Admission of a Partner

Students, here are the answers for the book back exercises in Chapter 5 Admission of a Partner. Please revise the formulas and account formats before you start working out the problems. If you have any doubts, please reach out to us in the comments section.

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Important Formulas, Accounts Formats and Notes for Chapter 5

I Multiple Choice questions

Choose the correct answer

1. Revaluation A/c is a
(a) Real A/c	(b) Nominal A/c
(c) Personal A/c	(d) Impersonal A/c
2. On revaluation, the increase in the value of assets leads to
(a) Gain	(b) Loss
(c) Expense	(d) None of these
3. The profit or loss on revaluation of assets and liabilities is transferred to the capital account of
(a) The old partners	(b) The new partner
(c) All the partners	(d) The Sacrificing partners
4. If the old profit sharing ratio is more than the new profit sharing ratio of a partner, the difference is called
(a) Capital ratio	(b) Sacrificing ratio
(c) Gaining ratio	(d) None of these
5. At the time of admission, the goodwill brought by the new partner may be credited to the capital accounts of
(a) all the partners	(b) the old partners
(c) the new partner	(d) the sacrificing partners
6. Which of the following statements is not true in relation to admission of a partner
(a) Generally mutual rights of the partners change	(b) The profits and losses of the previous years are distributed to the old partners
(c) The firm is reconstituted under a new agreement	(d) The existing agreement does not come to an end
7. Match List I with List II and select the correct answer using the codes given below:
List I	List II
(i) Sacrificing ratio	1. Investment fluctuation fund
(ii) Old profit sharing ratio	2. Accumulated profit
(iii) Revaluation Account	3. Goodwill
(iv) Capital Account	4. Unrecorded liability
Codes:
(i) (ii) (iii) (iv) (a) 1 2 3 4	(i) (ii) (iii) (iv) (b) 3 2 4 1
(i) (ii) (iii) (iv) (c) 4 3 2 1	(i) (ii) (iii) (iv) (d) 3 1 2 4
8. Select the odd one out
(a) Revaluation profit	(b) Accumulated loss
(c) Goodwill brought by new partner	(d) Investment fluctuation fund
9. James and Kamal are sharing profits and losses in the ratio of 5:3. They admit Sunil as a partner giving him 1/5 share of profits. Find out the sacrificing ratio.
(a) 1:3	(b) 3:1
(c) 5:3	(d) 3:5
10. Balaji and Kamalesh are partners sharing profits and losses in the ratio of 2:1. They admit Yogesh into partnership. The new profit sharing ratio between Balaji, Kamalesh and Yogesh is agreed to 3:1:1. Find the sacrificing ratio between Balaji and Kamalesh.
(a) 1:3	(b) 3:1
(c) 2:1	(d) 1:2

Take the MCQ Quiz on Chapter 5

II Very short answer questions

1. What is meant by revaluation of assets and liabilities?

Answer: When a partner is admitted into the partnership, the assets and liabilities are revalued as the current value may differ from the book value. Determination of current values of assets and liabilities is called revaluation of assets and liabilities.

2. How are accumulated profits and losses distributed among the partners at the time of admission of a new partner?

Answer: Any accumulated profits and losses belong to the old partners and hence these should be distributed to the old partners in the old profit sharing ratio.

3. What is sacrificing ratio?

Answer: Sacrificing ratio is the proportion of the profit which is sacrificed by the old partners in favour of the new partner.

4. Give the journal entry for writing off existing goodwill at the time of admission of a new partner.

Answer:

Particulars	Debit	Credit
Cash / Bank a/c Dr.	xxx
New partners’ capital a/c Dr.		xxx
To Old partners’ capital / current a/c
(only a part of the goodwill is brought in cash or in kind)

5. State whether the following will be debited or credited in the revaluation account.

Question	Answer:
(a) Depreciation on assets	Debit account
(b) Unrecorded liability	Debit account
(c) Provision for outstanding expenses	Debit account
(d) Appreciation of assets	Credit account

III Short answer questions

1. What are the adjustments required at the time of admission of a partner?

Answer: The following adjustments are necessary at the time of admission of a partner:

1. Distribution of accumulated profits, reserves and losses

2. Revaluation of assets and liabilities

3. Determination of new profit-sharing ratio and sacrificing ratio

4. Adjustment for goodwill

5. Adjustment of capital on the basis of new profit sharing ratio

2. What are the journal entries to be passed on revaluation of assets and liabilities?

Answer:

	Particulars	L.F.	Debit	Credit
1	Concerned asset a/c Dr.		xxx
	To Revaluation a/c			xxx
	(increase in the value of assets)
2	Revaluation a/c Dr.		xxx
	To Concerned asset a/c			xxx
	(decrease in the value of assets)
3	Revaluation a/c Dr.		xxx
	To Concerned liability a/c			xxx
	(increase in the value of liabilities)
4	Concerned liability a/c Dr.		xxx
	To Revaluation a/c			xxx
	(decrease in the value of liabilities)
5	Concerned asset a/c Dr.		xxx
	To Revaluation a/c			xxx
	(recording an unrecorded asset)
6	Revaluation a/c Dr.		xxx
	To Concerned liability a/c			xxx
	(recording an unrecorded liability)
7	Revaluation a/c Dr.		xxx
	To Old partners’ capital a/c			xxx
	(profit on revaluation transferred to old partners capital a/cs in old ratio)
8	Old partners’ capital a/c Dr.		xxx
	To Revaluation A/c			xxx
	(loss on revaluation transferred to old partners capital a/cs in old ratio)

3. Write a short note on accounting treatment of goodwill.

Answer: Accounting treatment for goodwill is as follows:

1. When new partner brings cash towards goodwill

When the new partner brings cash towards goodwill in addition to the amount of capital, it is distributed to the existing partners in the sacrificing ratio.

