Rs. 1,000 more.
Fixed Assets are be revalued at Rs. 70,000.
Prepare Journal entries, necessary accounts and new balance sheet. Also calculate the new profit sharing ratio.

Solution 60

Working Note:-
Computation of Sacrificing Ratio:-
Sacrificing Ratio = Old Ratio – New Ratio
X’s Share = 3/5-2/4=(12-10)/20=2/20
Y’s Share = 3/8
Z’s Share = 1/8
Sacrificing Ratio = 4 : 3 : 1

Points for Students:-
Entry of Revaluation Loss:-
X’s Capital A/c
Y’s Capital A/c
Revaluation A/c
(Loss on revaluation transfer old partner’s Capital account)

Question 61. X and Y were partners with Capitals of Rs. 4,00,000 and Rs. 3,50,000. They shared profits in the ratio of 3 : 2. On 1st April, 2017, they admitted Z for 1/5th share. On this date their Creditors were Rs. 3,20,000 and general reserve Rs. 1,80,000.
Their assets apart from cash consisted of Debtors Rs. 4,32,000; Stock Rs. 3,00,000 Patents, Rs. 74,000 and Building Rs. 2,04,000.
Z is bring in Rs. 3,00,000 as his Capital and bring in his share of Goodwill in Cash subject the following terms:
(a) Goodwill of the firm be valued at Rs. 5,00,000.
(b) Stock be valued at Rs. 2,94,000.
(c) Patents are valueless.
(d) There was a claim against the firm for damages amounting Rs. 20,000. The claim has now been accepted.
Prepare Revaluation Account, Partner’s Capital Accounts and the Balance Sheet of the new firm.
Solution 61

Working Note:-
Z’s Share of Goodwill = Rs. 5,00,000 × 1/5 = Rs. 1,00,000|
Cash Balance = Rs. 2,40,000 + Rs. 1,00,000 + Rs. 3,00,000 = Rs. 6,40,000

Question 62. X and Y are partners. They admit Z as a, partner and new profit sharing ratio is agreed at 3:2:1. The assets and liabilities are revalued as:
(i) A provision for doubtful debts @ 5% be made on Sundry Debtors. (Sundry Debtors Rs. 60,000).
(ii) Building was found undervalued Rs. 50,000 and Machinery overvalued Rs. 20,000.
(iii) Part of the Stock which had been included at a cost of Rs. 10,000 had been badly damaged in srage and could only expect realize Rs. 2,000.
(iv) Creditors were written off Rs. 6,000.
Pass necessary journal entries.
Solution 62

Question 63 (new). X and Y are partners. They admit Z as a, partner and new profit sharing ratio is agreed at 3:2:1. Z bring in capital of Rs. 1,50,000 and Rs. 40,000 as premium for goodwill in cash.
Their Balance Sheet was as follows:
Solution 63 (new).

(i) Provision for doubtful debts is found in excess by Rs. 4,000.
(ii) Building was found under valued by 20% and Machinery overvalued by 20%.
(iii) Part of the stock which had been included at a cost of Rs. 10,000 had been badly damaged in storage and could only expect to realize Rs. 2,000.
(iv) Creditors were written off Rs. 6,000.
Pass necessary journal entries.
Solution 63 (new).

Question 63. X, Y and Z are equal partners with Capitals of Rs. 1,50,000, Rs. 1,75,000 and Rs. 2,00,000 respectively. They agree admit W in equal partnership upon payment in cash of Rs. 1,50,000 for one-fourth share of the goodwill and Rs. 1,80,000 as his Capital, both sums remain in the business. The liabilities of the old firm amount Rs. 3,00,000 the assets apart from cash, consist of Mors Rs. 1,20,000; Furniture Rs. 40,000; Stock Rs. 2,65,000; Debtors Rs. 3,78,000. The Mors and Furniture were revalued at Rs. 95,000 and Rs. 38,000 respectively.
Draft Journal entries necessary give effect the above arrangement and show the initial Balance Sheet of the new firm.
Solution 63

Question 64. A and B are in partnership sharing profits and losses in the ratio of 3 : 1. Their Balance Sheet as at 31st Jan., 2020 was as follows:

Liabilities	Rs.	Assets	Rs.
Capital Accounts: A 4,50,000 B 2,00,000	6,50,000	Cash at Bank Sundry Debtors Stock	34,000 1,66,000 2,60,000
Sundry Creditors	30,000	Fixed Assets	2,20,000
	6,80,000		6,80,000

As from 1st February, 2020 they agree admit C as a partner. Share of A, B and e new firm will be 3:2:1 respectively. C contribute Rs. 1,20,000 as his Capital and Rs. 30,000 as his share of goodwill. The value of the fixed assets of the firm will be increased 10 % before the admission of C.
Pass entries and prepare the opening balance sheet of the firm.
Solution 64

Working Note:-
Old Ratio A and B = 3 : 1
New Ratio A, B and C = 3 : 2 : 1

Sacrificing and Gaining Ratio:-
A’s Share = 3/4-3/6=(9-6)/12=3/12 (Sacrifice)
B’s Share = 1/4-2/6=(3-4)/12=1/12 (Gain)
C’s Share = 1/6

Value of Goodwill of Firm = Rs. 30,000 × 6/1 = Rs. 1,80,000
Compensation paid B = Rs. 1,80,000 × 1/12 = Rs. 15,000

Question 65. Gautam and Rahul are partners in a firm, sharing profits and losses in the ratio of 2 : 3. Their Balance Sheet as at 31st March, 2020, was as follows:

Karim was be taken as a partner with effect from 1st April. 2020, on the following terms:
(a) The new profit sharing ratio of Gautam, Rahul and Karim would be 5:3:2
(b) Provision for Doubtful Debts would be raised 20% of Debtors.
(c) Karim would bring in cash, his share of Capital of Rs. 40,000 and his share of goodwill valued at Rs. 10,000.
(d) Gautam would take over the furniture at Rs. 22,000.
You are required :
Pass journal entries at the time of Karim’s admission.
Prepare the Balance Sheet of the reconstituted firm.
Solution 65

Working Note:-
Old Ratio Gautam and Rahul = 2 : 3
New Ratio Gautam, Rahul and Kabir = 5 : 3 : 2

Sacrificing and Gaining Ratio:-
Gautam’s Share = 2/5-5/10=(4-5)/10=1/12 (Gain)
Rahul’s Share = 3/5-3/10=(6-3)/10=3/10 (Sacrifice)

Kabir’s Share = 2/10
Value of Goodwill of Firm = Rs. 10,000 × 10/2 = Rs. 50,000
Compensation paid B = Rs. 50,000 × 1/10 = Rs. 5,000

Points for Students:-
If there is no claim against Workmen Compensation Reserve: In such a case, the entire amount of Workmen Compensation Reserve is credited to the Capital Accounts of old partners in their old profit sharing ratio:
The Journal entry passed is:
Workmen Compensation Reserve A/c Dr.
To Partner’s Capital A/c
(Workmen Compensation Reserve credited to old partners Capital Account in their old profit sharing ratio)

Question 66. A and B are in partnership sharing profits and losses in the ratio of 3 : 2. On 1st April 2018, they admitted C in partnership. He paid Rs. 50,000 as his Capital but nothing for Goodwill which was valued at Rs. 40,000 for the time. He acquired 1/5th share in the profits, equally from both partners. It was also decided that:
(i) Land and Building be written off Rs.20,000;
(ii) Stock be written down Rs. 3,200.
(iii) A provision of Rs. 1,000 be created for doubtful debts; and
(iv) An amount of Rs. 1200, included in Sundry Creditors, be written off as it is no longer payable.
The Balance Sheet of A and B as at 31st March, 2018 was as under:

Prepare revaluation Account, Partner’s Capital Accounts and new Balance Sheet of the firm.
Solution 66

Question 67. X and Y are partners in a firm sharing profits and losses in the ratio of 5: 3. On 31st March, 2018, their Balance Sheet was as under:

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Creditors	50,000	Bank	29,000
Provident Fund	15,000	Debtors	1,80,000
Workmen’s Compensation Reserve	40,000	Stock	1,25,000
Capitals A/cs : X 2,60,000 Y 1,35,000	3,95,000	Premises Advertisement Expenses	1,50,000 16,000
	5,00,000		5,00,000

On 1st April, 2018, Z is admitted as a partner. X surrenders 1/4th of his share and Y 1/3rd of his share in favour of Z. Goodwill is valued at Rs. 1,60,000. Z brings in only 2/5th
of his share of goodwill in cash and Rs. 1,50,000 as his Capital Following terms are agreed upon:
1. Premises is be increased Rs. 2,00,000 and Stock Rs. 5,000.
2. Creditors proved at Rs. 60,000, one bill for goods purchased having been omitted from the books.
3. Outstanding rent amounted Rs. 12,000 and prepaid salaries Rs. 2,000.
4. Liability on account of provident fund was only Rs. 10,000
5. Liability for Workmen’s Compensation Claim was Rs. 16,000
Prepare Revaluation A/c, Capital A/cs and the opening Balance sheet. Also calculate the new profit sharing ratios.
Solution 67

Working Note:-
Computation of Sacrificing Ratio:-
X’s Surrenders = 1/4th of 5/8 in favour of Z

X’s Surrenders = 1/4×5/8=5/32
Y’s Surrenders = 1/3th of 5/8 in favour of Z
Y’s Surrenders = 1/3×3/8=3/32=1/8
Sacrificing Ratio = 5/32 ∶ 1/8

Sacrificing Ratio = (5 ∶ 4)/32
Sacrificing Ratio = 5 : 4

Computation of New Ratio:-
X’s New Ratio = 5/8-5/32=(20 – 5)/32=15/32
Y’s New Ratio = 3/8-1/8=(3 – 1)/8=2/8
Z’s Share = 5/32+1/8=(5+ 4)/32=9/32

New Ratio = 15/32:2/8:9/32
New Ratio = (15 ∶ 8 ∶ 9)/32
New Ratio = 15 ∶ 8 ∶ 9

Computation of Goodwill:-
Z’s Goodwill = Rs. 1,60,000 × 9/32 = Rs. 45,000

Question 68.
(A)
Hemant and Nishant were partners in the firm sharing profits in the ratio of 3:2. Their Capitals were Rs 1,60,000 and Rs 1,00,000 respectively. They admitted Somesh on 1st April 2013 as a new partner for 1/5 share in the future profits. Somesh brought Rs 1,20,000 as his Capital. Calculate the value of goodwill of the firm and record necessary journal entries for the above transactions on Somesh’s admission.
Solution 68
(A)

Question 68.
(B)
X and Y are partners with Capital of Rs. 13,00,000 and Rs. 20,00.000 They share profits in the ratio of 1 : 2. They admit Z as a partner with 1/5th share in the profits of the firm. Z brings in Rs. 12,00,000 as his share of Capital. The Profit and Loss Account showed a credit balance of Rs. 6,00,000 as on the date of admission of Z. Give the necessary Journal entries record the goodwill.
Solution 68
(B)

Working Note:-
Computation of Hidden Goodwill
Total Capital of the firm = Rs. 13,00,000 + Rs. 20,00,000 + Rs. 12,00,000 = Rs. 45,00,000
Total Capital of the firm based on Z’s Capital = 12,00,000 × 5/1 = Rs. 60,00,000

