# Numerical Questions Solutions

Reconstitution of a Partnership Firm – Admission of a Partner – Numerical Questions Solutions
1. A and B were partners in a firm sharing profits and losses in the ratio of 3:2. They admit C into the partnership with 1/6 share in the profits. Calculate the new profit sharing ratio?
C’s share
{= \dfrac{1}{6}}
Remaining Share
{= 1 - \dfrac{1}{6}}
{= \dfrac{5}{6}}
This remaining share should be distributed to A and B in their old profit sharing ratio 3:2. So,
A’s share
{= \dfrac{5}{6} × \dfrac{3}{5}}
{= \dfrac{3}{6}}
B’s share
{= \dfrac{5}{6} × \dfrac{2}{5}}
{= \dfrac{2}{6}}
New Ratio
{= \dfrac{3}{6} : \dfrac{2}{6} : \dfrac{1}{6}}
= 3:2:1
2. A,B,C were partners in a firm sharing profits in 3:2:1 ratio. They admitted D for 10% profits. Calculate the new profit sharing ratio?
D’s share
{= \dfrac{10}{100}}
{= \dfrac{1}{10}}
Remaining Share
{= 1 - \dfrac{1}{10}}
{= \dfrac{9}{10}}
This remaining share should be distributed to A, B and C in their old profit sharing ratio 3:2:1. So,
A’s new share
{= \dfrac{9}{10} × \dfrac{3}{6}}
{= \dfrac{27}{60}}
B’s new share
{= \dfrac{9}{10} × \dfrac{2}{6}}
{= \dfrac{18}{60}}
C’s new share
{= \dfrac{9}{10} × \dfrac{1}{6}}
{= \dfrac{9}{60}}
D’s new share
{= \dfrac{1}{10}}
{= \dfrac{6}{60}}
New Ratio
{= \dfrac{27}{60} : \dfrac{18}{6} : \dfrac{9}{60} : \dfrac{6}{60}}
= 27:18:9:6
= 9:6:3:1
3. X and Y are partners sharing profits in 5:3 ratio admitted Z for 1/10 share which he acquired equally for X and Y. Calculate new profit sharing ratio?
Share of Z
{= \dfrac{1}{10}}
This share is sacrificed equally by X and Y
X’s sacrifice
{= \dfrac{1}{10} × \dfrac{1}{2}}
{= \dfrac{1}{20}}
X’s new share
{= \dfrac{5}{8} - \dfrac{1}{20}}
{= \dfrac{25 - 2}{40}}
{= \dfrac{23}{40}}
Y’s sacrifice
{= \dfrac{1}{10} × \dfrac{1}{2}}
{= \dfrac{1}{20}}
Y’s new share
{= \dfrac{3}{8} - \dfrac{1}{20}}
{= \dfrac{15 - 2}{40}}
{= \dfrac{13}{40}}
Z’s share
{= \dfrac{1}{10}}
{= \dfrac{4}{40}}
New Ratio
{= \dfrac{23}{40} : \dfrac{13}{40} : \dfrac{4}{40}}
= 23 : 13 : 4
4. A, B and C are partners sharing profits in 2:2:1 ratio admitted D for 1/8 share which he acquired entirely from A. Calculate new profit sharing ratio?
D’s share
{= \dfrac{1}{8}}
A’s sacrifice
{= \dfrac{2}{5} - \dfrac{1}{8}}
{= \dfrac{16 - 5}{40}}
{= \dfrac{11}{40}}
B’s share
{= \dfrac{2}{5}}
{= \dfrac{16}{40}}
C’s share
{= \dfrac{1}{5}}
{= \dfrac{8}{40}}
D’s share
{= \dfrac{1}{8}}
{= \dfrac{5}{40}}
New Ratio
{= \dfrac{11}{40} : \dfrac{16}{40} : \dfrac{8}{40} : \dfrac{5}{40}}
= 11: 16 : 8 : 5
5. P and Q are partners sharing profits in 2:1 ratio. They admitted R into partnership giving him 1/5 share which he acquired from P and Q in 1:2 ratio. Calculate new profit sharing ratio?
R’s share
{= \dfrac{1}{5}}
P’s sacrifice
{= \dfrac{1}{5} × \dfrac{1}{3}}
{= \dfrac{1}{15}}
P’s new share
{= \dfrac{2}{3} - \dfrac{1}{15}}
{= \dfrac{10 - 1}{15}}
{= \dfrac{9}{15}}
{= \dfrac{3}{5}}
Q’s sacrifice
{= \dfrac{1}{5} × \dfrac{2}{3}}
{= \dfrac{2}{15}}
P’s new share
{= \dfrac{1}{3} - \dfrac{2}{15}}
{= \dfrac{5 - 2}{15}}
{= \dfrac{3}{15}}
{= \dfrac{1}{5}}
R’s share
{= \dfrac{1}{5}}
New Ratio
{= \dfrac{3}{5} : \dfrac{1}{5} : \dfrac{1}{5}}
= 3 : 1 : 1
6. A, B and C are partners sharing profits in 3:2:2 ratio. They admitted D as a new partner for 1/5 share which he acquired from A, B and C in 2:2:1 ratio respectively. Calculate new profit sharing ratio?