For the goodwill brought in cash:

Particulars	Debit	Credit
Cash / Bank A/c Dr.	xxx
To Old partners’ capital / current A/c		xxx
(goodwill brought in cash credited to old partners’ capital in sacrificing ratio)

For the goodwill brought in kind

Particulars	Debit	Credit
Respective Asset A/c Dr.	xxx
To Old partners’ capital / current A/c		xxx
(goodwill brought in kind credited to old partners’ capital in sacrificing ratio)

For withdrawal of cash received for goodwill

Particulars	Debit	Credit
Old partners’ capital / current a/c Dr.	xxx
To Cash / Bank a/c		xxx
(withdrawal of cash received for goodwill by the old partners)

2. When the new partner does not bring goodwill in cash or in kind

If the new partner does not bring goodwill in cash or in kind, his share of goodwill must be adjusted through the capital accounts of the partners.

Particulars	Debit	Credit
New partners’ capital A/c Dr.	xxx
To Old partners’ capital / current A/c		xxx
(adjustment entry when new partner does not bring goodwill)

3. When the new partner brings only a part of the goodwill in cash or in kind

For the amount brought in cash/kind, the respective account is debited. For the amount not brought in cash or kind, the new partner’s capital account is debited.

Particulars	Debit	Credit
Cash / Bank a/c Dr.	xxx
New partners’ capital a/c Dr.		xxx
To Old partners’ capital / current a/c
(only a part of the goodwill is brought in cash or in kind)

4. Existing goodwill

Existing goodwill, if the partner’s decide, can be written off by transferring it to the existing partners’ capital account / current account in the old profit sharing ratio.

IV Exercises

Distribution of accumulated profits, reserves and losses

1. Arul and Anitha are partners sharing profits and losses in the ratio of 4:3. On 31.3.2018, Ajay was admitted as a partner. On the date of admission, the book of the firm showed a general reserve of Rs. 42,000. Pass the journal entry to distribute the general reserve.

Answer:

Date	Particulars	Debit	Credit
2018	General Reserve a/c Dr.	42,000
March 31	To Arul's capital a/c		24,000
	To Anitha's capital a/c		18,000
	(general reserve transferred to old partners in old ratio)
Calculation:
Arul	42000 x 4/7 =24,000
Anitha	42000 x3/7=18,000

2. Anjali and Nithya are partners of a firm sharing profits and losses in the ratio of 5:3. They admit Pramila on 1.1.2018. On that date, their balance sheet showed accumulated loss of Rs. 40,000 on the asset side of the balance sheet. Give the journal entry to transfer the accumulated loss on admission.

Answer:

Date	Particulars	Debit	Credit
2018	Anjali Capital a/c Dr.	25000
Jan-01	Nithya Capital a/c Dr.	15000
	To Profit and Loss a/c		40,000
	(accumulated loss distributed to old partners in old ratio)
Calculation:
Arul	40000 x 5/8 =25,000
Anitha	40000 x 3/8 =15,000

3. Oviya and Kavya are partners in a firm sharing profits and losses in the ratio of 5:3. They admit Agalya into the partnership. Their balance sheet as on 31st March, 2019 is as follows:

Balance Sheet as on 31st March 2019
Liabilities	Rs.	Rs.	Assets	Rs.
Capital accounts:			Buildings	40,000
Oviya	50,000		Plant	50,000
Kavya	40,000	90,000	Furniture	30,000
Profit and loss appropriation A/		40,000	Debtors	20,000
General reserve		8,000	Stock	10,000
Workmen’s compensation fund		12,000	Cash	20,000
Sundry creditors		20,000
Total		1,70,000	Total	1,70,000

Pass journal entry to transfer the accumulated profits and reserve on admission.

Answer:

Date	Particulars	Debit	Credit
2019	P& L Appropriation a/c Dr.	40000
Mar31	General Reserve a/c Dr.	8000
	Workmens compensation Fund a/c Dr.	12000
	To Oviya capital a/c		37,500
	To Kavya capital a/c		22,500
	(accumulated profit and reserves distributed to old partners in old ratio)
	Calculation
	Oviya
	Kavya

Revaluation of assets and liabilities

4. Hari, Madhavan and Kesavan are partners, sharing profits and losses in the ratio of 5:3:2. As from 1st April 2017, Vanmathi is admitted into the partnership and the new profit sharing ratio is decided as 4:3:2:1. The following adjustments are to be made.

(a) Increase the value of premises by Rs.60,000.

(b) Depreciate stock by Rs.5,000, furniture by Rs.2,000 and machinery by Rs.2,500.

Pass journal entries and prepare revaluation account.