Goodwill of the firm = Rs. 60,00,000 – Rs. 45,00,000 = Rs. 15,00,000
Hidden Goodwill = Goodwill of the firm – Showing in P & L
Hidden Goodwill = Rs. 15,00,000 – Rs. 6,00,000
Hidden Goodwill = Rs. 9,00,000
Z’s Share of Goodwill = Rs. 9,00,000 × 1/5 = 1,80,000

Question 69. Asin and Shreya are partners in a firm. They admit Ajay as a new partner with 1/5th share in the profits of the firm. Ajay brings Rs. 5,00,000 as his share of Capital. The value of the Total assets of the firm was Rs. 15,00,000 and outside liabilities were valued at Rs. 5,00,000 on that date. Give the necessary Journal entry record goodwill at the time of Ajay’s admission. Also show your workings.
Solution 69

Working Note:-
Computation of Hidden Goodwill
Net Worth = Sundry Assets – Outside Liabilities
Net Worth = Rs. 15,00,000 – Rs. 5,00,000
Net Worth = Rs. 10,00,000
Net Worth = Rs. 10,00,000 + Rs. 5,00,000 = Rs. 15,00,000
Total Capital of the firm based on Ajay’s Capital = 5,00,000 × 5/1 = Rs. 25,00,000

Goodwill of the firm = Rs. 25,00,000 – Rs. 15,00,000 = Rs. 10,00,000
Hidden Goodwill = Goodwill of the firm – Showing in P & L
Hidden Goodwill = Rs. 10,00,000
Ajay’s Share of Goodwill = Rs. 10,00,000 × 1/5 = 2,00,000

Question 70. A, B and C were partners in a firm sharing profits in the ratio of 2:1:1. Their respective Capitals were A Rs. 3,00,000, B Rs. 2,00,000 and C Rs. 1,80,000. On 1st April 2018 they admitted D as a new partner. D brought Rs. 2,00,000 for his Capital and necessary amount for his share of goodwill premium. The new profit sharing ratio between A, B, C and D will be 1:2:1:1.
Pass necessary journal entries for the above transactions in the books of the firm D’s admission.
Solution 70

Working Note:-
Computation of Hidden Goodwill
Net Worth = Rs. 3,00,000 + Rs. 2,00,000 + Rs. 1,80,000 + Rs. 2,00,000
Net Worth = Rs. 8,80,000
Total Capital of the firm based on D’s Capital = 2,00,000 × 5/1 = Rs. 10,00,000
Hidden Goodwill = Rs. 10,00,000 – Rs. 8,80,000 = Rs. 1,20,000
D’s Share of Goodwill = Rs. 1,20,000 × 1/5 = 24,000

Question 71. Following figures have been extracted from the books of X and y who share profit and losses in the ratio of 7:3.
Rs.
X’s Capital 3,00,000
Y’s Capital 1,50,000
Reserve 1,60,000
Profit & Loss Account 40,000
Advertisement Expenditure 10,000
On the date, they admit Z for 1/5th share and the new profit sharing ratio is agreed at 3:1:1. Z bring in rs. 3,00,000 as his Capital. Pass journal entry for recording goodwill.
Solution 71

Working Note:-
Computation of Hidden Goodwill
Net Worth = Rs. 3,00,000 + Rs. 1,50,000 + Rs. 1,60,000 + Rs. 40,000 – Rs. 10,000 + 3,00,000 (Z’s Capital)
Net Worth = Rs. 9,40,000
Total Capital of the firm based on Z’s Capital = 3,00,000 × 5/1 = Rs. 15,00,000

Hidden Goodwill = Rs. 15,00,000 – Rs. 9,40,000 = Rs. 5,60,000
Z’s Share of Goodwill = Rs. 5,60,000 × 1/5 = 1,12,000

Computation of Sacrificing Ratio:-
X’s Sacrifice = 7/10-3/5=(7 – 6)/10=1/10
Y’s Sacrifice = 3/10-1/5=(3 – 2)/10=1/10
Sacrificing Ratio = 1:1

Question 72. Following is the Balance Sheet of X and Y who share profits and losses in the ratio of 3:2 as at 31st March, 2018

Liabilities	Rs.	Assets	Rs.
Sundry Creditors	80,000	Cash at Bank	20,000
Reserve	1,00,000	Debtors	70,000
Profit & Loss Account	40,000	Stock	1,80,000
Capital Accounts: X 2,70,000 Y 1,60,000	4,30,000	Machinery Goodwill	3,50,000 30,000
	6,50,000		6,50,000

On 1st April 2018, Z is admitted as a new partner. X surrenders 1/3rd of his share and Y surrenders1/4th of his share in favour of Z. Z brings in Rs. 3,60,000 for his share of Capital. Pass journal entries for recording goodwill.
Solution 72

Working Note:-
Computation of Hidden Goodwill
Net Worth = Rs. 2,70,000 + Rs. 1,60,000 + Rs. 1,00,000 + Rs. 40,000 – Rs. 30,000 + Rs. 3,60,000(Z’s Capital)
Net Worth = Rs. 9,00,000
Total Capital of the firm based on Z’s Capital = 3,60,000 × 10/3 = Rs. 12,00,000
Hidden Goodwill of the firm = Rs. 12,00,000 – Rs. 9,00,000 = Rs. 3,00,000
Z’s Share of Goodwill = Rs. 3,00,000 × 3/10 = 90,000

Computation of Sacrificing Ratio:-
X’s Surrenders = 1/3 of 3/5=3/15=1/5
Y’s Surrenders = 1/4 of 2/5=2/20=1/10
Sacrificing Ratio = 1/5 : 1/10
Sacrificing Ratio = (2 ∶ 1)/10
Sacrificing Ratio = 2 ∶ 1

Question 73. The Balance Sheet of A and B as at 31st March, 2018 is given below:

Liabilities	Amount Rs.	Assets	Amount Rs.
A’s Capital	60,000	Freehold Property	20,000
B’s Capital	30,000	Furniture	6,000
General Reserve	24,000	Stock	12,000
Creditors	16,000	Debtors	80,000
		Cash	12,000
	1,30,000		1,30,000

A and B share profits and losses in the ratio of 2:1. They agree admit P in the firm subject the following terms and conditions:
(a) P will bring in Rs. 21,000 of which Rs. 9,000 will be treated as his share of Goodwill be retained in the business.
(b) P will be entitled ¼ share of profit of the firm.
(c) 50% of the General Reserve is remain as a provision for bad and doubtful debts.
(d) Furniture is be depreciated 5%.
(e) Stock is be revalued at Rs. 10,500.
Prepare Revaluation Account, Capital Accounts and Opening Balance Sheet of the new firm.
Solution 73

Question 74 (new). A, B and C are partners sharing profits and losses in the ratio of 6:3:1. Their respective capitals are A Rs. 5,00,000; B Rs. 4,00,000 and C Rs. 2,00,000. They decide to admit D into partnership and the new profit sharing ratio is agreed at 3:3:3:1.
D bring Rs. 1,50,000 as his capital and his share of goodwill in cash. At the time of D’s admission:
(a) The firm had a workmen compensation reserve of Rs. 1,00,000 against which there was a claim of Rs. 1,20,000.
(b) Advertisement Suspense A/c (Dr.) balance appeared in their books at Rs. 30,000.
(c) Contingency Reserve appeared at Rs. 60,000.
Solution 74 (new). Calculation of Hidden Goodwill of the firm:
Total Capital of the firm based on new partner’s capital: Rs. 1,50,000 × 10/1 = 15,00,000
Less: Net worth of the business:
Adjusted Capital of all the partners
(Capital + Workmen Compensation Reserve + Creditors)
A = 5,00,000 + (12,000) + (18,000) + 36,000 = 5,06,000
B = 4,00,000 + (6,000) + (9,000) + 18,000 = 4,03,000
C = 2,00,000 + (2,000) + (3,000) + 6,000 = 2,01,000
D = 1,50,000
Net worth of the business = Rs. 5,06,000 + Rs. 4,03,000 + Rs. 2,01,000 + Rs. 1,50,000 = 12,60,000
Hidden Goodwill = Rs. 15,00,000 – Rs. 12,60,000
Hidden Goodwill = Rs. 2,40,000
D’s Share of Goodwill = Rs. 2,40,000 × 1/10 = Rs. 24,000

Question 74. Rajesh and Ravi are partners sharing profits in the ratio of 3 : 2.Their Balance Sheet sod as under as at 31st March, 2018.

Liabilities	Rs.	Assets	Rs.
Creditors	3,85,000	Cash	20,000
Outstanding liabilities	40,000	Stock	1,50,000
Capitals : Rajesh 2,90,000 Ravi 1,50,000	4,40,000	Prepaid Insurance Debtors 94,000 Less : Provision 4,000	15,000 90,000
		Machinery	1,90,000
		Buildings	3,50,000
		Furniture	50,000
	8,65,000		8,65,000

Raman is admitted as a new partner introducing a Capital of Rs. 1,60,000. The new profit-sharing ratio is decided as 5:3:2. Raman is unable bring in any cash for Goodwill. So, it is decided value the goodwill on the basis of Raman’s share in the profits and the Capital contributed him. Following revaluations are made:
(i) Stock depreciate 5%.
(ii) Provision for doubtful debts is be Rs. 5,000.
(iii) Furniture depreciate 10%.
(iv) Buildings are valued at Rs. 4,00,000.
Show the necessary Ledger Accounts and the Balance Sheet of the new firm.
Solution 74

Points for Students:-
If new partner brings his share of goodwill in cash, and if the Goodwill Account already appears in the books of the firm, first of all the existing Goodwill Account will have to be written off. For this purpose old partner’s Capital Account are debited in their old profit sharing ratio and Goodwill Account is credited. Thus, the following entry is passed to write off the existing goodwill:
Old Partner’s Capital A/c Dr.
To Goodwill A/c
(Goodwill written off in old ratio)

Question 75.
(A)
Nem and Khem sharing profits in the ratio of 3 : 2 admit Prem as a Partner with 1/3 share in profits. He had contribute proportionate Capital. They had following financial position.