D’s share
{= \dfrac{1}{5}}
A’s sacrifice
{= \dfrac{1}{5} × \dfrac{2}{5}}
{= \dfrac{2}{25}}
A’s new share
{= \dfrac{3}{7} - \dfrac{2}{25}}
{= \dfrac{75 - 14}{175}}
{= \dfrac{61}{175}}
B’s sacrifice
{= \dfrac{1}{5} × \dfrac{2}{5}}
{= \dfrac{2}{25}}
B’s new share
{= \dfrac{2}{7} - \dfrac{2}{25}}
{= \dfrac{50 - 14}{175}}
{= \dfrac{36}{175}}
C’s sacrifice
{= \dfrac{1}{5} × \dfrac{1}{5}}
{= \dfrac{1}{25}}
C’s new share
{= \dfrac{2}{7} - \dfrac{1}{25}}
{= \dfrac{50 - 7}{175}}
{= \dfrac{43}{175}}
D’s share
{= \dfrac{1}{5}}
{= \dfrac{35}{175}}
New Ratio
{= \dfrac{61}{175} : \dfrac{36}{175} : \dfrac{43}{175} : \dfrac{35}{175}}
= 61 : 36 : 43 : 35
7. A and B were partners in a firm sharing profits in 3:2 ratio. They admitted C for 3/7 share which he took 2/7 from A and 1/7 from B. Calculate new profit sharing ratio?
C’s share
{= \dfrac{3}{7}}
A’s sacrifice
{= \dfrac{2}{7}}
A’s new share
{= \dfrac{3}{5} - \dfrac{2}{7}}
{= \dfrac{21 - 10}{35}}
{= \dfrac{11}{35}}
B’s sacrifice
{= \dfrac{1}{7}}
B’s new share
{= \dfrac{2}{5} - \dfrac{1}{7}}
{= \dfrac{14 - 5}{35}}
{= \dfrac{9}{35}}
C’s share
{= \dfrac{3}{7}}
{= \dfrac{15}{35}}
New Ratio
{= \dfrac{11}{35} : \dfrac{9}{35} : \dfrac{15}{35}}
= 11:9:15
8. A, B and C were partners in a firm sharing profits in 3:3:2 ratio. They admitted D as a new partner for 4/7 profit. D acquired his share 2/7 from A. 1/7 from B and 1/7 from C. Calculate new profit sharing ratio?
D’s share
{= \dfrac{4}{7}}
A’s sacrifice
{= \dfrac{2}{7}}
A’s new share
{= \dfrac{3}{8} - \dfrac{2}{7}}
{= \dfrac{21 - 16}{56}}
{= \dfrac{5}{56}}
B’s sacrifice
{= \dfrac{1}{7}}
B’s new share
{= \dfrac{3}{8} - \dfrac{1}{7}}
{= \dfrac{21 - 8}{56}}
{= \dfrac{13}{56}}
C’s sacrifice
{= \dfrac{1}{7}}
C’s new share
{= \dfrac{2}{8} - \dfrac{1}{7}}
{= \dfrac{14 - 8}{56}}
{= \dfrac{6}{56}}
D’s share
{= \dfrac{4}{7}}
{= \dfrac{32}{56}}
New Ratio
{= \dfrac{5}{56} : \dfrac{13}{56} : \dfrac{6}{56} : \dfrac{32}{56}}
= 5 : 13 : 6 : 32
9. Radha and Rukmani are partners in a firm sharing profits in 3:2 ratio. They admitted Gopi as a new partner. Radha surrendered 1/3 of her share in favour of Gopi and Rukmani surrendered 1/4 of her share in favour of Gopi. Calculate new profit sharing ratio?
{= \dfrac{3}{5}}
{= \dfrac{3}{5} × \dfrac{1}{3}}
{= \dfrac{1}{5}}
{= \dfrac{3}{5} - \dfrac{1}{5}}
{= \dfrac{2}{5}}
Rukmani’s sacrifice
{= \dfrac{2}{5} × \dfrac{1}{4}}
{= \dfrac{1}{10}}
Rukmani’s new share
{= \dfrac{2}{5} - \dfrac{1}{10}}
{= \dfrac{4 - 1}{10}}
{= \dfrac{3}{10}}
Gopi’s share
= Radha’s sacrifice + Rukmani’s sacrifice
{= \dfrac{1}{5} + \dfrac{1}{10}}
{= \dfrac{2 + 1}{10}}
{= \dfrac{3}{10}}
New Ratio
{= \dfrac{2}{5} : \dfrac{3}{10} : \dfrac{3}{10}}
{= \dfrac{4}{10} : \dfrac{3}{10} : \dfrac{3}{10}}
= 4 : 3 : 3
10. Singh, Gupta and Khan are partners in a firm sharing profits in 3:2:3 ratio. They admitted Jain as a new partner. Singh surrendered 1/3 of his share in favour of Jain: Gupta surrendered 1/4 of his share in favour of Jain and Khan surrendered 1/5 in favour of Jain. Calculate new profit sharing ratio?