Answer:

Date	Particulars	Debit	Credit
2017	Revaluation a/c Dr.	10000
Apr-01	To stock a/c		5000
	To furniture a/c		2000
	To machinery a/c		2500
	To Outstanding liability a/c		500
	Premises a/c Dr	60000
	To revaluation a/c		60000
	(increase in assets and decrease in liability recorded)
	Revaluation a/c Dr.	50000
	To Hari capital a/c		25000
	To Madhavan capital a/c		15000
	To Kesavan capital a/c		10000
	(profit on revaluation transferred to revaluation a/c)

	Revaluation a/c
Particulars	Rs.	Rs.	Particulars	Rs.
To stock a/c		5000	By premises a/c	60000
To furniture a/c		2000
To machinery a/c		2500
To Outstanding liability a/c		500
To Hari capital a/c	25000
To Madhavan capital a/c	15000
To Kesavan capital a/c	10000	50000
Total		60000	Total	60000

5. Seenu and Siva are partners sharing profits and losses in the ratio of 5:3. In the view of Kowsalya admission, they decided

(a) To increase the value of building by Rs. 40,000.

(b) To bring into record investments at Rs. 10,000, which have not so far been brought into account.

(d) To write off sundry creditors by Rs. 16,000.

Pass journal entries and prepare revaluation account.

Answer:

Particulars	Debit	Credit
Revaluation a/c Dr.	26000
To machinery a/c		14000
To furniture a/c		12000
(decrease in assets recorded)
Buildings a/c Dr	40000
Investment a/c Dr	10000
Sundry creditors a/c Dr	16000
To revaluation a/c		66000
(increase in assets and decrease in liability recorded)
Revaluation a/c Dr.	40000
To Seenu capital a/c		25000
To Siva capital a/c		15000
(profit on revaluation transferred to revaluation a/c)

	Revaluation a/c
Particulars	Rs.	Rs.	Particulars	Rs.
To machinery a/c		14000	By Buildings a/c	40000
To furniture a/c		12000	By Investment a/c	10000
To Seenu capital a/c	25000		By Sundry creditors a/c	16000
To Siva capital a/c	15000	40000
Total		66000	Total	66000

6. Sai and Shankar are partners, sharing profits and losses in the ratio of 5:3. The firm’s balance sheet as on 31st December, 2017, was as follows:

Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
Capital accounts:			Building		34,000
Sai	48,000		Furniture		6,000
Shankar	40,000	88,000	Investment		20,000
Creditors		37,000	Debtors	40,000
Outstanding wages		8,000	Less: Provision for bad debts	3000	37,000
			Bills receivable		12,000
			Stock		16,000
			Bank		8,000
Total		1,33,000	Total		1,33,000

On 31st December, 2017 Shanmugam was admitted into the partnership for 1/4 share of profit with Rs. 12,000 as capital subject to the following adjustments.

(a) Furniture is to be revalued at Rs. 5,000 and building is to be revalued at Rs. 50,000.

(d) An unrecorded investment of Rs. 6,000 is to be brought into account

(e) An unrecorded liability Rs. 2,500 has to be recorded now.

Pass journal entries and prepare Revaluation Account and capital account of partners after admission.

Answer:

Date	Particulars	Debit	Credit
	Revaluation a/c Dr.	6000
	To furniture a/c		1000
	To provision for bad abd doubtful debts a/c Dr.		2500
	To unrecorded liabilities		2500
	(decrease in assets and decrease in liability recorded)
	Building a/c Dr.	16000
	Investment a/c Dr	6000
	To revaluation a/c		22000
	(increase in assets and decrease in liability recorded)
	Revaluation a/c Dr.	16000
	To Sai capital a/c		10000
	To Shankar capital a/c		6000
	(profit on revaluation transferred to revaluation a/c)
	Bank a/c Dr.	12000
	To Shanmugam capital a/c		12000
	(capital brought in by new partner)
Calculation
Sai	16000*5/8=10000
Shankar	16000*3/8=6000

	Revaluation a/c
Particulars	Rs.	Rs.	Particulars	Rs.
To furniture a/c		1000	By Building a/c	16000
To provision for bad abd doubtful debts a/c Dr.		2500	By Investment a/c	6000
To unrecorded liabilities		2500
To Sai capital a/c	10000
To Shankar capital a/c	6000	16000
Total		22000	Total	22000

	Capital a/c
Particulars	Sai	Shankar	Shanmugam	Particulars	Sai	Shankar	Shanmugam
To balance c\d	58000	46000	12000	By balance b/d	48000	40000
				By bank			12000
				By revaluation	10000	6000
Total	58000	46000	12000	Total	58000	46000	12000
				By balance b/d	58000	46000	12000

7. Amal and Vimal are partners in a firm sharing profits and losses in the ratio of 7:5. Their balance sheet as on 31st March, 2019, is as follows:

Liabilities	Rs.	Rs.	Assets	Rs.
Capital accounts:			Land	80,000
Amal	70,000		Furniture	20,000
Vimal	50,000	1,20,000	Stock	25,000
Sundry creditors		30,000	Debtors	30,000
Profit and loss A/c		24,000	Bank	19,000
Total		1,74,000	Total	1,74,000

Nirmal is admitted as a new partner on 1.4.2018 by introducing a capital of Rs.30,000 for 1/3 share in the future profit subject to the following adjustments.