Liabilities	Amount Rs.	Assets	Amount Rs.
Creditors	40,000	Cash at bank	50,000
Reserve Fund	50,000	Debtors	60,000
Capitals : Nem Khem	50,000 40,000	Stock Plant and Machinery	35,000 80,000
	1,80,000		1,80,000

They agreed admit Prem as a partner on the following terms :
(1) Plant and Machinery be reduced 10%
(2) Stock be increased Rs. 3,000.
(3) Bad debts provision was be created at 5%.
(4) Accrued incomes not appearing in the books Rs. 900.
(5) Prem was introduce Rs. 20,000 as premium for goodwill for 1/3rd share of the future profits of the firm.
Prepare Profit and Loss Adjustment Account, Capital Accounts and Balance Sheet of the new firm. Also calculate new profit sharing ratio.
Solution 75
(A)

Working Note:-
Computation of Capital:-
Capital of Nem and Khem = Rs. 87,740 + Rs. 65,160 = Rs. 1,52,900

Total Capital of the firm = Rs. 1,52,900 × 3/2 = Rs. 2,29,350
Prem’s Capital for 1/3rd share = Rs. 2,29,350 × 1/3 = Rs. 76,450

Computation of New Ratio:-
Prem’s Ratio = 1/3
Remaining Ratio = 1-1/3 = 2/3
Nem’s New Share = 3/5 of 2/3 = 6/15
Khem’s New Share = 2/5 of 2/3 = 4/15
Prem’s Ratio = 1/3

New Ratio = 6/15 ∶4/15:1/3
New Ratio = (6 ∶ 4 ∶ 5)/15
New Ratio = 6 ∶ 4 ∶ 5

Question 75.
(B)
Mohan and Sohan are in partnership sharing profits in the proportion of 3/5 and 2/5 respectively.
The Balance Sheet is as follows:

Liabilities	Rs.	Assets	Rs.
Capitals : Mohan 2,00,000 Sohan 1,00,000	3,00,000	Cash Debtors 1,00,000 Less : Provision 40,000	65,000 60,000
Creditors		Stock	1,50,000
		Plant	65,000
	3,40,000		3,40,000

D They decide admit Rohan 1/3rd share on the terms that he is pay in the business Rs. 1,00,000 as Goodwill and sufficient Capital give him 1/3rd share of the Total Capital of the new firm. It was agreed that Provision for bad debts be reduced Rs. 10,000, that the Stock be revalued at Rs. 2,00,000; and that the plant be reduced Rs. 50,000.
Prepare necessary ledger accounts and show the balance sheet of the new partnership.
Solution 75
(B)

Working Note:-
Computation of Rohan’s Capital:-
Capital of Mohan and Sohan = Rs. 2,99,000 + Rs. 1,66,000 = Rs. 4,65,000
Total Capital of the firm = Rs. 4,65,000 × 3/2 = Rs. 6,97,500
Rohan’s Capital for 1/3rd share = Rs. 6,97,500 × 1/3 = Rs. 2,32,500

Question 76. X and Y were partners sharing profits in the ratio of 1:2. Their Balance Sheet as at 31st March, 2018 was as follows:

They agreed admit Z for 1/5th share from 1st April, 2018 on the following term
(i) Goodwill of the firm was valued at Rs. 60,000 and Z bring in his share of premium for goodwill in cash.
(ii) Provision for bad debts be raised Rs. 1,500.
(iii) Patents are valueless.
(iv) Stock be reduced 10%.
(v) Outstanding expenses be increased Rs. 6,000.
(vi) Rs. 2,500 be provided for an unforeseen liability.
(vii) Z bring in Capital equal 1/5th of the combined Capital of X and Y.

Prepare Revaluation Account, Partner’s Capital Accounts and the Opening Balance Sheet.

Solution 76

Working Note:-
Computation of Rohan’s Capital:-
Capital of X and Y = Rs. 1,44,000 + Rs. 2,88,000 = Rs. 4,32,000
Z’s Capital for 1/5rd share = Rs. 4,32,000 × 1/5 = Rs. 86,400

Question 77. Mohan and Mahesh were partners in a firm sharing profits in the ratio of 3: 2. On 1st April,2012 they admitted Nusrat as a partner in the firm. The Balance Sheet of Mohan and Mahesh on that date was as under:

It was agreed that:
(i) The value of Building is be appreciated Rs. 3,80,000.
(ii) Stock is undervalued 25%.
(iii) The liabilities of workmen’s compensation fund was determined at Rs. 2,30,000.
(iv) Nusrat brought in her share of goodwill Rs. 1,00,000 in cash.
(v) Nusrat was bring further cash as would make her Capital equal 20% of the combined Capital of Mohan and Mahesh after above revaluation and adjustments are carried out.
(vi) The future profit sharing ratio will be Mohan 2/5th, Mahesh 2/5th, Nusrat 1/5th.
Prepare Revaluation Account, Partner’s Capital Accounts and Balance Sheet of firm. Also show clearly the Computation of Capital brought Nusrat.
Solution 77

Working Note:-
Computation of Value of Stock:-
Actual value of Stock = Rs. 1,20,000 × 100/75 = Rs. 1,60,000

Computation of Rohan’s Capital:-
Capital of Mohan and Mahesh = Rs. 3,92,000 + Rs. 2,08,000 = Rs. 6,00,000|
Nusrat’s Capital = Rs. 6,00,000 × 20/100 = Rs. 1,20,000

Question 78. On 31st March 2019, the Balance Sheet of A and B, who were sharing profits in the ratio of 3 : 2 was as follows:

They decide admit C as a partner. A sacrifices 2/15 from his share while B sacrifices1/6 th of his share in favour of C.
The following adjustments were agreed upon :
1. C shall bring Rs. 1,50,000 as his share of goodwill premium and shall bring in proportionate Capital.
2. Stock was undervalued 10% and Plant and Machinery was overvalued 20 %.
3. Market value of investments is Rs. 2,20,000.
4. Debtors the extent of Rs. 10,000 were unrecorded.
5. 5% provision for doubtful debts is required on sundry Debtors.
Prepare Revaluation Account, Partner’s Capital Accounts and the Balance Sheet of the reconstituted firm.
Solution 78

Working Note:-
Computation of Value of Stock:-
Actual value of Stock = Rs. 4,50,000 × 100/90 = Rs. 5,00,000
Actual value of Plant & Machinery = Rs. 6,00,000 × 100/120 = Rs. 5,00,000

Computation of Sacrificing Ratio:-
A’s Sacrifice = 2/15
B’s Sacrifice = 2/5×1/6=1/15
Sacrificing Ratio = 2 : 1

Computation of New Ratio:-
A’s New Ratio = 3/5-2/15=(9-2)/15=7/15
B’s New Ratio = 2/5-1/15=(6-1)/15=5/15

C’s New Ratio = 2/15+1/15=(2+1)/15=3/15
New Ratio = 7 : 5 : 3

Computation of Capital:-
Capital of A and B = Rs. 11,13,200 + Rs. 8,58,500 = Rs. 19,72,000
Total Capital of the firm = Rs. 19,72,000 × 5/4 = Rs. 24,65,000
C’s Capital = Rs. 24,65,000 × 1/5 = Rs. 4,93,000

Question 79. P and Q are partners sharing profits in 3: 1. R is admitted and the partners decide share the future profits in the ratio of 2:1:1. The Balance Sheet of P and Q as at 31st March, 2018 was as under:

It was decided that:
(i) Part of the Stock which has been included at a cost of Rs. 8,000 had been badly damaged in srage and could reals
(ii) A bill for Rs. 7,000 for electric charges has been omitted be recorded.
(iii) Plant & Machinery was found overvalued Rs. 20,000. Premises be appreciated Rs. 3,00,000.
(iv) Prepaid expenses be brought down 40%.
(i) R’s share of good
(ii) R brings in Capital proportionate his share of profit in the firm.
Prepare Revaluation A/C, Capital A/cs and the opening Balance Sheet.

Solution 79

Working Note:-
Computation of Capital:-
Capital of P and Q = Rs. 4,00,000 + Rs. 2,30,000 = Rs. 6,30,000
Total Capital of the firm = Rs. 6,30,000 × 4/3 = Rs. 8,40,000
R’s Capital = Rs. 8,40,000 × 1/4 = Rs. 2,10,000

Question 80. X and Y are partners in a firm. They share profits and losses in the ratio of 2:1. Their Balance Sheet as at 31st March, 2020 sod as under:

Z is admitted in the partnership. X surrenders 2/5th of his share and Y surrenders 1/5th of his share in favour of Z. The following information is given about the firm :
1. Plant and Machinery be reduced Rs. 35,000 and furniture and fixture be reduced Rs. 58,500.
2. Provision for bad and doubtful debts is be increased Rs. 3,000.
3. Actual liability for workmen compensation claim is Rs. 16,000
4. A liability of Rs. 2,500 included in Creditors is not likely arise.
5. Z’s share of goodwill is valued at Rs. 40,000 but he is unable bring it in cash.
6. Z is bring in Capital proportionate his share after all adjustments.
Prepare Revaluation Account, Capital Accounts and Balance Sheet after Z’s admission. Also calculate the new profit sharing ratio.

Solution 80

Working Note:-
Computation of Sacrificing Ratios:-
X’s Sacrificed = 2/5×2/3=4/15
Y’s Sacrificed = 1/5×1/3=1/15
Sacrificing Ratio = 4:1

Computation of New Ratios:-
X’s New Ratio = 2/3- 4/15=(10-4)/15=6/15
Y’s New Ratio = 1/3- 1/15=(5-1)/15=4/15
Z’s New Ratio = 2/15+ 1/15=(2+4)/15=5/15

Computation of Capital:-
Capital of X and Y = Rs. 1,60,000 + Rs. 1,02,000 = Rs. 2,62,000
Total Capital of the firm = Rs. 2,62,000 × 15/10 = Rs. 3,93,000
Z’s Capital = Rs. 3,93,000 × 5/15 = Rs. 1,31,000

Question 81. Given below is the Balance Sheet of S as at 31st March, 2020 :

T was admitted as a partner for a half share of profits on the following condition
(1) Building be appreciated 20%.
(2) Furniture and fittings be written down Rs. 45,000.
(3) Bills receivable not be taken over the new partnership.
(4) Provision for doubtful debts was found be in excess Rs. 3,000.
(5) A liability of Rs. 2,000 included in Creditors was not likely arise.
(6) There is an additional liability of Rs. 5,000 outstanding salary payable employees of the firm.
T’s bring Rs. 30,000 as premium for goodwill and further cash make his Capital equal 3/5th of S’s Capital.
Pass journal entries and prepare the opening Balance Sheet of the partnership.

Solution 81

They admit Z in partnership from 1st April, 2018 on the following terms:

Z brings in Rs. 40,000 as his Capital and he is given 1/4th share in profits.
Z brings in RS. 15,000 for goodwill, half of which is withdrawn old partners.
Investments are valued at Rs. 10,000. X takes over Investments at this value.
Typewriter is be depreciated 20% and fixed Assets 10%.
An old cusmer, whose account was written off as bad debts, has promised pay Rs. 1,000.
bringing in or withdrawing cash, the Capitals of X and Y are be made proportionate that of Z on their profit sharing basis.
Pass Journal entries, prepare Capital accounts and new B/S of the firm.

Solution 82

Working Note:-
Computation of New Ratios:-
Share of Z = 1/4
Balance of Profit = 1-1/4= 3/4

X’s New Ratio = 2/3× 3/4=6/12

Y’s New Ratio = 1/3- 3/4=1/4

Z’s New Ratio = 1/4

Computation of Capital:-
Total Capital of the firm = Rs. 40,000 × 4/1 = Rs. 1,60,000
X’s Capital = Rs. 1,60,000 × 2/4 = Rs. 80,000
Y’s Capital = Rs. 1,60,000 × 1/4 = Rs. 40,000
Z’s Capital = Rs. 1,60,000 × 1/4 = Rs. 40,000

Question 83. A, B and C are partners in a firm sharing profits in the ratio of 5: 3:2. D is admitted in the firm for 1/4 share in profits, which he gets as 1/8 from A and 1/8 from B. The Total Capital of the firm is agreed upon as Rs. 3,20,000 and D is bring in cash equivalent 1/4 of this amount as his Capital. The Capitals of other partners are also be adjusted in the ratio of their respective shares in profits. The Capitals of A, B and C after all adjustments are Rs. 1,00,000, Rs. 75,000 and Rs. 60,000 respectively. Calculate the new Capitals of A, B and C, and record the necessary journal entries.