Singh’s share
{= \dfrac{3}{8}}
Singh’s sacrifice
{= \dfrac{3}{8} × \dfrac{1}{3}}
{= \dfrac{1}{8}}
Shingh’s new share
{= \dfrac{3}{8} - \dfrac{1}{8}}
{= \dfrac{2}{8}}
{= \dfrac{1}{4}}
Gupta’s share
{= \dfrac{2}{8}}
{= \dfrac{1}{4}}
Gupta’s sacrifice
{= \dfrac{1}{8} × \dfrac{1}{4}}
{= \dfrac{1}{16}}
Gupta’s new share
{= \dfrac{1}{4} - \dfrac{1}{16}}
{= \dfrac{4 - 1}{16}}
{= \dfrac{3}{16}}
Khan’s share
{= \dfrac{3}{8}}
Khan’s sacrifice
{= \dfrac{3}{8} × \dfrac{1}{5}}
{= \dfrac{3}{40}}
Khan’s new share
{= \dfrac{3}{8} - {3}{40}}
{= \dfrac{15 - 3}{40}}
{= \dfrac{12}{40}}
{= \dfrac{3}{10}}
Jain’s share
= Singh’s sacrifice + Gupta’s sacrifice + Khan’s sacrifice
{= \dfrac{1}{8} + \dfrac{1}{16} + \dfrac{3}{40}}
{= \dfrac{10 + 5 + 6}{80}}
{= \dfrac{21}{80}}
New Ratio
{= \dfrac{1}{4} : \dfrac{3}{16} : \dfrac{3}{10} : \dfrac{21}{80}}
{= \dfrac{20}{80} : \dfrac{15}{80} : \dfrac{24}{80} : \dfrac{21}{80}}
= 20 : 15 : 24 : 21
11. Sandeep and Navdeep are partners in a firm sharing profits in 5:3 ratio. They admit C into the firm and the new profit sharing ratio was agreed at 4:2:1. Calculate the sacrificing ratio?
Sandeep’s share
{= \dfrac{5}{8}}
Sandeep’s new share
{= \dfrac{4}{7}}
Sandeep’s sacrifice
{= \dfrac{5}{8} - \dfrac{4}{7}}
{= \dfrac{35 - 32}{56}}
{= \dfrac{3}{56}}
Sandeep’s share
{= \dfrac{3}{8}}
Sandeep’s new share
{= \dfrac{2}{7}}
Sandeep’s sacrifice
{= \dfrac{3}{8} - \dfrac{2}{7}}
{= \dfrac{21 - 16}{56}}
{= \dfrac{5}{56}}
Sacrificing Ratio
{= \dfrac{3}{56} : \dfrac{5}{56}}
= 3 : 5
12. Rao and Swami are partners in a firm sharing profits and losses in 3:2 ratio. They admit Ravi as a new partner for 1/8 share in the profits. The new profit sharing ratio between Rao and Swami is 4:3. Calculate new profit sharing ratio and sacrificing ratio?
Ravi’s share
{= \dfrac{1}{8}}
Remaining’s share
{= 1- \dfrac{1}{8}}
{= \dfrac{8 - 1}{8}}
{= \dfrac{7}{8}}
This remaining share need to be shared between Rao and Swami in the ratio 4:3
Rao’s new share
{= \dfrac{7}{8} × \dfrac{4}{7}}
{= \dfrac{4}{8}}
{= \dfrac{1}{2}}
Swami’s new share
{= \dfrac{7}{8} × \dfrac{3}{7}}
{= \dfrac{3}{8}}
Ravi’s new share
{= \dfrac{1}{8}}
New Profit sharing ratio
{= \dfrac{1}{2} : \dfrac{3}{8} : \dfrac{1}{8}}
{= \dfrac{4}{8} : \dfrac{3}{8} : \dfrac{1}{8}}
= 4 : 3 : 1
Sacrifice
= Old share – new share
Rao’s sacrifice
{= \dfrac{3}{5} - \dfrac{1}{2}}
{= \dfrac{6 - 5}{10}}
{= \dfrac{1}{10}}
Swami’s sacrifice
{= \dfrac{2}{5} - \dfrac{3}{8}}
{= \dfrac{16 - 15}{40}}
{= \dfrac{1}{40}}
Sacrificing Ratio
{= \dfrac{1}{10} : \dfrac{1}{40}}
{= \dfrac{4}{40} : \dfrac{1}{40}}
= 4 : 1
13. Compute the value of goodwill on the basis of four years’ purchase of the average profits based on the last five years? The profits for the last five years were as follows:
Average Profit
{= \dfrac{\text{Total Profit of last 5 years}}{\text{No. of years}}}
= \dfrac{₹~2,60,000}{5}
= ₹ 52,000
Goodwill
= Average Profits × No. of years purchased
= ₹ 52,000 × 4
= ₹ 2,08,000
14. Firm’s Capital in a business is ₹ 2,00,000. The normal rate of return on firm’s capital is 15%. During the year 2015 the firm earned a profit of ₹ 48,000. Calculate goodwill on the basis of 3 years purchase of super profit?
Firm’s capital
= ₹ 2,00,000
Normal Rate of Return
= 15%
Normal Profits
{= \text{Firm's Capital} × \dfrac{\text{Normal Rate of Return}}{100}}
{= ₹~2,00,000 × \dfrac{15}{100}}
= ₹ 30,000
Actual Proits
= ₹ 48,000
Super Profits
= Actual Profits – Normal Profits
= ₹ 48,000 – ₹ 30,000
= ₹ 18,000
Goodwill
= Super Profits × No. of Years Purchased
= ₹ 6,000
15. The books of Ram and Bharat showed that the firm’s capital on 31.12.2016 was ₹ 5,00,000 and the profits for the last 5 years : 2015 ₹ 40,000; 2014 ₹ 50,000; 2013 ₹ 55,000; 2012 ₹ 70,000 and 2011 ₹ 85,000. Calculate the value of goodwill on the basis of 3 years purchase of the average super profits of the last 5 years assuming that the normal rate of return is 10%?