(a) Stock to be depreciated by Rs.5,000

(b) Provision for doubtful debts to be created for Rs.3,000

Prepare revaluation account and capital account of partners after admission.

Answer:

Revaluation a/c
Particulars	Rs.	Rs.	Particulars	Rs.
To stock a/c		5000	By land a/c	20000
To provision for bad and doubtful debts a/c		3000
To Amal capital a/c	7000
To Vimal capital a/c	5000	12000
Total		20000	Total	20000

			Capital a/c
Particulars	Amal	Vimal	Nirmal	Particulars	Amal	Vimal	Nirmal
To balance c/d	91000	65000	30000	By balance b/d	70,000	50,000
				By P&L a/c	14,000	10,000
				By revaluation a/c	7000	5000
				By bank a/c			30,000
Total	91000	65000	30000	Total	91000	65000	30000
				By balance b/d	91000	65000	30000

Computation of sacrificing ratio and new profit sharing ratio

8. Praveena and Dhanya are partners sharing profits in the ratio of 7:3. They admit Malini into the firm. The new ratio among Praveena, Dhanya and Malini is 5:2:3. Calculate the sacrificing ratio.

Answer:

Sacrificing Ratio = Old ratio- New ratio

$Praveena = \dfrac{7}{10}-\dfrac{5}{10} =\dfrac{2}{10}\\$
$Dhanya = \dfrac{3}{10}-\dfrac{2}{10} =\dfrac{1}{10}\\$

Sacrificing Ratio = 2:1

9. Ananth and Suman are partners sharing profits and losses in the ratio of 3:2. They admit Saran for 1/5 share, which he acquires entirely from Ananth. Find out the new profit sharing ratio and sacrificing ratio.

Answer: New Profit Sharing Ratio

$Ananth = \dfrac{3}{5}-\dfrac{1}{5} =\dfrac{2}{5}\\$
$Suman = \dfrac{2}{5}-0 =\dfrac{2}{5}\\$
$Saran = \dfrac{1}{5}\\$

New profit Sharing Ratio = 2: 2:1

Sacrificing Ratio = 1:0

10. Raja and Ravi are partners, sharing profits in the ratio of 3:2. They admit Ram for 1/4 share of the profit. He takes 1/20 share from Raja and 4/20 from Ravi. Calculate the new profit sharing ratio and sacrificing ratio.

Answer: New Profit Sharing Ratio = Old ratio – Sacrificing ratio

$Raja = \dfrac{3}{5}-\dfrac{1}{20}= \dfrac{12-1}{20}=\dfrac{11}{20} \\$
$Ravi = \dfrac{2}{5}-\dfrac{4}{20}= \dfrac{8-4}{20}=\dfrac{4}{20} \\$
$Ram = \dfrac{1}{20}+\dfrac{4}{20}=\dfrac{5}{20}\\$

New Profit Sharing Ratio = 11: 4: 5

$Raja = \dfrac{1}{20}\\$
$Ravi = \dfrac{4}{20}\\$

Sacrificing Ratio: 1: 4

11. Vimala and Kamala are partners, sharing profits and losses in the ratio of 4:3. Vinitha enters into the partnership and she acquires 1/14 from Vimala and 1/14 from Kamala. Find out the new profit sharing ratio and sacrificing ratio.

Answer: New Profit Sharing Ratio = Old ratio – Sacrificing ratio

$Vimala = \dfrac{4}{7}-\dfrac{1}{14}= \dfrac{8-1}{14}=\dfrac{7}{14} \\$
$Kamala = \dfrac{3}{7}-\dfrac{1}{14}= \dfrac{6-1}{14}=\dfrac{5}{14} \\$
$Vinitha = \dfrac{1}{14}+\dfrac{1}{14}=\dfrac{2}{14}\\$

New Profit Sharing Ratio = 7: 5: 2

Sacrificing ratio = 1:1

12. Govind and Gopal are partners in a firm sharing profits in the ratio of 5:4. They admit Rahim as a partner. Govind surrenders 2/9 of his share in favour of Rahim. Gopal surrenders 1/9 of his share in favour of Rahim. Calculate the new profit sharing ratio and sacrificing ratio.

Answer: New Profit Sharing Ratio : Govind

$=\dfrac{5}{9}\times \dfrac{2}{9}= \dfrac{10}{81} \\$
$= \dfrac{5}{9}-\dfrac{10}{81}= \dfrac{45-10}{81}= \dfrac{35}{81}\\$

New Profit Sharing Ratio : Gopal

$=\dfrac{4}{9}\times \dfrac{1}{9}= \dfrac{4}{81} \\$
$= \dfrac{4}{9}-\dfrac{4}{81}= \dfrac{36-4}{81}= \dfrac{32}{81}\\$

New Profit Sharing Ratio : Rahim

$= \dfrac{10}{81}+\dfrac{4}{81}= \dfrac{14}{81}\\$

New Profit Sharing Ratio = 35: 32: 14

Sacrificing Ratio

$Govind = \dfrac{10}{81}\\$
$Gopal = \dfrac{4}{81}\\$

Sacrificing Ratio = 10: 4 or 5: 2

13. Prema and Chandra share profits in the ratio of 5:3. Hema is admitted as a partner. Prema surrendered 1/8 of her share and Chandra surrendered 1/8 of her share in favour of Hema. Calculate the new profit sharing ratio and sacrificing ratio.