Solution 83

Working Note:-
Computation of New Ratio:-
A’s New Ratio = 5/10-1/8=(20 – 5)/40=15/40

B’s New Ratio = 3/10-1/8=(12 – 5)/40=7/40
C’s New Ratio = 2/10
D’s New Ratio = 1/4

New Profit of A, B, C and D = 15/40:7/40:2/10:1/4
New Profit of A, B, C and D = (15 ∶ 7 ∶ 8 ∶ 10)/40
New Profit of A, B, C and D = 15 ∶ 7 ∶ 8 ∶ 10
Total Capital of the firm Rs. 3,20,000

A’s Capital = Rs. 3,20,000 × 15/40 = Rs. 1,20,000
B’s Capital = Rs. 3,20,000 × 7/40 = Rs. 56,000
C’s Capital = Rs. 3,20,000 × 8/40 = Rs. 64,000

D’s Capital = Rs. 3,20,000 × 10/40 = Rs. 80,000
A will bring in Rs. 1,20,000 – Rs. 1,00,000 = Rs. 20,000
B will withdrew in Rs. 75,000 – Rs. 56,000 = Rs. 19,000
C will bring in Rs. 64,000 – Rs. 60,000 = Rs. 4,000
D will bring in Rs. 80,000

Question 84. A, B and C are partners in a firm sharing profits in the ratio of 3:2:1 with Capitals of Rs. 70,000; Rs. 60,000 and Rs. 40,000 respectively. D is admitted in the firm for 1/4th share in profits, which he acquires 1/8th from A and 1/8th from B. D brings in Rs. 60,000 as his Capital and Rs. 32,000 for his share of goodwill in cash. 3/4th of the amount of goodwill was withdrawn A and B. The Capitals of the partners in the new firm are be adjusted in profit sharing ratio on the basis of D’s Capital and excess or deficit capital be adjusted in cash.
Prepare necessary journal entries, Capital Accounts of the partner’s and Cash Account.
Solution 84

Question 85. A and B are partners sharing profits in the ratio of 5:3. C was admitted for 1/4th share in profits. C acquires this share as 3/16from A and 1/4th of his share from B. C brings in Rs. 1,00,000 as his Capital.
At the time of C’s admission:
1. The firm’s goodwill was valued at Rs. 2,40,000.
2. General Reserve was Rs. 40,000.
3. Profit on revaluation of assets and liabilities was Rs. 24,000
Before any adjustments were made, the Capitals of A and B were Rs. 1,20,000 and Rs. 70,000 respectively.
It is decided that after C’s admission, the Capitals of A and B adjusted on the basis of C’s Capital, any excess or shortfall be adjusted withdrawing or bringing in Cash the old partners. You are required pass necessary journal entries on C’s admission.
Solution 85

Working Note:-
Computation of Sacrificing Ratio:-
A’s Ratio = 3/16
B’s Ratio = 1/4 × 1/4 = 1/16
Sacrificing Ratio = 3 : 1

Computation of New Ratio:-
A’s Share = 5/8-3/16=(10 – 3)/16=7/16
B’s Share = 3/8-1/16=(6 – 1)/16=5/16
C’s Share = 1/4
New Ratio of A, B and C = 7/16 ∶ 5/16 ∶1/4

New Ratio of A, B and C = (7 ∶ 5 ∶ 4)/16
New Ratio of A, B and C = 7 ∶ 5 ∶ 4

A’s Capital = Rs. 1,20,000 + Rs. 45,000 + Rs. 25,000 + Rs. 15,000 = Rs. 2,05,000
B’s Capital = Rs. 70,000 + Rs. 15,000 + Rs. 15,000 + Rs. 9,000 = Rs. 1,09,000

C bring Rs. 1,00,000 as Capital for his 1/4th share
Total Capital of the firm Rs. 1,00,000 × 4/1 = Rs. 4,00,000
A’s Capital = Rs. 4,00,000 × 7/16 = Rs. 1,75,000
B’s Capital = Rs. 4,00,000 × 5/16 = Rs. 1,25,000

Question 86. A and B are partners sharing profits in the ratio of 2 : 1. Following items appeared in their Balance Sheet as at 31st March, 2018 :
A’s Capital Rs. 48,000; B’s Capital Rs. 30,000; Creditors Rs. 15,000; Bank balance Rs. 5,000; Debtors Rs. 20,000; Machinery Rs. 36,000; Stock Rs. 44,000.
They admit C in partnership on 1st April, 2018 with 1/6th share in profits, which he acquires equally from A and B. He brings in Rs. 20,000 as his Capital and Rs. 18,000 as goodwill in cash.
Following revaluations were made :
1. 5% provision be made for doubtful debts on Debtors and a provision of 2% be made on Debtors and Creditors for discount.
2. Rs. 1,000 are prepaid for insurance.
3. Rs. 5,000 are outstanding for salaries.
4. Rs. 1,480 for accrued income are be shown in the books.
5. Investments for Rs. 6,000 have been omitted be recorded in the books.
A and B decide have their Capitals in proportion their share in profits, based on C’s share. Any excess of Capital was be withdrawn and deficit be paid in .
Prepare the partner’s Capital accounts and give the new balance sheet of the firm.
Solution 86

Working Note:-
(1) Computation of New Ratios:-
C’s share is 1/6 acquires from A and B
A’s Sacrificing Ratio = 1/6×1/2=1/12

B’s Sacrificing Ratio = 1/12
A’s New Ratio = 2/3- 1/12=(8-1)/12=7/12
B’s New Ratio = 1/3- 1/12=(4-1)/12=3/12
C’s New Ratio = 1/6
New Ratio of A, B and C = 7/12:3/12:1/6
New Ratio of A, B and C = (7∶3 ∶1)/12
New Ratio of A, B and C = 7∶3 ∶1

(2) A’s Capital should be Rs. 70,000 whereas his existing capital is only Rs. 66,000. He will be bring Rs. 70,000 – Rs. 66,600 = Rs. 3,400

(3) B’s Capital should be Rs. 30,000 whereas his existing capital is only Rs. 43,800. He will be bring Rs. 43,800 – Rs. 30,000 = Rs. 13,800 will be refunded.

Question 87. A and B partners sharing profits in the proportion of 3: 2. Their Balance Sheet as at 31st March, 2018 was as follows:

Liabilities	Amount Rs.	Assets	Amount Rs.
Sundry Creditors	63,000	Cash at Bank	5,000
Outstanding Salaries	4,000	Sundry Debtors 30,000
General Reserve	10,000	Less : Provision 1,000	29,000
Capitals : A B	50,000 30,000	Stock Trade Marks Building	40,000 8,000 75,000
	1,57,000		1,57,000

They agree admit C as a new partner on the following terms :
(1) C will be given 2/9th share of profit and he will bring Rs. 50,000 for his share of Capital and goodwill.
(2) Goodwill of the firm will be calculated at 21/2 year’s purchase of the average super profits of last four years. Profits of the last four years are Rs. 40,000; Rs. 40,000; Rs. 55,000 and Rs. 65,000 respectively. Normal profits that can be earned with the capital employed are Rs. 14,000.
(3) Half the amount of goodwill is withdrawn old partners.
(4) 15% of the general reserve is remain as a provision against doubtful debts.
(5) Outstanding salaries be increased Rs. 16,000, Stock is overvalued 25% and Building is undervalued 25%. Trade Marks be written off 50%.
(6) New profit sharing ratio of partners will be 4:3 : 2 and the capital accounts of A and B will be adjusted on the basis of C’s capital bringing in or withdrawing cash, as the may be.
Prepare necessary accounts and the opening balance sheet of the firm.
Solution 87

Working Note:-
Actual value of Stock = Rs. 40,000 × 100/125 = Rs. 32,000

Actual value of Building = Rs. 75,000 × 100/75 = Rs. 1,00,000

Computation of Goodwill:-
Total Profit = Rs. 40,000 + Rs. 40,000 + Rs. 55,000 + Rs. 65,000 = Rs. 2,00,000

Average Profit = 2,00,000/4= Rs. 50,000

Super Profit = Average Profit – Normal Profit
Super Profit = Rs. 50,000 – Rs. 14,000 = Rs. 36,000

Goodwill = Rs. 36,000 × 5/2 = 90,000
Goodwill brought C in Cash = Rs. 90,000 × 2/9 = Rs. 20,000

Computation of Sacrificing Ratio:-
A’s Sacrifice = 3/5-4/9=(27-20)/45=7/45
B’s Sacrifice = 2/5-3/9=(18-15)/45=3/45
Sacrifice Ratio = 7:3

Question 88. Ashok and Biju were partners sharing profits and losses in the ratio of 3:1 respectively. The following was their balance sheet as at 31st March, 2018:

Liabilities	Amount Rs.	Assets	Amount Rs.
Creditors	1,20,000	Sundry Debtors	2,00,000
Bank Overdraft	1,50,000	Stock	2,20,000
Ashok’s Capital	1,50,000	Furniture	40,000
Biju’s Capital	1,00,000	Machinery	60,000
	5,20,000		5,20,000

On 1st April, 2018, Chandra was admitted the firm on the following term:
(i) Chandra would provide Rs. 1,00,000 as a Capital and pay Rs. 20,000 as goodwill for his one-third share in future profits.
(ii) Ashok, Biju and Chandra would share profits equally.
(iii) Machinery would be reduced 10% and Rs. 5,000 would be provide for debts. Stock would be valued at Rs. 2,49,400.
(iv) Capital accounts of old partners would be adjusted in the profit sharing ratio on the basis of Chandra’s Capital bringing in or taking out cash.
Pass necessary journal entries and prepare partner’s Capital accounts and balance sheet of the new firm.
Solution 88

Working Note:-
Computation of Sacrificing Ratio:-
Ashok’s Ratio = 3/4-1/3=(9 -4)/12=5/12 (Sacrifice)
Biju’s Ratio = 1/4-1/3=(3 – 4)/12=1/12 (Gain)

Computation of Goodwill:-
Chandra’s share of goodwill 1/3 = Rs. 20,000
Total Goodwill = Rs. 20,000 × 3 = Rs. 60,000
Biju’s gain = Rs. 60,000 × 1/12 = Rs. 5,000

Question 89.
(A)
D and E were partners in a firm sharing profits in 3 : 1 ratio. On 1-4-2018 they admitted F as a new partner for 1/4th share in the firm which he acquired from D. Their Balance Sheet as at that date was as follows:

Liabilities	Rs.	Assets	Rs.
Creditors	54,000	Land and Building	50,000
Capitals : D 1,00,000 E 70,000	1,70,000	Machinery Stock Debtors 40,000	60,000 15,000
General Reserve	32,000	Less : Provision for bad debts 3,000	37,000
		Investments	50,000
		Cash	44,000
	2,56,000		2,56,000

F will bring Rs. 40,000 as his Capital and the other terms agreed upon were:
(i) Goodwill of the firm was valued Rs. 24,000.
(ii) Land and Building were valued at Rs. 70,000.
(iii) Provision for bad debts was found be in excess Rs. 800.
(iv) A liability for Rs. 2,000 included in Creditors was not likely arise.
(v) The Capital of the partners be adjusted on the basis of F’s contribution of Capital the firm.
(vi) Excess or shortfall, if any, be transferred current accounts.
Prepare Revaluation Account, Partner’s Capital Accounts and the Balance Sheet of the new firm.
Solution 89
(A)

Working Note:-
Computation of Sacrificing Ratio:-
Old Ratio between D and E = 3/4 ∶1/4
D’s Sacrifice = 3/4-1/4=(3-1)/4=7/45
E’s Sacrifice = 2/5-3/9=(18-15)/45=3/45
Sacrifice Ratio = 7:3