Normal Profits
{= \text{Firm's Capital} × \dfrac{\text{Normal Rate of Return}}{100}}
{= ₹~5,00,000 × \dfrac{10}{100}}
= ₹ 50,000
Average Profits:
Average Profits
{= \dfrac{\text{Total Profits of Last 5 Years}}{\text{No. of Years}}}
{= \dfrac{₹~3,00,000}{5}}
= ₹ 60,000
Super Profits
= Actual Profits – Normal Profits
= ₹ 60,000 – ₹ 50,000
= ₹ 10,000
Goodwill
= Super Profits × No. of Years Purchased
= ₹ 10,000 × 3
= ₹ 30,000
16. Rajan and Rajani are partners in a firm. Their capitals were Rajan ₹ 3,00,000; Rajani ₹ 2,00,000. During the year 2015 the firm earned a profit of ₹ 1,50,000. Calculate the value of goodwill of the firm by capitalisation method assuming that the normal rate of return is 20%?
Goodwill can be calculated by either
(a)
Capitalization of average profits
(b)
By Captalizing Super Profits
(a) Capitalization of Average Profits:
Rajan’s Capital
= ₹ 3,00,000
Rajani’s Capital
= ₹ 2,00,000
Total’s Capital
= ₹ 5,00,000
Normal Rate of Return
= 20%
Average Profits
= ₹ 1,50,000
Capitalized Value of Average Profits
{= \text{Average Profits} × \dfrac{100}{\text{Normal Rate of Return}}}
{= ₹~1,50,000 × \dfrac{100}{20}}
= ₹ 7,50,000
Goodwill
= Capitalized Value – Net Assets
= ₹ 7,50,000 – ₹ 5,00,000
= ₹ 2,50,000
(b) By Captalizing Super Profits:
Normal Profits
{= \text{Invested Capital} × \dfrac{\text{Normal Rate of Return}}{100}}
{= ₹~5,00,000 × \dfrac{20}{100}}
₹ 1,00,000
Super Profit
= Average Profits – Normal Profits
= ₹ 1,50,000 – ₹ 1,00,000
= ₹ 50,000
Goodwill
{= \text{Super Profits} × \dfrac{100}{\text{Normal Rate of Return}}}
{= ₹~50,000 × \dfrac{100}{20}}
= ₹ 2,50,000
17. A business has earned average profits of ₹ 1,00,000 during the last few years. Find out the value of goodwill by capitalisation method, given that the assets of the business are ₹ 10,00,000 and its external liabilities are ₹ 1,80,000. The normal rate of return is 10%?
Goodwill can be calculated by either
(a)
Capitalization of average profits
(b)
By Captalizing Super Profits
(a) Capitalization of Average Profits:
Firms’ Capital
= Total Assets – Outside Liabilities
= ₹ 10,00,000 – ₹ 1,80,000
= ₹ 8,20,000
Normal Rate of Return
= 10%
Average Profits
= ₹ 1,00,000
Capitalized Value of Average Profits
{= \text{Average Profits} × \dfrac{100}{\text{Normal Rate of Return}}}
{= ₹~1,00,000 × \dfrac{100}{10}}
= ₹ 10,00,000
Goodwill
= Capitalized Value – Net Assets
= ₹ 10,00,000 – ₹ 8,20,000
= ₹ 1,80,000
(b) By Captalizing Super Profits:
Firms’ Capital
= Total Assets – Outside Liabilities
= ₹ 10,00,000 – ₹ 1,80,000
= ₹ 8,20,000
Normal Rate of Return
= 10%
Average Profits
= ₹ 1,00,000
Normal Profits
{= \text{Firm's Capital} × \dfrac{\text{Normal Rate of Return}}{100}}
{= ₹~8,20,000 × \dfrac{10}{100}}
= ₹ 82,000
Super Profit
= Average Profits – Normal Profits
= ₹ 1,00,000 – ₹ 82,000
= ₹ 18,000
Goodwill
{= \text{Super Profits} × \dfrac{100}{\text{Normal Rate of Return}}}
{= ₹~18,000 × \dfrac{100}{10}}
= ₹ 1,80,000

18. Verma and Sharma are partners in a firm sharing profits and losses in the ratio of 5:3. They admitted Ghosh as a new partner for 1/5 share of profits. Ghosh is to bring in ₹ 20,000 as capital and ₹ 4,000 as his share of goodwill premium. Give the necessary journal entries:
a)
When the amount of goodwill is retained in the business.
b)
When the amount of goodwill is fully withdrawn.
c)
When 50% of the amount of goodwill is withdrawn.
d)
When goodwill is paid privately.
a) When the amount of goodwill is retained in the business.
Journal
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
Cash A/c
Dr.
24,000
To Ghosh’s Capital A/c
20,000
4,000
(Being the amount brought in by Ghosh as Capital and Goodwill)
Dr.
4,000
To Verma’s Capital A/c
2,500
To Sharma’s Capital A/c
1,500
(Being Goodwill transferred to Verma and Sharma in the ratio 5:3)
b) When the amount of goodwill is fully withdrawn.
Journal
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
Cash A/c
Dr.
24,000
To Ghosh’s Capital A/c
20,000
4,000
(Being the amount brought in by Ghosh as Capital and Goodwill)
Dr.