Answer: New Profit Sharing Ratio : Prema

$=\dfrac{5}{8}\times \dfrac{1}{8}= \dfrac{5}{64} \\$
$= \dfrac{5}{8}-\dfrac{5}{64}= \dfrac{40-5}{64}= \dfrac{35}{64}\\$

New Profit Sharing Ratio : Chandra

$=\dfrac{3}{8}\times \dfrac{1}{8}= \dfrac{3}{64} \\$
$= \dfrac{3}{8}-\dfrac{3}{64}= \dfrac{24-3}{64}\\$

New Profit Sharing Ratio : Hema

$= \dfrac{5}{64}+\dfrac{3}{64}= \dfrac{8}{64}= \dfrac{21}{64}\\$

New Profit Sharing Ratio = 35: 21: 8

Sacrificing Ratio = 5: 3

14. Karthik and Kannan are equal partners. They admit Kailash with 1/4 share of the profit. Kailash acquired his share from old partners in the ratio of 7:3. Calculate the new profit sharing ratio and sacrificing ratio.

Answer: New Profit Sharing Ratio : Karthik

$=\dfrac{1}{4}\times \dfrac{7}{10}= \dfrac{7}{40} \\$
$= \dfrac{1}{2}-\dfrac{7}{40}= \dfrac{20-7}{40}= \dfrac{13}{40} \\$

New Profit Sharing Ratio : Kannan

$=\dfrac{1}{4}\times \dfrac{3}{10}= \dfrac{3}{40} \\$
$= \dfrac{1}{2}-\dfrac{3}{40}= \dfrac{20-3}{40}= \dfrac{17}{40}\\$

New Profit Sharing Ratio : Kailash

$= \dfrac{1}{4}\times \dfrac{10}{10} = \dfrac{10}{40}\\$

New Profit Sharing Ratio = 13: 17: 10

Sacrificing Ratio = 7: 3

15. Selvam and Senthil are partners sharing profit in the ratio of 2:3. Siva is admitted into the firm with 1/5 share of profit. Siva acquires equally from Selvam and Senthil. Calculate the new profit sharing ratio and sacrificing ratio.

Answer:

$Siva's\; share:\; =\dfrac{1}{5}\times\dfrac{1}{2}=\dfrac{1}{10}\\$
$Selvam's\; share:\; =\dfrac{2}{5}-\dfrac{1}{10}=\dfrac{4-1}{10}=\dfrac{3}{10} \\$
$Senthil's\; share:\; =\dfrac{3}{5}-\dfrac{1}{10}=\dfrac{6-1}{10}=\dfrac{5}{10} \\$
$Senthil's\; share:\; =\dfrac{1}{10}+\dfrac{1}{10}=\dfrac{2}{10} \\$

New Profit Sharing Ratio = 3:5:2

Sacrificing Ratio = 1:1

16. Mala and Anitha are partners, sharing profits and losses in the ratio of 3:2. Mercy is admitted into the partnership with 1/5 share in the profits. Calculate new profit sharing ratio and sacrificing ratio.

Answer:

$Mercy's\; share:\; = \dfrac{1}{5}\\$
$Remaining \; share:\; = 1- \dfrac{1}{5} = \dfrac{4}{5}\\$
$Mala's\; share:\; =\dfrac{3}{5}\times \dfrac{4}{5}=\dfrac{12}{25} \\$
$Mercy's \; share:\; =\dfrac{1}{5}\times \dfrac{5}{5}=\dfrac{8}{25} \\$
$Senthil's\; share:\; =\dfrac{1}{10}+\dfrac{1}{10}=\dfrac{5}{25} \\$

New Profit Sharing Ratio = 12:8:5

Sacrificing Ratio = Old share-New Share

$Mala's \; share:\; = \dfrac{3}{5}-\dfrac{12}{25} = \dfrac{15-12}{25}=\dfrac{3}{25}\\$
$Anitha's \; share:\; = \dfrac{2}{5}-\dfrac{8}{25} = \dfrac{10-8}{25}=\dfrac{2}{25}\\$

Sacrificing Ratio = 3:2

17. Ambika, Dharani and Padma are partners in a firm sharing profits in the ratio of 5:3:2. They admit Ramya for 25% profit. Calculate the new profit sharing ratio and sacrificing ratio.

Answer:

$Ramya's\; share:\; = \dfrac{25}{100}\\$
$Remaining \; share:\; = 1- \dfrac{25}{100} = \dfrac{75}{100}=\dfrac{3}{4} \\$
$Ambika's\; share:\; =\dfrac{5}{10}\times \dfrac{3}{4}=\dfrac{15}{40} \\$
$Dharani's \; share:\; =\dfrac{3}{10}\times \dfrac{3}{4}=\dfrac{9}{40} \\$
$Padma's\; share:\; =\dfrac{2}{10}\times \dfrac{3}{4}=\dfrac{6}{40} \\$
$Ramya's\; share:\; =\dfrac{1}{4}\times \dfrac{10}{10}=\dfrac{10}{40} \\$