Question 89.
(B)
89 (B), (HOTS) A and B are partners in a firm sharing profits and losses in the ratio of 3: 2. Their balance sheet as at 1st April, 2018 was as follows:

C is admitted as partner on the above date on the following terms:
(i) He will pay Rs. 10,000 as goodwill for one-fourth share in the profits of the firm.
(ii) The assets are be valued as under:
Plant at Rs. 32,000; Stock at Rs. 18,000; Debtors at book figure less a provision of 5, per cent for Bad Debts.
(iii) It was found that the Creditors included a sum of Rs. 1,400 which was not be paid. But it was also found that there was a liability for compensation workers amounting Rs. 2,000.
(iv) C was introduce Rs. 20,000 as Capital and the Capitals of other partners were be adjusted in the new profit sharing ratio. For this purpose. Current accounts were be opened.
Give Journal entries record the above and Balance Sheet after C’s admission (Ledger accounts are not required)

Solution 89
(B)

Working Note:-
Computation of New Profit Ratio:-
C’s Share = 1/4
Balance of Profits = 1 – 1/4 = 3/4

A’s New Share = 3/4×3/5= 9/20

B’s New Share = 3/4×2/5= 6/20

C’s New Share = 1/4

New Ratio of A, B and C = 9/20:6/20:1/4
New Ratio of A, B and C = (9 ∶ 6 ∶ 5)/20
New Ratio of A, B and C = 9 ∶ 6 ∶ 5

Total Capital of new firm = Rs. 20,000 × 4/1 = Rs. 80,000
A’s Capital = Rs. 80,000 × 9/20 = Rs. 36,000
B’s Capital = Rs. 80,000 × 6/20 = Rs. 24,000

Question 89.
(C)
The following was the Balance Sheet of Ram, Shyam and Mohan sharing profits and losses in the proportion of 6/14: 5/14:3/14 respectively:

BALANCE SHEET

Liabilities	Rs.	Assets	Rs.
Creditors	18,900	Land & Buildings	50,400
Bills Payable	6,300	Furniture	7,350
Reserve	7,000	Stock	29,400
Capital Accounts: Ram 39,900 Shyam 33,600 Mohan 16,800	90,300	Debtors Cash at Bank	26,460 8,890
	1,22,500		1,22,500

They agreed take Sohan in partnership and give him 1/8th share of profit on the following terms:
(a) That Sohan brings in Rs. 16,000 as his Capital.
(b) That Furniture be written down Rs. 920 and Stock be depreciated 10%.
(c) That a Provision of Rs. 1,320 be made for outstanding repair bills.
(d) That the value of Land and Buildings be written up Rs. 65,100.
(e) That Sohan’s share of Goodwill be fixed at Rs. 8,820. Sohan brings this amount in Cash.
(f) That the Capitals of Ram, Shyam and Mohan be adjusted on the basis of Sohan’s Capital opening the necessary Current Accounts.
Give the Necessary Journal Entries, the Revaluation Account, Capital Accounts and also the Balance Sheet of the firm as newly constituted.

Solution 89
(C)

Working Note:-
Computation of New Profit Sharing Ratio:-
Sohan’s Share = 1/8
Balance of profit for other partners = 1 – 1/8 = 7/8
Ram’s Ratio = 7/8× 6/14=3/8
Shyam’s Ratio = 7/8× 5/14=5/16
Mohan’s Ratio = 7/8× 3/14=3/16
Sohan’s Ratio = 1/8
New Ratio = 3/8:5/16:3/16:1/8
New Ratio = (6 ∶ 5 ∶3 ∶2)/16
New Ratio =6 ∶ 5 ∶3 ∶2

Question 90.
(A)
Om. Ram and Shanti were partners in a firm sharing profits in the ratio of 3:2:1. On 1st April, 2014 their Balance Sheet was as follows:

Liabilities	Rs.	Assets	Rs.
Capital Accounts: Om 3,58,000 Ram 3,00,000 Shanti 2,62,000	9,20,000	Land and Building Plant and Machinery Furniture Bills Receivables	3,64,000 2,95,000 2,33,000 38,000
General Reserve	48,000	Sundry Debtors	90,000
Creditors	1,60,000	Stock	1,11,000
Bills Payable	90,000	Bank	87,000
	12,18,000		12,18,000

On the above date Hanuman was admitted on the following terms:
(i) He will bring Rs. 1,00,000 for his Capital and will get 1/10th share in the profits.
(ii) He will bring necessary cash for his share of goodwill premium. The goodwill of the firm was valued at Rs. 3,00,000.
(iii) A liability of Rs. 18,000 will be created against bills receivables discounted.
(iv) The value of Stock and furniture will be reduced 20%.
(v) The value of land and building will be increased 10%.
(vi) Capital accounts of the partners will be adjusted on the basis of Hanuman’s Capital in their profit sharing ratio opening current accounts.
Prepare Revaluation Account and Partners’ Capital Accounts.
Solution 90
(A)

Working Note:-
Computation of New Ratio:-
Share of Hanuman = 1/10
Remaining Share = 1- 1/10 = 9/10
Om’s New Share = 9/10×3/6=9/20
Ram’s New Share = 9/10×2/6=6/20
Shanti’s New Share = 9/10×1/6=3/20
Hanuman’s New Share = 1/10

New Profit = 9/20:6/20:3/20:1/10
New Profit = (9 ∶ 6 ∶ 3 ∶ 2)/20
New Profit =9 ∶ 6 ∶ 3 ∶ 2

Question 90.
(B)
Following is the Balance Sheet of Amit and Vidya as at 31st March, 2014:

Liabilities	Rs.	Assets	Rs.
Creditors	26,000	Bank	20,000
Employees Provident Fund	16,000	Stock	30,000
Workmen’s Compensation Reserve	30,000	Debtors 44,000 Less : Provision for Bad Debts 2,000	42,000
Capital A/cs: Amit 1,10,000 Vidya 60,000	1,70,000	Plant and Machinery Goodwill Profit and Loss Account	1,20,000 20,000 10,000
	2,42,000		2,42,000

On the above date, Chintan was admitted as a partner for 1/4th share in the profit of the firm with the following terms:
(a) Rs. 2,900 will be written off as Bad Debts.
(b) Stock was taken over Vidya at Rs. 35,000.
(c) Goodwill of the firm was valued at Rs. 40,000. Chintan brought his share of goodwill premium in cash.
(d) Chintan brought proportionate Capital and the Capitals of the other partners were adjusted on the basis of Chintan’s Capital. For this necessary cash was be brought in or paid off the partners as the may be.
Prepare Revaluation Account and Partners’ Capital Accounts.
Solution 90
(B)

Working Note:-
Computation of New Ratio:-
Share of Hanuman = 1/4

Remaining Share = 1- 1/4 = 3/4

Amit’s New Share = 3/4×1/2=3/8

Vidhya’s New Share = 3/4×1/2=3/8
New Profit = 3/8:3/8:1/4

New Profit = (3 ∶ 3 ∶ 2)/8

New Profit =3 ∶ 3 ∶ 2

Computation of New Capital of the Firm:-
Combined Capital = Rs. 1,17,050 + Rs. 32,050 = Rs. 1,49,100

Total Capital of the New Firm = Rs. 1,49,100 × 4/3 = Rs. 1,98,800

Amit’s Capital = Rs. 1,98,800 × 3/8 = Rs. 74,550
Vidhya’s Capital = Rs. 1,98,800 × 3/8 = Rs. 74,550
Chintan’s Capital = Rs. 1,98,800 × 1/4 = Rs. 49,700

Question 91. Rekha, Sunita and Teena are partners in a firm sharing profits in the ratio of 3:2:1. Samiksha joins the firm. Rekha surrenders 1/4th of her share. Sunita surrenders 1/3th of her share and Teena 1/5th of her share in favour of Samiksha. Find the new profit sharing ratio.
Solution 91
Computation of Sacrificing Ratio:-
Rekha surrenders for Samiksha =1/4 x 3/6 = 3/24
Sunita surrenders for Samiksha =1/3 x 2/6 = 2/24
Teena surrenders for Samiksha =1/4 x 1/6 = 1/30

Computation of New Ratio:-
Rekha’s New Ratio = 3/6-3/24=(12-3)/24=9/24
Sunita’s New Ratio = 2/6-2/18=(6 – 2)/18=4/18

Teena’s New Ratio = 1/6-1/30=(5 – 1)/30=4/30
Samiksha Ratio = 3/24+2/24+1/30= 97/360

New Ratio = 9/24 : 4/18: 4/30: 97/360
New Ratio = 135 : 80 : 48 : 97

Question 92. Calculate sacrificing ratios in the following s :
(i) X and Y are sharing profits in the ratio of 4:3. Z joins and the new ratios are 7:4:3.
(ii) X and Y are sharing profits in the ratio of 7:5. Z joins and the new ratios are 13: 7:4.
(ii) A and B are sharing profits in the ratio of 5:3. C joins and the new ratios are 4:2:1.
(iv) A and B are sharing profits in the ratio of 3:2. C joins and the new ratios are 5:3:2.

Solution 92
(i) Computation of Sacrificing Ratio:-
X’s Sacrificing Ratio = 4/7-7/14=(8-7)/14=1/14

Y’s Sacrificing Ratio = 3/7-4/14=(6-4)/14=2/14
Sacrificing Ratio = 1 : 2.

(ii) Computation of Sacrificing Ratio:-
X’s Sacrificing Ratio = 7/12-13/24=(14 – 13)/24=1/24

Y’s Sacrificing Ratio = 5/12-7/24=(10-7)/24=3/24
Sacrificing Ratio = 1 : 3.

(iii) Computation of Sacrificing Ratio:-
A’s Sacrificing Ratio = 5/8-4/7=(35 – 32)/56=3/56

B’s Sacrificing Ratio = 3/8-2/7=(21-16)/56=5/56
Sacrificing Ratio = 3 : 5.

(iv) Computation of Sacrificing Ratio:-
A’s Sacrificing Ratio = 3/5-5/10=(6 – 5)/10=1/10

B’s Sacrificing Ratio = 2/5-3/10=(4-3)/10=1/10
Sacrificing Ratio = 1 : 1.

Question 93. Calculate new ratios and sacrificing ratios in the following s:
(i) A, B and C are partners Sharing profits in the ratio of 4:3:2. D is admitted for 1/3rd share.
(ii) A, B and C are partners sharing profits in the ratio of 1/2, 1/3 and 1/6. D is admitted for 1/6th share of profit
(iii) A, B and Care partners sharing profits in the ratio of 6/14, 5/14 and 3/14. D is admitted for 1/8th share of profits.
Solution 93
(i) Computation of New Profit Share Ratios:-
D’s Share = 1/3
Remaining Share = 1-1/3 = 2/3

A’s New Share = 4/9×2/3=8/27

B’s New Share = 3/9×2/3=6/27

C’s New Share = 2/9×2/3=4/27

D’s New Share = 1/3

New Profit Ratio of A, B, C and D = 8/27:6/27:4/27:1/3

New Profit Ratio of A, B, C and D = (8 ∶ 6 ∶ 4 ∶ 9)/27
New Profit Ratio of A, B, C and D = 8 : 6 : 4 : 9.