4,000
To Verma’s Capital A/c
2,500
To Sharma’s Capital A/c
1,500
(Being Goodwill transferred to Verma and Sharma in the ratio 5:3)
Verma’s Capital A/c
Dr.
2,500
Sharma’s Capital A/c
Dr.
1,500
To Cash A/c
4,000
(Being cash withdrawn by Verma and Sharma equal to their share of Goodwill)
c) When 50% of the amount of goodwill is withdrawn.
Journal
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
Cash A/c
Dr.
24,000
To Ghosh’s Capital A/c
20,000
4,000
(Being the amount brought in by Ghosh as Capital and Goodwill)
Dr.
4,000
To Verma’s Capital A/c
2,500
To Sharma’s Capital A/c
1,500
(Being Goodwill transferred to Verma and Sharma in the ratio 5:3)
Verma’s Capital A/c
Dr.
1,250
Sharma’s Capital A/c
Dr.
750
To Cash A/c
2,000
(Being cash withdrawn by Verma and Sharma equal to 50% of their share of Goodwill)
d) When goodwill is paid privately.
In this case, only the entry related to the Capital is recorded in the journal. No entry related to the Goodwill is passed in the books of the firm.
Journal
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
Cash A/c
Dr.
20,000
To Ghosh’s Capital A/c
20,000
(Being the amount brought in by Ghosh as Capital)
Working Notes:
Share of Goodwill
Verma
{= ₹~4,000 × \dfrac{5}{8}}
= ₹ 2,500
Sharma
{= ₹~4,000 × \dfrac{3}{8}}
= ₹ 1,500
19. A and B are partners in a firm sharing profits and losses in the ratio of 3:2. They decide to admit C into partnership with 1/4 share in profits. C will bring in ₹ 30,000 for capital and the requisite amount of goodwill premium in cash. The goodwill of the firm is valued at ₹ 20,000. The new profit sharing ratio is 2:1:1. A and B withdraw their share of goodwill. Give necessary journal entries?
Journal
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
Cash A/c
Dr.
35,000
To C’s Capital A/c
30,000
5,000
(Being amount brought by C for his share of Capital and Goodwill)
Dr.
5,000
To A’s Capital A/c
2,000
To B’s Capital A/c
3,000
(Being Goodwill brought in by C is distributed among A and B in their sacrificing ratio)
A’s Capital A/c
Dr.
2,000
B’s Capital A/c
Dr.
3,000
To Cash A/c
5,000
Being the amount of goodwill withdrawn by both A and B
Working Notes:
Sacrificing Ratio
= Old Ratio – New Ratio
A
{= \dfrac{3}{5} - \dfrac{2}{4}}
{= \dfrac{12 - 10}{20}}
{= \dfrac{2}{20}}
B
{= \dfrac{2}{5} - \dfrac{1}{4}}
{= \dfrac{8 - 5}{20}}
{= \dfrac{3}{20}}
Sacrificing Ratio
{= \dfrac{2}{20} : \dfrac{3}{20}}
= 2:3
C’s Share of Goodwill
{= ₹~20,000 × \dfrac{1}{4}}
= ₹ 5,000
Goodwill Distributed to:
A
{= ₹~5,000 × \dfrac{2}{5}}
= ₹ 2,000
B
{= ₹~5,000 × \dfrac{3}{5}}
= ₹ 3,000

20. Arti and Bharti are partners in a firm sharing profits in 3:2 ratio, They admitted Sarthi for 1/4 share in the profits of the firm. Sarthi brings ₹ 50,000 for his capital and ₹ 10,000 for his 1/4 share of goodwill. Goodwill already appears in the books of Arti and Bharti at ₹ 5,000. the new profit sharing ratio between Arti, Bharti and Sarthi will be 2:1:1. Record the necessary journal entries in the books of the new firm?
There’re two cases in which the goodwill be shared between Arti and Bharti.
(i)
The existing goodwill will be distribute to Arti and Bharti in their profit sharing ratio i.e. 3:2
(ii)
The goodwill brought in by the new partner Sarthi will be shared among Arti and Bharti in their sacrificing ratio.
Journal
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
Arti’s Capital A/c
Dr.
3,000
Bharti’s Capital A/c
Dr.
2,000
To Goodwill A/c
5,000
(Being goodwill already exisitng in the books written off)
Cash A/c
Dr.
60,000
To Sarthi’s Capital A/c
50,000
10,000
(Being both Capital and Goodwill brought in by the new partner Sarthi)
Dr.
10,000
To Arti’s Capital A/c
4,000
To Bharti’s Capital A/c
6,000
(Being Goodwill brought in by the new partner Sarthi distributed among the existing partners Arti and Bharti)
Working Notes:
Exiting Goodwill Write Off:
Arti
{= ₹~5,000 × \dfrac{3}{5}}
= ₹ 3,000
Bharti
{= ₹~5,000 × \dfrac{2}{5}}
= ₹ 2,000
Sacrificing Ratio
= Old Ratio – New Ratio
Arti
{= \dfrac{3}{5} - \dfrac{2}{4}}
{= \dfrac{12 - 10}{20}}
{= \dfrac{2}{20}}
Bharti
{= \dfrac{2}{5} - \dfrac{1}{4}}
{= \dfrac{8 - 5}{20}}
{= \dfrac{3}{20}}
Sacrificing Ratio
{= \dfrac{2}{20} : \dfrac{3}{20}}
= 2:3
Sarthi’s goodwill
= ₹ 5,000
Goodwill Distributed to:
Arti
{= ₹~10,000 × \dfrac{2}{5}}
= ₹ 4,000
Bharti
{= ₹~10,000 × \dfrac{3}{5}}
= ₹ 6,000
21. X and Y are partners in a firm sharing profits and losses in 4:3 ratio. They admitted Z for 1/8 share. Z brought ₹ 20,000 for his capital and ₹ 7,000 for his 1/8 share of goodwill. Goodwill already appears in the books at ₹ 40,000. Show necessary journal entries in the books of X, Y and Z?