New Profit Sharing Ratio = 15:9:6:10

Sacrificing Ratio = Old share-New Share

$Ambika's\; share:\; = \dfrac{5}{10}-\dfrac{15}{40} = \dfrac{20-15}{40}=\dfrac{5}{40}\\$
$Dharani's \; share:\; = \dfrac{3}{10}-\dfrac{9}{40} = \dfrac{12-9}{40}=\dfrac{3}{40}\\$
$Padma's \; share:\; = \dfrac{2}{10}-\dfrac{6}{40} = \dfrac{8-6}{40}=\dfrac{2}{40}\\$

Sacrificing Ratio =5:3:2

Adjustment for goodwill

18. Aparna and Priya are partners who share profits and losses in the ratio of 3:2. Brindha joins the firm for 1/5 share of profits and brings in cash for her share of goodwill of Rs.10,000. Pass necessary journal entry for adjusting goodwill on the assumption that the fluctuating capital method is followed and the partners withdraw the entire amount of their share of goodwill.

Answer:

Particulars	Debit	Credit
Bank a/c Dr.	10000
To Aparna capital a/c		6000
To Priya capital a/c		4000
(cash brought for goodwill credited to old partner's capital a/c in sacrificing ratio)

Aparna capital a/c Dr.	6000
Priya capital a/c Dr.	4000
To Bank a/c		10000
(cash withdrawn by partners)

19. Deepak, Senthil and Santhosh are partners sharing profits and losses equally. They admit Jerald into partnership for 1/3 share in future profits. The goodwill of the firm is valued at Rs. 45,000 and Jerald brought cash for his share of goodwill. The existing partners withdraw half of the amount of their share of goodwill. Pass necessary journal entries for adjusting goodwill on the assumption that the fluctuating capital method is followed.

Answer:

Particulars	Debit	Credit
Bank a/c Dr.	15000
To Deepak capital a/c		5000
To Senthil capital a/c		5000
To Santosh capital a/c		5000
(cash brought for goodwill credited to old partner's capital a/c in sacrificing ratio)

Deepak capital a/c Dr.	2500
Senthil capital a/c Dr.	2500
Santosh capital a/c Dr.	2500
To Bank a/c		7500
(cash withdrawn by partners)

Jerald’s share of goodwill

$=Rs. 45000 \times\dfrac{1}{3}= Rs.15000\\$

Note: As the sacrifice made by the existing partners is not mentioned, it is assumed that they sacrifice in their old profit sharing ratio 1:1:1.

Therefore, sacrificing ratio = 1:1:1

20. Malathi and Shobana are partners sharing profits and losses in the ratio of 5:4. They admit Jayasri into partnership for 1/3 share of profit. Jayasri pays cash Rs. 6,000 towards her share of goodwill. The new ratio is 3:2:1. Pass necessary journal entry for adjusting goodwill on the assumption that the fixed capital method is followed.

Answer:

$Malathi's share =\dfrac{5}{9}-\dfrac{3}{6}= \dfrac{10-9}{18}=\dfrac{1}{18}\\$
$Shobana's share =\dfrac{4}{9}-\dfrac{2}{6}= \dfrac{8-6}{18}=\dfrac{2}{18}$

Particulars	Debit	Credit
Cash a/c Dr.	6,000
To Malathi's current a/c a/c		2,000
To Shobana's current a/c		4,000
(goodwill credited to old partner's capital a/c )

21. Anu and Arul were partners in a firm sharing profits and losses in the ratio of 4:1. They have decided to admit Mano into the firm for 2/5 share of profits. The goodwill of the firm on the date of admission was valued at Rs. 25,000. Mano is not able to bring in cash for his share of goodwill. Pass necessary journal entry for goodwill on the assumption that the fluctuating capital method is followed.

Answer: Mano’s share of goodwill = 25000 x 2/5 = Rs.10,000

Particulars	Debit	Credit
Mano capital a/c Dr.	10000
To Anu capital a/c		8000
To Arul capital a/c Dr.		2000
(Mano's share of goodwill credit to old partners in sacrificing ratio)

22. Varun and Barath are partners sharing profits and losses 5:4. They admit Dhamu into partnership. The new profit sharing ratio is agreed at 1:1:1. Dhamu’s share of goodwill is valued at Rs. 15000 of which he pays Rs. 10,000 in cash. Pass necessary journal entries for adjustment of goodwill on the assumption that the fluctuating capital method is followed.

Answer: Sacrificing Ratio = Old share -New share

$Varun = \dfrac{5}{9}-\dfrac{1}{3} = \dfrac{5-3}{9}=\dfrac{2}{9}\\$
$Barath = \dfrac{4}{9}-\dfrac{1}{3} = \dfrac{4-3}{9}=\dfrac{1}{9}\\$

Particulars	Debit	Credit
Cash a/c Dr.	10000
Dhamu's capital a/c Dr.	5000
To Varun's capital a/c		10000
To Barath's capital a/c		5000
(Dhamu's goodwill credited to old partner's capital a/c )

23. Sam and Jose are partners in a firm sharing profits and losses in the ratio of 3:2. On 1st April 2018, they admitted Joel as a partner. On the date of Joel’s admission, goodwill appeared in the books of the firm at Rs.30,000. By assuming fluctuating capital method, pass the necessary journal entry if the partners decide to:

(a) write off the entire amount of existing goodwill

(b) write off Rs. 20,000 of the existing goodwill.