Computation of Sacrificing Ratio:-
Sacrificing Ratio = Old Ratio – New Ratio
A’s Sacrificing Ratio = 4/9-8/27=(12 – 8)/27=4/27

B’s Sacrificing Ratio = 3/9-6/27=(9 – 6)/27=3/27

C’s Sacrificing Ratio = 2/9-4/27=(6 -4)/27=2/27
Sacrificing Ratio = 4:3:2

(ii) Computation of New Profit Share Ratios:-
D’s Share = 1/6
Remaining Share = 1-1/6 = 5/6
A’s New Share = 1/2×5/6=5/12
B’s New Share = 1/3×5/6=5/18
C’s New Share = 1/6×5/6=5/36
D’s New Share = 1/6

New Profit Ratio of A, B, C and D = 5/12:5/18:5/36:1/6

New Profit Ratio of A, B, C and D = (15 ∶ 10 ∶ 5 ∶ 6)/36
New Profit Ratio of A, B, C and D = 15 : 10 : 5 : 6.

Computation of Sacrificing Ratio:-
Sacrificing Ratio = Old Ratio – New Ratio
A’s Sacrificing Ratio = 1/2-15/36=(18 – 15)/36=3/36

B’s Sacrificing Ratio = 1/3-10/36=(12 – 10)/36=2/36

C’s Sacrificing Ratio = 1/6-5/36=(6 – 5)/36=1/36
Sacrificing Ratio = 3:2:1

(iii) Computation of New Profit Share Ratios:-
D’s Share = 1/8
Remaining Share = 1-1/8 = 7/8
A’s New Share = 6/14×7/8=6/16
B’s New Share = 5/14×7/8=5/16
C’s New Share = 3/14×7/8=3/16
D’s New Share = 1/8

New Profit Ratio of A, B, C and D = 6/16:5/16:3/16:1/8
New Profit Ratio of A, B, C and D = (6 ∶ 5 ∶ 3 ∶ 2)/16
New Profit Ratio of A, B, C and D = 6 : 5 : 3 : 2.

Computation of Sacrificing Ratio:-
Sacrificing Ratio = Old Ratio – New Ratio
A’s Sacrificing Ratio = 6/14-6/16=(48 – 42)/112=6/112
B’s Sacrificing Ratio = 5/14-5/16=(40 – 35)/112=5/112

C’s Sacrificing Ratio = 3/14-3/36=(24 – 21)/112=3/112
Sacrificing Ratio = 6 : 5 : 3.

Question 94.
(a) Rohan and Mohan are partners in a firm sharing profits in the ratio of 5:3 respectively. They admit Bhim as a partner for 1/7th share in the profit. The new profit sharing ratio will be 4 : 2:1. Calculate the sacrificing ratio of Rohan and Mohan.
(b) Amla and Kamla are partners in a firm sharing profits in the ratio of 4 : 1 respectively. They admitted Bimla as a new partner for 1/4th share in the profits, which she acquired wholly from Amla. Determine the new profit sharing ratio of the partners.
Solution 94
(a) Computation of Sacrificing Ratio:-
Sacrificing Ratio = Old Ratio – New Ratio
Rohan’s Sacrificing Ratio = 5/8-4/7=(35 – 32)/56=3/56

Mohan’s Sacrificing Ratio = 3/8-2/7=(21 – 16)/56=5/56
Sacrificing Ratio = 3 : 5

(b) Computation of New Share of Amla:-
New Profit Sharing Ratio of Amla = Old Ratio – Share sacrifice in favour of Bimla
Amla’s Sacrificing Ratio = 4/5-1/4=(16 – 5)/20=11/20

New Ratio of Amla, Kamla and Bimla = 11/20:1/5:1/4
New Ratio of Amla, Kamla and Bimla = (11 ∶ 4 ∶ 5)/20
New Ratio of Amla, Kamla and Bimla = 11 : 4 : 5

Question 95. Anita and Tina are partners sharing profits as 9 : 5. They agree admit Chetan their manager in partnership, who is get 1/8 share in the profits. He acquires this share as 1/12 from Anita and 1/24 from Tina. Calculate new profit sharing ratio.
Solution 95
Chetan is giving 1/8th share which he aquires 1/12 from Anita and 1/24 from Tina.
Anita’s New Share = 9/14-1/12=(54 – 7)/84= 47/84

Tina’s New Share = 5/14-1/24=(60 – 7)/168= 53/168
Chetan’s Share = 1/8

New Profit Sharing Ratio = 47/84:53/168:1/8
New Profit Sharing Ratio = (94 ∶ 53 ∶ 21)/168
New Profit Sharing Ratio = 94 ∶ 53 ∶ 21

Question 96. Anil and Sunil are partners sharing profits in the ratio of 4 : 1. They admit Vijay in partnership with 1/3 share in profits which he acquires wholly from Anil. Calculate the new profit sharing ratio.
Solution 96
Vijay is given 1/3rd share which he acquires wholly from Anil.

Anil’s New Share = 4/5-1/3=(12-5)/15=7/15
Sunil’s New Share = 1/5
Vijay’s New Profit = 1/3

New Profit Sharing Ratio = 7/15:1/5:1/3
New Profit Sharing Ratio = (7 ∶ 3 ∶ 5)/15
New Profit Sharing Ratio = 7 ∶ 3 ∶ 5

Question 97. J & K are partners in a firm sharing profits in the ratio of 2 : 3. L joins the firm. J surrenders 1/5th of his share and K, 1/3rd of his share in favour of L. Find the new profit sharing ratio.
Solution 97
J’s old Share = 2/5
J’s surrenders 1/5th of 2/5 in favour of L = 1/5×2/5=2/25

K’s old Share = 3/5
K’s surrenders 1/3rd of 3/5 in favour of L = 1/3×3/5=1/5

Computation of New Ratio:-
J’s New Profit Sharing Ratio = 2/5-2/25=(10 – 2)/25=8/25
K’s New Profit Sharing Ratio = 3/5-1/5=(3 – 1)/5=2/25
L’s New Profit Sharing Ratio = 2/25+1/5=(2+5)/25=7/25
The new ratio of J, K and L = 8/25:2/5:7/25

The new ratio of J, K and L = (8 ∶ 10 ∶ 7)/25
New ratio of J, K and L = 8 : 10 : 7

Question 98. R and S are partners sharing profits in the ratio of 5:3. T was admitted. R surrenders 1/4 of his share and S 2/5 of his share in favour of T. Calculate the sacrificing ratio and the new ratios.
Solution 98
R’s surrenders 1/4th of 5/8 in favour of T = 1/4×5/8=5/32

S’s surrenders 2/5th of 3/8 in favour of T = 2/5×3/8=3/20

Sacrificing Ratio = 5/32:3/20

Sacrificing Ratio = (25 ∶ 24)/160
Sacrificing Ratio = 25 : 24

Computation of New Ratio:-
R’s New Profit Sharing Ratio = 5/8-5/32=(20 – 5)/32=15/32
S’s New Profit Sharing Ratio = 3/8-3/20=(15 – 6)/40=9/40
T’s New Profit Sharing Ratio = 5/32+3/20=(25+24)/160=49/160

The new ratio of R, S and T = 15/32:9/40:49/160
The new ratio of R, S and T = (75 ∶ 36 ∶ 49)/25
New ratio of R, S and T = 75 ∶ 36 ∶ 49

Question 99. A and B are partners sharing profits and losses in the ratio of 5 : 3. They admit C in partnership giving him 1/4 share in profits which he acquires from A and B in the ratio of 3 : 1. Calculate the new profit sharing ratio.

Solution 99
C is given 1/4th share which he acquires from A and B in the ratio of 3:1.
C acquires from A = 5/8 of 1/4 = 3/16
C acquires from B = 1/4 of 1/4 = 1/16

Computation of New Ratio:-
A’s New Profit Sharing Ratio = 5/8-3/16=(10 – 3)/16=7/16

B’s New Profit Sharing Ratio = 3/8-1/16=(6 – 1)/16=5/16
C’s New Profit Sharing Ratio = 1/4
The new ratio of A, B and C = 7/16:5/16:1/4

The new ratio of A, B and C = (7 ∶ 5 ∶ 4)/16
New ratio of A, B and C = 7 ∶ 5 ∶ 4

Question 100. Mohan and Sohan are partners sharing profits and losses in the ratio of 9: 6. They admit Gopal with 1/8 share in the profits. The new profit sharing ratio between Mohan and Sohan is agreed be 4:3. Calculate the sacrificing ratio.

Solution 100
Computation of New Profit Sharing Ratio:-
Gopal’s Share = 1/8

Remaining share = 1-1/8=7/8
New Ratio of Mohan = 4/7 of 4/7= 4/8

New Ratio of Sohan = 3/7 of 7/8= 3/8
New Ratio of Gopal = 1/8

Computation of Sacrificing Ratio:-
Sacrificing Ratio = Old Ratio – New Ratio
Mohan’s Sacrifice = 9/15-4/8=(72-60)/120=12/120
Sohan’s Sacrifice = 6/15-3/8=(48-45)/120=3/120
Sacrificing Ratio of Mohan and Sohan = 4 : 1

Question 101. On 1st April, 2020, A and B, sharing profits 2/3 and 1/3 respectively, agree admit C in partnership on condition that he pays Rs. 3,00,000 as Capital and Rs. 90,000 for 1/6 share of goodwill which he acquires equally from A and B. Subsequently, half amount of goodwill is withdrawn the old partners. Give Journal entries necessary record these transactions.

Solution 101

Question 102 (new). Kabir and Farid are partners in a firm sharing profits in the ratio of 3:1. On 1-4-2019 they admitted Manik into partnership for 1/4^th share in the profits of the firm. Manik brought his share of goodwill premium in cash. Goodwill of the firm was valued on the basis of 2 year purchases of last three years average profits. The profits of last three years were:
2016-17 90,000
2017-18 1,30,000
2018-19 86,000
During the year 2018-19 there was a loss of Rs. 20,000 due to fire which was not accounted for while calculating the profit.
Calculate the value of goodwill and pass the necessary journal entries for the treatment of goodwill.
Solution 102 (new).

Working Note:-
Calculation of Average Profit:-
Average Profit = (90,000 + 1,30,000 + 86,000)/3
Average Profit = (90,000 + 1,30,000 + 86,000)/3
Average Profit = 3,06,000/3
Average Profit = Rs. 1,02,000

Calculation of Goodwill:-
Goodwill of the firm = Average Profits × Number of Years’ Purchase
Goodwill of the firm = Rs. 1,02,000 × 2
Goodwill of the firm = Rs. 2,04,000
Manik’s Goodwill = Rs. 2,04,000 × 1/4 = Rs. 51,000

Question 102. Kumar and Rao were partners in a firm sharing profits equally. They admitted Ghosh as a new partner for 1/4th share in profits. Ghosh acquired his 1/4^th share from Kumar and Rao in the ratio of 3:2 respectively. Ghosh brought Rs. 2,70,000 for his Capital and Rs. 39,000 for 1/4^th share of goodwill. Calculate new profit sharing ratio of Kumar, Rao and Ghosh and pass necessary journal entries for the above transactions in the books of the firm.