Journal
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
Cash A/c
Dr.
27,000
To Z’s Capital A/c
20,000
7,000
(Being capital and goodwill brought in by the new partner Z)
Dr.
7,000
To X’s Capital A/c
4,000
To Y’s Capital A/c
3,000
(Being goodwill brought in by new partner C is distributed to the old partners X and Y in their sacrificing ratio)
According to AS-10 Goodwill can be shown in the books if the money and money value is paid for it. In this case, no money or money value is paid for Goodwill. Hence, the goodwill for ₹ 40,000 can not be raised.
Also note that, as the new profit sharing ratio is not given, the sacrificing ratio of X and Y will be their old profit sharing ratio.
Working Notes:
Sacrificing Ratio
= 4:3
Goodwill brought by Z
= ₹ 7,000
Goodwill Distributed to:
X
{= ₹~7,000 × \dfrac{4}{7}}
= ₹ 4,000
Y
{= ₹~7,000 × \dfrac{3}{7}}
= ₹ 3,000

22. Aditya and Balan are partners sharing profits and losses in 3:2 ratio. They admitted Christopher for 1/4 share in the profits. The new profit sharing ratio agreed was 2:1:1. Christopher brought ₹ 50,000 for his capital. His share of goodwill was agreed to at ₹ 15,000. Christopher could bring only ₹ 10,000 out of his share of goodwill. Record necessary journal entries in the books of the firm?
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
Cash A/c
Dr.
60,000
To Christopher’s Capital A/c
50,000
10,000
(Being the amount for Capital and Premium for Goodwill brought in by the new partner Christopher)
Dr.
10,000
Christopher’s Capital A/c
Dr.
5,000
6,000
To Balan’s Capital A/c
9,000
(Being the Goodwill brought in by Christopher distributed to the old partners Aditya and Balan)
Working Notes:
Sacrificing Ratio
= Old Ratio – New Ratio
{= \dfrac{3}{5} - \dfrac{2}{4}}
{= \dfrac{12 - 10}{20}}
{= \dfrac{2}{20}}
Balan
{= \dfrac{2}{5} - \dfrac{1}{4}}
{= \dfrac{8 - 5}{20}}
{= \dfrac{3}{20}}
Sacrificing Ratio
{= \dfrac{2}{20} : \dfrac{3}{20}}
= 2:3
Christopher’s Share of Goodwill
= ₹ 15,000
Goodwill brought by Christopher
= ₹ 10,000
Goodwill taken from Christopher’s Capital
= ₹ 15,000 – ₹ 10,000
= ₹ 5,000
Goodwill Distributed to:
{= ₹~15,000 × \dfrac{2}{5}}
= ₹ 6,000
Balan
{= ₹~15,000 × \dfrac{3}{5}}
= ₹ 9,000
23. Amar and Samar were partners in a firm sharing profits and losses in 3:1 ratio. They admitted Kanwar for 1/4 share of profits. Kanwar could not bring his share of goodwill premium in cash. The Goodwill of the firm was valued at ₹ 80,000 on Kanwar’s admission. Record necessary journal entry for goodwill on Kanwar’s admission.
As the new ratio in which the profits should be shared or the sacrificing ration are not given, we can assume that the sacrificing ratio of Amar and Samar will be equal to their profit sharing ratio.
Also, as the new partner Kanwar could not bring in the Goodwill, the amount equivalent to the goodwill will be deducted from Kanwar’s capital account and distributed to the old partners Amar and Samar.
Journal
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
Kanwar’s Capital A/c
Dr.
20,000
To Amar’s Capital A/c
15,000
To Samar’s Capital A/c
5,000
(Being Kanwar’s share of goodwill charged to his capital and distributed to the old partners Amar and Samar in their sacrificing ratio i.e. 3:1)
Working Notes:
Sacrificing Ratio
= 3:1
Goodwill deducted
{= ₹~80,000 × \dfrac{1}{4}}
(from Kanwar’s Capital A/c)
= ₹ 20,000
Goodwill distributed to:
Amar
{= ₹~20,000 × \dfrac{3}{4}}
= ₹ 15,000
Samar
{= ₹~20,000 × \dfrac{1}{4}}
= ₹ 5,000

24. Mohan Lal and Sohan Lal were partners in a firm sharing profits and losses in 3:2 ratio. They admitted Ram Lal for 1/4 share on 1.1.2013 1.1.2017. It was agreed that goodwill of the firm will be valued at 3 years purchase of the average profits of last 4 years which were ₹ 50,000 for 2013, ₹ 60,000 for 2014, ₹ 90,000 for 2015 and ₹ 70,000 for 2016. Ram Lal did not bring his share of goodwill premium in cash. Record the necessary journal entries in the books of the firm on Ram Lal’s admission when:
a)
Goodwill already appears in the books at ₹ 2,02,500.
b)
Goodwill appears in the books at ₹ 2,500.
c)
Goodwill appears in the books at ₹ 2,05,000.