Answer: (a) write off the entire amount of existing goodwill

Particulars	Debit	Credit
Sam's capital a/c Dr.	18000
Jose's capital a/c Dr.	12000
To goodwill a/c		30000
(existing goodwill written off )

(b) write off Rs. 20,000 of the existing goodwill.

Particulars	Debit	Credit
Sam's capital a/c Dr.	12000
Jose's capital a/c Dr.	8000
To goodwill a/c		20000
(existing goodwill of Rs. 20,000 written off )

Comprehensive problems

24. Rajan and Selva are partners sharing profits and losses in the ratio of 3:1. Their balance sheet as on 31st March 2017 is as under:

Liabilities	Rs.	Rs.	Assets	Rs.
Capital accounts:			Building	25,000
Rajan	30,000		Furniture	1,000
Selva	16,000	46,000	Stock	20,000
General reserve		4,000	Debtors	16,000
Creditors		37,500	Bills receivable	3,000
			Cash at bank	12,500
			Profit and loss account	10,000
Total		87,500	Total	87,500

On 1.4.2017, they admit Ganesan as a new partner on the following arrangements:

(i) Ganesan brings Rs. 10,000 as capital for 1/5 share of profit.

(ii) Stock and furniture is to be reduced by 10%, a reserve of 5% on debtors for doubtful debts is to be created.

(iii) Appreciate buildings by 20%.

Prepare revaluation account, partners’ capital account and the balance sheet of the firm after admission.

Answer:

Revaluation a/c
Particulars	Rs.	Rs.	Particulars	Rs.
To furniture a/c		100	By Building	5000
To stock a/c		2000
To prv. for bad and doubtful debts		800
To Rajan's capital	1575
To Selva's capital	525	2100
Total		5000	Total	5000

Capital a/c
Particulars	Rajan	Selva	Ganesan	Particulars	Rajan	Selva	Ganesan
To P & L a/c	7500	2500		By balance b/d	30000	16000
To balance c/d	27075	15025	10000	By general reserve a/c	3000	1000
				By bank a/c			10000
				By revaluation	1575	525
Total	34575	17525	10000	Total	34575	17525	10000
				By balance c/d	27075	15025	10000

Balance Sheet as on 31st March 2017
Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
Sundry creditors		37,500	Building	25,000
Capital			Add: Revaluation	5,000	30,000
Rajan	27075		Furniture	1,000
Selva	15025		Less: Revaluation	100	900
Ganesan	10000	52,100	Stock	20,000
			Less: Revaluation	2,000	18,000
			Debtors	16,000
			Less: Provision	800	15,200
			Bills Receivable		3,000
			Bank	12,500
			Add: Ganesan's capital	10,000	22,500
Total		89,600	Total		89,600

25. Sundar and Suresh are partners sharing profits in the ratio of 3:2. Their balance sheet as on 1st January, 2017 was as follows:

Liabilities	Rs.	Rs.	Assets	Rs.
Capital accounts:			Buildings	40,000
Sundar	30,000		Furniture	13,000
Suresh	20,000	50,000	Stock	25,000
Creditors		50,000	Debtors	15,000
General reserve		10,000	Bills receivable	14,000
Workmen compensation fund		15,000	Bank	18,000
Total		1,25,000	Total	1,25,000

They decided to admit Sugumar into partnership for 1/4 share in the profits on the following terms:

(a) Sugumar has to bring in Rs. 30,000 as capital. His share of goodwill is valued at Rs. 5,000. He could not bring cash towards goodwill.

(b) That the stock be valued at Rs. 20, 000.

(d) That the value of building be depreciated by 20%.

Prepare necessary ledger accounts and the balance sheet after admission.

Answer:

Revaluation a/c
Particulars	Rs.	Particulars	Rs.	Rs.
To building a/c	8,000	By loss transferred to capital a/c
To furniture a/c	2,000	Sundar a/c	9,000
To stock a/c	5,000	Suresh a/c	6,000	15,000
Total	15,000	Total		15,000

Capital a/c
Particulars	Sundar	Suresh	Sugumar	Particulars	Sundar	Suresh	Sugumar
To revaluation loss	9,000	6,000		By balance c/d	30,000	20,000
To Sundar capital a/c			3,000	By general reserve a/c	6,000	4,000
To Suresh capital a/c			2,000	By workman's compensation fund a/c	9,000	6,000
To balance c/d	39,000	26,000	25,000	By bank a/c			30,000
				By Sukumar capital a/c	3,000	2,000
Total	48,000	32,000	30,000	Total	48,000	32,000	30,000
				By balance c/d	39,000	26,000	25,000

Balance Sheet as on 31st December 2017
Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
Sundry creditors		50,000	Building	40,000
Capital			Less: Revaluation	8,000	32,000
Sundar	39,000		Furniture	13,000
Suresh	26,000		Less: Revaluation	2,000	11,000
Sugumar	25,000	90,000	Stock	25,000
			Less: Revaluation	5,000	20,000
			Debtors		15,000
			Bills Receivable		14,000
			Bank	18,000
			Add: Sugumar's capital	30,000	48,000

Total		140,000	Total		140,000

26. The following is the balance sheet of James and Justina as on 1.1.2017. They share the profits and losses equally.

Liabilities	Rs.	Rs.	Assets	Rs.
Capital accounts:			Building	70,000
James	40,000		Stock	30,000
Justina	50,000	90,000	Debtors	20,000
Creditors		35,000	Bank	15,000
Reserve fund		15,000	Prepaid insurance	5,000
Total		1,40,000	Total	1,40,000

On the above date, Balan is admitted as a partner with 1/5 share in future profits. Following are the terms for his admission:

(i) Balan brings Rs. 25,000 as capital.