Solution 102

Computation of New profit sharing ratio:-
Ghosh share from Kumar = 3/5 of 1/4 = 3/20

Ghosh share from Rao = 2/5 of 1/4 = 2/20
Kumar’s New Share = 1/2-3/20=(10-3)/20=7/20
Rao’s New Share = 1/2-3/20=(10 – 2)/20=8/20
Ghosh’s New Share = 1/4

New Share of Kumar, Rao and Ghose = 7/20:8/20:1/4
New Share of Kumar, Rao and Ghose = (7 ∶ 8 ∶ 5)/20
New Share of Kumar, Rao and Ghose = 7 : 8 : 5

Question 103. Piyush and Deepika are partners sharing profits in the ratio 7:3. They admit Seema as a new partner, paying Rs. 40,000 as premium for 1/5 share. The new ratio 5: 3:2. Pass journal entries.
Solution 103

Working Note:-
Computation of Sacrificing Ratio:-
Piyush’s Sacrificing Ratio = 7/10-5/10=(7-5)/10=2/10
Deepika’s Sacrificing Ratio = 3/10-3/10=0

Question 104. P and Q are in partnership sharing profits in the ratio of 5:3. They admit R in the firm, R paying a premium of Rs. 1,00,000 for 1/4 share of the profits. As between themselves, P and Q agree share future profits and losses equally. Pass entries.

Solution 104

Working Note:-
R’s New Profit Share = 1/4

Remaining Profit = 1-1/4 = 3/4

P’s New Share = 3/4×1/2=3/8

Q’s New Share = 3/4×1/2=3/8

R’s New Share = 1/4

New Share of P, Q and R = 3/8:3/8:1/4
New Share of P, Q and R = (3 ∶ 3 ∶ 2)/8
New Share of P, Q and R = 3 : 3 : 2

Computation of Sacrificing Ratio:-
P’s Sacrificing Ratio = 5/8-3/8=(5-3)/8=2/8
Q’s Sacrificing Ratio = 3/8-3/8=0

Question 105. X and Y are partners sharing profits and losses in the ratio of 6: 9. They agree admit Z in partnership who brings Rs. 1,00,000 in cash for his Capital and goodwill. Goodwill is valued at 11/2 year’s purchase of the last 4 years average profits, which were Rs. 30,000; Rs. 8,000 (loss); Rs. 20,000 and Rs. 38,000 respectively. X, Y and Z will share future profits in equal proportion. Pass entries.

Solution 105

Working Note:-
Average Profit = (Rs. 30,000 – Rs. 8,000 + Rs. 20,000 + Rs. 38,000)/4
Average Profit = (Rs. 80,000)/4
Average Profit = Rs. 20,000
Goodwill = Rs. 20,000 × 3/2 = Rs. 30,000
Z’s Share = Rs. 30,000 × 1/3 = Rs. 10,000

Computation of Sacrificing Ratio:-
Sacrificing Ratio = Old Ratio – New Ratio
X’s Sacrificing Ratio = 6/15-1/3=(6-5)/15=1/15

Y’s Sacrificing Ratio = 9/15-1/3=(9-5)/15=4/15
Sacrificing Ratio = 1 : 4

Question 106. Arun and Varun are partners sharing profits in the ratio of 3:2. Bhushan is admitted paying a premium of Rs. 84,000 for 1/4th share of profits which he acquires 1/6th from Arun 1/12th from Varun. Calculate new ratios and pass entries.
Solution 106

Working Note:-
Sacrificing Ratio = 1/6:1/12=(2 ∶ 5)/15=2∶1

Computation of New Profit Sharing Ratio:-
Arun’s New Ratio = 3/5-1/6=(18-5)/30=13/30
Varun’s New Ratio = 2/5-1/12=(24-5)/60=19/60
Bhushan’s New Ratio = 1/6+1/12=(2+1)/12=3/12
New Ratio of Arun, Varun and Bhushan = 13/30:19/60:3/12 = (26 ∶ 19 ∶ 15)/60 = 26 ∶ 19 ∶ 15

Question 107. L and M were partners in a firm sharing profits in 4:3 ratio. They admitted O as a new partner. The new profit sharing ratio of L, M and O will be 3:3:4. O Brought Rs. 2,00,000 for his Capital. The goodwill of the firm on O’s admission was Rs. 70,000. O brought his share of goodwill in cash. Calculate sacrificing ratio of L and M and pass necessary journal entries for the above transactions on O’S admission.
Solution 107

Working Note:-
Computation of Sacrificing Ratio:-
Sacrifice Ratio = Old Ratio – New Ratio
L’s Sacrifice Ratio = 4/7-3/10=(40-21)/70=19/70
M’s Sacrifice Ratio = 3/7-3/10=(30-21)/70=9/70
Sacrificing Ratio = 19 : 9

Question 108. A and B are partners sharing profits and losses in the proportion of 3:2. They agree admit C in partnership who is get 1/5th share in the business. C bring in Rs. 1,00,000 for his Capital and Rs. 40,000 for 1/5th share of goodwill which he Acquires 3/20 from A and 1/20 from B. The profit for the first year of the new partnership amounted Rs. 2,00,000.
Make the necessary Journal entries in connection with C’s admission and apportion the profit between the partners.
Solution 108

Working Note:-
Computation of New Profit Sharing Ratio:-

A’s Ratio = 3/5-3/20=(12-3)/20=9/20
B’s Ratio = 3/5-1/20=(8-1)/20=7/20
C’s Ratio = 3/20+1/20=(3-1)/20=4/20
New Ratio of A, B and C = 9 : 7 : 4

Question 109. P and Q share profits in the ratio of P, 5/8 and Q, 3/8. R is admitted as a partner who brings in Rs. 60,000 as his Capital and Rs. 20,000 for goodwill. The new profit-sharing ratio is agreed at 7:5: 4. Draft Journal entries.
Solution 109

Computation of Sacrificing Ratio:-
Sacrifice Ratio = Old Ratio – New Ratio
P’s Sacrifice Ratio = 5/8-7/16=(10-7)/16=3/16
Q’s Sacrifice Ratio = 3/8-5/16=(6-5)/16=1/16
Sacrificing Ratio = 3 : 1

Question 110. A and B are partners sharing profits in the ratio of 3 : 2. They admit C in partnership, C pays a premium of Rs. 60,000 for 1/4th share of profit. The new ratio is 3 : 3:2. Goodwill account appears in the books at Rs. 2,00,000. Give the necessary Journal entries.
Solution 110

Computation of Sacrificing Ratio:-
Sacrifice Ratio = Old Ratio – New Ratio

P’s Sacrifice Ratio = 3/5-3/8=(24-15)/40=9/40
Q’s Sacrifice Ratio = 2/5-3/8=(16-15)/40=1/40
Sacrificing Ratio = 9 : 1

Question 111. A and B are partners sharing profits and losses in the ratio of 3 : 2 respectively. Goodwill appears in their books at 3,00,000. They admit C in partnership. C paying a premium of Rs. 1,00,000 for one-fourth share of the profits while A and B as between themselves sharing profits and losses as before.
Give Journal entries record the above arrangement in the books of the firm.
Solution 111

Working Note:-
Computation of New Ratio:-
C‘s share = 1/4th
Remaining Share = 1-1/4=3/4

A’s New Ratio = 3/5 × 3/4 = 9/20

B’s New Ratio = 2/5 × 3/4 = 6/20

C’s New Ratio = 1/4
New Profit sharing ratio of A, B and C = 9/20: 6/20:1/4

New Profit sharing ratio of A, B and C = (9 ∶ 6 ∶ 5)/20 = 9 : 6 : 5

Computation of Sacrificing Ratio:-
Sacrificing Ratio = Old Ratio – New Ratio

A’s Sacrificing Ratio = 3/5-9/20= (12-9)/20=3/20
B’s Sacrificing Ratio = 2/5-6/20= (8-6)/20=2/20
Sacrificing Ratio = 3 : 2

Question 112. X and Y are partners sharing profits in the ratio of 2:1. Their books showed goodwill at Rs. 50,000. Z is admitted with 1/5th share of profit which he acquires equally from X and Y. He brings Rs. Rs. 7,50,000 as his Capital but is not able bring in cash his share of goodwill Rs. 40,000. Give Journal entries.

Solution 112

Question 113. A and B are partners sharing profits in the ratio of 5 : 3. They admit C as a partner for 1/3rd share. His share of Goodwill is Rs. 32,000. Give journal entries in the following s :
(a) When the amount of goodwill is paid privately.
(b) When the goodwill is received in cash and retained in the business.
(c) When the goodwill is received in cash and withdrawn old partners.
(d) When C is unable bring the goodwill in cash.

Solution 113

Question 114. A and B are partners. They admit C as partner who pays Rs. 50,000 as Capital. The new ratio is be 4: 3:2. The goodwill of the firm is be based on 2 year’s purchase of the average of 3 year’s profits which were Rs. 30,000; Rs. 35,000 and Rs. 43,000. Show Journal entries, if :
(a) C pays for goodwill in cash; and
(b) He is unable bring cash for goodwill.
Solution 114

Working Note:-
Valuation of Goodwill:-
Average Profit = (Rs. 30,000 +Rs. 35,000 +Rs. 43,000)/3

Average Profit = (Rs. 1,08,000)/3 = Rs. 36,000

Computation of Sacrificing Ratio:-
Sacrificing Ratio = Old Ratio – New Ratio

A’s Sacrificing Ratio = 1/2-4/9=(9-8)/18=1/18
B’s Sacrificing Ratio = 1/2-3/9=(9-6)/18=3/18
Sacrificing Ratio = 1 : 3

Question 115. A and B are partners sharing profits in the ratio of 2:1. They admit C for 1/4th share in profits. C brings Rs. 30,000 for his Capital and Rs. 8,000 out of his share of Rs. 10,000 for goodwill. Before admission goodwill appeared in books at Rs. 18,000. Give Journal entries give effect above arrangement.
Solution 115

Question 116. J and R are partners. V is admitted as a partner for 1/4share of profit but is unable contribute premium for goodwill in cash amounting Rs. 80,000 and so it is decided raise a loan account in the name of V.
You are required pass a single journal entry in order give effect the above problem.
Solution 116

Question 117. A and B share profit in the proportions of ¾ and ¼. Their Balance Sheet as at March 31, 2020 was as follows:

Liabilities	Amount Rs.	Assets	Amount Rs.
Sundry Creditors	4,15,000	Cash at Bank	2,65,000
Reserve Fund	40,000	Bills Receivable	30,000
Capital Accounts: A B	3,00,000 1,60,000	Debtors Stock Fixtures	1,60,000 2,00,000 10,000
		Land and Buildings	2,50,000
	9,15,000		9,15,000

On April 1, 2020, C was admitted in partnership for 1/4th share on the following terms:
(a) That C pays 1,00,000 as his Capital.
(b) That C pays Rs. 50,000 for goodwill. Half of this sum is be withdrawn A and B.
(c) That Stock and fixtures be reduced 10% and a 5% provision for doubtful debts be created on Sundry Debtors and Bills Receivable.
(d) That the value of land and buildings be appreciated 20%.
(e) There a claim against the firm for damages, a liability the extent of Rs. 10,000 should be created.
(f) An item of Rs. 6,500 included in sundry Creditors is not likely be claimed and hence should be written back.
Record the above transactions (journal entries) in the books of the firm assuming that the profit sharing ratio between A and B has not changed. Prepare the new Balance Sheet on the admission of Mr. C.
Solution 117

On admission of Tanya for 1/6th share in the profits it was decided that :
(i) Provision for doubtful debts be increased Rs. 15,000.
(ii) Value of land and building be increased Rs. 2,10,000.
(iii) Value of Stock be increased Rs. 25,000.
(iv) The liability of workmen’s compensation claim was determined be Rs. 1,20,000.
(v) Tanya brought in as her share of goodwill Rs. 1,00,000 in cash.
(vi) Tanya was bring further cash of Rs. 1,50,000 for her Capital.
Prepare Revaluation A/c, Capital A/cs and Balance Sheet of the new firm.