Average Profits
{= \dfrac{\text{Total Profits of last 4 years}}{\text{No. of Years}}}
{= \dfrac{₹~2,70,000}{4}}
= ₹ 67,500
Goodwill
= Average Profits × No. of Years of Purchase
= ₹ 67,500 × 3
= ₹ 2,02,500
As given in the problem, Ram Lal’s share of profits is ¼.
So, his share of goodwill will also be ¼
Ram Lal’s Goodwill share
{= ₹~2,02,500 × \dfrac{1}{4}}
= ₹ 50,625
The problem neither specified the new profit sharing ratio nor the sacrificing ratio. So, we can assume that the goodwill is shared among the old partners Mohan Lal and Sohan Lal in their profit or loss sharing ratio.
Distribution of Goodwill to the old partners in their profit sharing ratio:
Mohan Lal
{= ₹~50,625 × \dfrac{3}{5}}
= ₹ 30,375
Mohan Lal
{= ₹~50,625 × \dfrac{2}{5}}
= ₹ 20,250
a) Goodwill already appears in the books at ₹ 2,02,500.
The goodwill existing in the books should be written off at the time of admission of a new partner.
Writing off Existing Goodwill:
Mohan Lal
{= ₹~2,02,500 × \dfrac{3}{5}}
= ₹ 1,21,500
Sohan Lal
{= ₹~2,02,500 × \dfrac{2}{5}}
= ₹ 81,000
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
Mohan Lal’s Capital A/c
Dr.
1,21,500
Sohan Lal’s Capital A/c
Dr.
81,000
To Goodwill A/c
2,02,500
(Being Goodwill already exisitng in the firm is written off)
Ram Lal’s Capital A/c
Dr.
50,625
To Mohan Lal’s Capital A/c
30,375
To Sohan Lal’s Capital A/c
20,250
(Being Ram Lal’s share of goodwill charged on his capital distributed to the old partners in the ratio of their sacrifice)
b) Goodwill appears in the books at ₹ 2,500.
The goodwill existing in the books should be written off at the time of admission of a new partner.
Writing off Existing Goodwill:
Mohan Lal
{= 2,500 × \dfrac{3}{5}}
= ₹ 1,500
Sohan Lal
{= 2,500 × \dfrac{2}{5}}
= ₹ 1,000
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
Mohan Lal’s Capital A/c
Dr.
1,500
Sohan Lal’s Capital A/c
Dr.
1,000
To Goodwill A/c
2,500
(Being Goodwill already exisitng in the firm is written off)
Ram Lal’s Capital A/c
Dr.
50,625
To Mohan Lal’s Capital A/c
30,375
To Sohan Lal’s Capital A/c
20,250
(Being Ram Lal’s share of goodwill charged on his capital distributed to the old partners in the ratio of their sacrifice)
c) Goodwill appears in the books at ₹ 2,05,000.
The goodwill existing in the books should be written off at the time of admission of a new partner.
Writing off Existing Goodwill:
Mohan Lal
{= 2,05,000 × \dfrac{3}{5}}
= ₹ 1,23,000
Sohan Lal
{= 2,05,000 × \dfrac{2}{5}}
= ₹ 82,000
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
Mohan Lal’s Capital A/c
Dr.
1,23,000
Sohan Lal’s Capital A/c
Dr.
82,000
To Goodwill A/c
2,05,000
(Being Goodwill already exisitng in the firm is written off)
Ram Lal’s Capital A/c
Dr.
50,625
To Mohan Lal’s Capital A/c
30,375
To Sohan Lal’s Capital A/c
20,250
(Being Ram Lal’s share of goodwill charged on his capital distributed to the old partners in the ratio of their sacrifice)
25. Rajesh and Mukesh are equal partners in a firm. They admit Hari into partnership and the new profit sharing ratio between Rajesh, Mukesh and Hari is 4:3:2. On Hari’s admission goodwill of the firm is valued at ₹ 36,000. Hari is unable to bring his share of goodwill premium in cash. Rajesh, Mukesh and Hari decided not to show goodwill in their balance sheet. Record necessary journal entries for the treatment of goodwill on Hari’s admission.
As Rajesh and Mukesh are equal partners in the firm their share of profits will be 1:1
Also, as Hari is not able to bring the goodwill, his share of goodwill will be deducted from his capital and distributed into the old partners’ Capital accounts.
Journal
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
Hari’s Capital A/c
Dr.
8,000
To Rajesh’s Capital A/c
2,000
To Mukesh’s Capital A/c
6,000
(Being share of goodwill of the new partner Hari adjusted to the old partners’ capital accounts)
Working Notes:
Hari’s Share of goodwill
{= ₹~36,000 × \dfrac{2}{9}}
= ₹ 8,000
Old Ratio
= 1:1
New Ratio
= 4:3:2
Sacrificing Ratio:
Rajesh
{= \dfrac{1}{2} - \dfrac{4}{9}}
{= \dfrac{9 - 8}{18}}
= \dfrac{1}{18}
Mukesh
{= \dfrac{1}{2} - \dfrac{3}{9}}
{= \dfrac{9 - 6}{18}}
= \dfrac{3}{18}
Goodwill sharing ratio
{= \dfrac{1}{18} : \dfrac{3}{18}}
= 1:3
Goodwill Distributed to:
Rajesh
{= ₹~8,000 × \dfrac{1}{4}}
= ₹ 2,000
Mukesh
{= ₹~8,000 × \dfrac{3}{4}}
= ₹ 6,000

26. Amar and Akbar are equal partners in a firm. They admitted Anthony as a new partner and the new profit sharing ratio is 4:3:2. Anthony could not bring this share of goodwill ₹ 45,000 in cash. It is decided to do adjustment for goodwill without opening goodwill account. Pass the necessary journal entry for the treatment of goodwill?