(ii) His share of goodwill is Rs.10, 000 and he brings cash for it.

(iii) The assets are to be valued as under:

Building Rs. 80, 000; Debtors Rs. 18,000; Stock Rs. 33,000

Prepare necessary ledger accounts and the balance sheet after admission.

Answer:

Revaluation a/c
Particulars	Rs.	Rs.	Particulars	Rs.
To debtors a/c		2,000	By building a/c	10,000
To profit on revaluation transferred to capital a/c			By stock a/c	3,000
James	5,500
Justina	5,500	11,000
Total		13,000	Total	13,000

Capital a/c
Particulars	James	Justina	Balan	Particulars	James	Justina	Balan
To balance c/d	58,000	68,000	25,000	By balance b/d	40,000	50,000
				By reserve fund a/c	7,500	7,500
				By bank a/c			25,000
				By revaluation a/c	5,500	5,500
				By bank a/c (goodwill)	5,000	5,000
Total	58,000	68,000	25,000	Total	58,000	68,000	25,000
				By balance c/d	58,000	68,000	25,000

Balance Sheet as on 31st December 2017
Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
Sundry creditors		35,000	Building	7,000
Capital			Add: Revaluation	10,000	17,000
James	58,000		Stock	30,000
Justina	68,000		Add: Revaluation	3,000	33,000
Balan	25,000	1,51,000	Debtors	20,000
			Less: undervalued	2,000	18,000
			Bank		50,000
			Prepaid insurance		5,000
Total		1,86,000	Total		1,86,000

Cash Book
Particulars	Rs.	Particulars	Rs.
To balance b/d	15,000	By balance c/d	50,000
To Balan's capital	25,000
To James' capital	5,000
To Justina's capital	5,000
Total	50,000	Total	50,000

27. Anbu and Shankar are partners in a business sharing profits and losses in the ratio of 3:2. The balance sheet of the partners on 31.03.2018 is as follows:

Liabilities	Rs.	Rs.	Assets	Rs.
Capital accounts:			Computer	40,000
Anbu	4,00,000		Motor car	1,60,000
Shankar	3,00,000	7,00,000	Stock	4,00,000
Profit and loss		1,20,000	Debtors	3,60,000
Creditors		1,20,000	Bank	40,000
Workmen compensation fund		60,000
Total		10,00,000	Total	10,00,000

Rajesh is admitted for 1/5 share on the following terms:

(i) Goodwill of the firm is valued at Rs. 75,000 and Rajesh brought cash for his share of goodwill.

(ii) Rajesh is to bring Rs. 1,50,000 as his capital.

(iii) Motor car is valued at Rs. 2,00,000; stock at Rs. 3,80,000 and debtors at Rs. 3,50,000.

(iv) Anticipated claim on workmen compensation fund is Rs.10,000

(v) Unrecorded investment of Rs. 5,000 has to be brought into account.

Prepare revaluation account, capital accounts and balance sheet after Rajesh’s admission.

Answer:

Revaluation a/c
Particulars	Rs.	Rs.	Particulars	Rs.
To stock a/c		20,000	By motor car a/c	40,000
To debtors a/c		10,000	By unrecorded investment a/c	5,000
To profit transferred to capital a/c
Anbu	8,750
Shankar	6,250	15,000
Total		45,000	Total	45,000

Capital a/c
Particulars	Anbu	Shankar	Rajesh	Particulars	Anbu	Shankar	Rajesh
To balance c/d	5,20,000	3,80,000	1,50,000	By balance b/d	4,00,000	3,00,000
				By P& L a/c	72,000	48,000
				By bank a/c			1,50,000
				By workman's compensation fund a/c	30,000	20,000
				By revaluation a/c	9,000	6,000
				By bank a/c (goodwill)	9,000	6,000
Total	5,11,419	3,79,581	1,50,000	Total	5,20,000	3,80,000	1,50,000
				By balance c/d	5,20,000	3,80,000	1,50,000

Balance Sheet as on 31st March 2018
Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
Sundry creditors		1,20,000	Computer		40,000
Capital			Motor car	1,60,000
Anbu	5,20,000		Add: Revaluation	40,000	2,00,000
Shankar	3,80,000		Stock	4,00,000
Rajesh	1,50,000	10,50,000	Less: Revaluation	20,000	3,80,000
Workman's Compensation Fund		10,000	Debtors	3,60,000
			Less : Revaluation	10,000	3,50,000
			Investment		5000
			Bank	40,000
			Add: Rajesh capital	1,50,000	1,90,000
			Goodwill		15,000
Total		11,80,000	Total		11,80,000

Admission of a Partner – Text Book Solutions Class 12 (Chapter 5)