Solution 118

Question 119. P and S were partners in a firm sharing profits in the ratio of 3 : 2. Their Balance Sheet as at 31-3-2020 was as follows:

Liabilities	Amount Rs.	Assets	Amount Rs.
Bank Overdraft	20,000	Cash	8,000
Creditors	30,000	Debtors	30,000
Provision for bad debts	1,000	Bills Receivable	40,000
General Reserve	15,000	Stock	50,000
V’s Loan	20,000	Building	90,000
Capitals : P 1,00,000 S 1,80,000	2,80,000	Land	1,48,000
	3,66,000		3,66,000

On 1-4-2020 they admitted V as a new partner on the following conditions :
(i) V will get 1/8th share in the profits of the firm.
(ii) V’s loan will be converted in his Capital.
(iii) The goodwill of the firm was valued at Rs. 80,000 and V brought his share of goodwill premium in cash.
(iv) Provision for bad debts was be made equal 5% of the Debtors.
(v) Stock was be depreciated 5%.
(vi) Land was be appreciated 10%.
Prepare Revaluation Account, Capital Accounts of P, S and V and the Balance Sheet of the new
firm as on 1-4-2020.

Solution 119

Question 120. A and B share the profits of a business in the ratio of 5:3. They admit ratio of 5:3. They admit C in the firm for a 1/4th share in the profits be contributed equally A and B. On the date of admission of C, the Balance Sheet of the firm was as follows:

Liabilities	Rs.	Assets	Rs.
A’s Capital	3,00,000	Machinery	2,60,000
B’s Capital	2,00,000	Furniture	1,60,000
Workmen’s Compensation Reserve	40,000	Stock	1,20,000
Bank Loan	1,20,000	Debtors	80,000
Creditors	20,000	Bank	60,000
	6,80,000		6,80,000

Terms of C’s admission were as follows:
(i) C will bring Rs. 3,30,000 for his share of Capital and goodwill.
(ii) Goodwill of the firm has been valued at 4 year’s purchase of the average super profits of last three years. Average profits of the last three years are Rs. 2,20,000 while the normal profits that can be earned with the Capital employed are 1,40,000.
(iii) Furniture is be appreciated Rs. 60,000 and the value of Stock is be reduced Rs. 20,000.
Prepare Revaluation Account, Partner’s Capital Accounts and the new Balance Sheet of A, B and C.
Solution 120

Working Note:-
Computation of Goodwill :-
Super Profit = Average Profit – Normal Profit
Super Profit = Rs. 2,20,000 – Rs. 1,40,000 = Rs. 80,000

Goodwill = Super profit × No. of Year Purchases
Goodwill = Rs. 80,000 × 4 = Rs. 3,20,000
C’s Share = Rs. 3,20,000 × 1/4 = Rs. 80,000

Question 121. A and B are partners in a firm sharing profits and losses as 5: 3. The position of the firm as at 31st March, 2018 was as follows:

Liabilities	Rs.	Assets	Rs.
Capital Accounts: A 30,000 B 20,000	50,000	Plant and Machinery Stock Sundry Debtors	40,000 30,000 20,000
Sundry Creditors	15,000	Bills Receivable	10,000
Bank Overdraft	42,500	Cash at Bank	7,500
	1,07,500		1,07,500

On 1st April, 2018, C joins them on condition that he will share 3/4th of the future profits, the balance of profits shared A and B as 5:3. He introduces Rs. 40,000 way of Capital and further Rs. 4,000 way of premium for goodwill. He also provides loan the firm pay off bank overdraft. A and B depreciate Plant 10% and raise a reserve against Sundry Debtors @ 5%.
You are asked journalise the entries in the books of the firm and show the resultant Balance Sheet. How will the partners share future profits?

Solution 121

Computation of New Profit Sharing Ratio:-
C’s Share = 3/4
Remaining Share = 1-3/4=1/4
A’s New Share = 1/4×5/8=5/32
B’s New Share = 1/4×3/8=3/32
C’s New Share = 3/4

New ratio of A, B and C = 5/32:3/32:3/4
New ratio of A, B and C = (5:3:24)/32
New ratio of A, B and C = 5 : 3 : 24

Question 122 (new). Raman and Aman were partners in a firm and were sharing profits in 3:1 ratio. On 31-3-2019 their balance sheet was as follows:

On the above data Suman was admitted as a new partner for 1/5th share in the profit on the following conditions:
(i) Suman will bring Rs. 2,00,000 as her capital and necessary amount for her share of goodwill premium. The goodwill of the firm on Suman’s admission was valued at Rs. 1,00,000.
(ii) Outstanding expenses will be paid off. Rs. 5,000 will be written off as bad debts and a provision of 5% for bad debts on debtors was to be maintained.
(iii) The liability towards workmen compensation was estimated at Rs. 60,000.
(iv) Machinery was to be depreciated by Rs. 18,000 and land and building was to be depreciated by Rs. 54,000.
Pass necessary journal entries for the above transactions in the books of the firm.

Solution 122 (new).

Question 122. Rohit and Bal sharing profits in the ratio of 5:3 had the following Balance Sheet as at March 31, 2018:

On April 1st, 2018, they decided admit Khosla in the partnership giving him 1/5th share. He brings in Rs. 2,50,000 as his share of Capital. The partners decide revalue the Assets as follows:
Goodwill Rs. 2,50,000; Plant Rs. 1,25,000; Debtors Rs. 1,55,000; Stock Rs. 1,62,500; Building Rs. 2,00,000; Furniture Rs. 10,000; Bills Receivable Rs. 62,500.
You are required show the journal entries and prepare the Revaluation A/c.
Solution 122

Working Note:-
Goodwill of Khosla = Rs. 2,50,000 × 1/5 = Rs. 50,000

Points for Students:-
Since a new partner gets his share of profit from old partners, he must compensate the old partners for the share sacrificed by them. The amount of compensation given by the new partner is known as goodwill.

Question 23. The following was the Balance Sheet of Ajay, Vijay and Kamal as at 31st March, 2018:

They share profits and losses in the ratio of 6:5:3. On 1st April, 2018 they agreed admit Subodh in
partnership and give him a share of 10 paise in a rupee on the following terms:
(i) That Subodh should bring in Rs. 14,000 as Capital.
(ii) That Stock be depreciated 10% and furniture 900.
(iii) That a reserve of Rs. 1,300 be made for outstanding repair bill.
(iv) The value of Land and Buildings be brought up Rs. 65,000.
(v) That the Goodwill of the firm be valued at Rs. 8,400.
Pass necessary journal entries record the above arrangements and prepare the new Balance Sheet of the firm.
Solution 123

Points for Students:-
Assets and liabilities are revalued because the entire profit or loss due to their revolution is divided amongst the old partners in their old profit sharing ratio. The new partner should not share such profit or loss because it belongs to the period prior to his admission.

Question 124. A and B are partners in a firm. Their Balance Sheet as at 31st March, 2018 was as follows:

C was taken in partnership as from 1-4-2018 on following terms for 1/6 share :

C will bring Rs. 40,000 as his Capital.
Goodwill is valued at Rs. 12,000 and admitting partner is unable bring his share of goodwill in cash. 3. Claim an account of Workmen’s Compensation is Rs. 3,000
Creditors are be paid Rs. 2,000 more.
2% Provision for Discount on Debtors is required.
The share of A in new firm will be 11/2 times of B.
Prepare Revaluation A/c, Capital Accounts and Balance Sheet

Solution 124

Working Note:-
New Profit Sharing Ratio:-
C is admitted for 1/6th share.
Balance 5/6th will be shared A and B in the ratio of 11/2 : 1 OR 3 : 2
A’s New Ratio = 5/(6 ) × 3/(5 )= 3/(6 )

B’s New Ratio 5/(6 )×2/(5 )=2/(6 )

C’s New Ratio = 1/(6 )

Computation of Sacrificing Ratio:-
A’s Share = 1/(2 )-3/(6 )=0
B’s Share = 1/(2 )-2/(6 )=1/(6 )

Question 125. A, B and C are partners in a firm, sharing profits and losses in the ratio of 5.3. They admit A in the firm on 1st April, 2018, when their Balance Sheet was as follows:

Liabilities	Amount Rs.	Assets	Amount Rs.
B’s Capital	32,000	Goodwill	8,000
C’s Capital	34,000	Machinery	38,000
General Reserve	8,000	Furniture	5,000
Bank Loan	6,000	Debtors	23,000
Creditors	6,000	Stock	7,000
		Bank	5,000
	86,000		86,000

Terms of A’s admission were as follows:
(i) A will bring Rs. 30,000, through cheque, as his share of Capital and will be entitled 1/3rd share in the profits.
(ii) A is not bring goodwill in cash. Goodwill is valued on the basis of 2 years purchase of the average profits of the last three years.
(iii) Average profits of the last three years are Rs. 6,000.
(iv) Machinery and Stock are revalued at Rs. 45,000 and Rs. 8,000 respectively.
Prepare Revaluation Account and Partner’s Capital Account incorporating the above adjustments and also the Balance Sheet of the firm after the above adjustments.
Solution 125

Working Notes:-
Goodwill = Average Profit × Year Purchases
Goodwill = Rs. 6,000 × 2 = Rs. 12,000
A’s Goodwill = Rs. 12,000 × 1/3 = Rs. 4,000

Points for Students:-
Partnership is dissolved and the firm because it is reconstitution of the firm under which the existing agreement comes to end and a new one comes into existence.

DK Goel Solutions Class 12th Chapter 4 Admission of a Partner

What do you mean by the admission of a partner?

Admission of a partner depicts the inclusion of a new individual in a firm. The new person joining the firm is titled the incoming partner. Generally, on the admission of a new partner, there are certain modifications in the profit-sharing ratios. The firm’s profit holding ratio usually reconstitutes the addition of a new partner to it.

Write the conditions when a firm adds a new partner.

Here are the conditions when a firm adds a new partner –
● Firms usually include fresh partners when they are in scaling mode and require capital for extending their business.
● When a new partner is important to deal with a specific department of business, turning as an asset for the firm.
● When the admission of the new member adds a touch of reputation and goodwill to the company.

What are the adjustments made within a firm in case of a new admission?

Here are the most prominent adjustments made during the addition of a new member in the firm –
● Modification in the profit-sharing ratio and the calculation of the sacrificing ratio.
● Revaluation of the liabilities and assets of the firm.
● Modification in the firm’s capital with the entry of a new member in the business.

What do you mean by a new profit-sharing ratio?

On admission of a new member, the firm’s profit-sharing mechanism restructures. A new profit-sharing ratio can be defined as the ratio of profit sharing that both the existing member and the new partner of the firm decide to distribute the firm’s future profits.

When is the new profit-sharing ratio calculated?

Here are the cases when the new profit-sharing ratio of a business is calculated –
● In case a new partner enters the firm.
● At unfortunate death or Retirement of old partners of the firm.
● In case the existing partners decide to revise their profit-sharing ratio.

What is Goodwill?

Goodwill can be defined as a non-tangible asset depicting a non-physical item that elevates the value of a firm. Some good examples of goodwill are – the value of the company’s name, good customer relations, good employee relations, etc.

Also refer to TS Grewal Solutions for Class 12

DK Goel Solutions

DK Goel Solutions Chapter 4 Admission of a Partner

Admission of a Partner DK Goel Class 12 Accountancy Solutions

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