As Amar and Akbar are equal partners in the firm their share of profits will be 1:1
Also, as Anthony is not able to bring the goodwill, his share of goodwill will be deducted from his capital and distributed into the old partners’ Capital accounts.
Journal
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
Anthony’s Capital A/c
Dr.
45,000
To Amar’s Capital A/c
11,250
To Akbar’s Capital A/c
33,750
(Being share of goodwill of the new partner Anthony adjusted to the old partners’ capital accounts)
Working Notes:
Anthony’s Share of goodwill
= ₹ 45,000
Old Ratio
= 1:1
New Ratio
= 4:3:2
Sacrificing Ratio:
Amar
{= \dfrac{1}{2} - \dfrac{4}{9}}
{= \dfrac{9 - 8}{18}}
= \dfrac{1}{18}
Akbar
{= \dfrac{1}{2} - \dfrac{3}{9}}
{= \dfrac{9 - 6}{18}}
= \dfrac{3}{18}
Goodwill sharing ratio
{= \dfrac{1}{18} : \dfrac{3}{18}}
= 1:3
Goodwill Distributed to:
Amar
{= ₹~45,000 × \dfrac{1}{4}}
= ₹ 11,250
Akbar
{= ₹~45,000 × \dfrac{3}{4}}
= ₹ 33,750

27. Given below is the Balance Sheet of A and B, who are carrying on partnership business on 31.12.2016. A and B share profits and losses in the ratio of 2:1.
Balance Sheet of A and B as at March 31, 2016
Liabilities
Amount
Assets
Amount
Bills Payable
10,000
Cash in Hand
10,000
Creditors
58,000
Cash at Bank
40,000
Outstanding Expenses
2,000
Sundry Debtors
60,000
Capitals
Stock
40,000
A
1,80,000
Plant
1,00,000
B
1,50,000
3,30,000
Buildings
1,50,000
4,00,000
4,00,000
C is admitted as a partner on the date of the balance sheet on the following terms:
(i)
C will bring in ₹ 1,00,000 as his capital and ₹ 60,000 as his share of goodwill for 1/4 share in the profits.
(ii)
Plant is to be appreciated to ₹ 1,20,000 and the value of buildings is to be appreciated by 10%.
(iii)
Stock is found over valued by ₹ 4,000.
(iv)
A provision for bad and doubtful debts is to be created at 5% of debtors.
(v)
Creditors were unrecorded to the extent of ₹ 1,000.
Pass the necessary journal entries, prepare the revaluation account and partners’ capital accounts, and show the Balance Sheet after the admission of C.
Journal
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
Bank A/c
Dr.
1,60,000
To C’s Capital A/c
1,00,000
60,000
(Being Capital and Goodwill brought in by the new partner C)
Dr.
60,000
To A’s Capital A/c
40,000
To B’s Capital A/c
20,000
(Being C’s share of Goodwill is distributed among the old partners A and B)
Plant A/c
Dr.
20,000
Building A/c
Dr.
15,000
To Revaluation A/c
35,000
(Being increase in the value of the assets on revaluation)
Revaluation A/c
Dr.
7,000
To Stock A/c
4,000
To Provision for Doubtful Debts A/c
3,000
(Being reduction in the value of the assets on revaluation)
Revaluation A/c
Dr.
1,000
To Creditors A/c (Unrecorded)
1,000
(Being increase in the value of the liabilies on re-assessment)
Revaluation A/c
Dr.
27,000
To A’s Capital A/c
18,000
To B’s Capital A/c
9,000
(Being Profit on revaluation of assets and re-assessment of liabilities transferred to A and B in old profit sharing ratio))
Date
Particulars
J.F.
Amount
Date
Particulars
J.F.
Amount
To Stock A/c
4,000
By Plant A/c
20,000
To Creditors A/c (Unrecorded)
3,000
By Building A/c
15,000
Revaluation of Profit:
To A’s Capital A/c
18,000
To B’s Capital A/c
9,000
27,000
35,000
35,000
Date
Particulars
J.F.
Amount

A
Amount

B
Amount

C
Date
Particulars
J.F.
Amount

A
Amount

B
Amount

C
To Balance b/d
2,38,000
1,79,000
1,00,000
By Balance b/d
1,80,000
1,50,000
By Bank A/c
1,00,000
40,000
20,000
By Revaluation A/c
18,000
9,000
2,38,000
1,79,000
1,00,000
2,38,000
1,79,000
1,00,000
Liabilities
Amount
Assets
Amount
Bills Payable
10,000
Cash in Hand
10,000
Creditors
59,000
Cash at Bank
2,00,000
Outstanding Expenses
2,000
Sundry Debtors
60,000
Capital:
Provision for
3,000
57,000
A
2,38,000
Doubtful Debts
B
1,79,000
Stock
36,000
C
1,00,000
5,17,000
Plant
1,20,000
Building
1,65,000
5,88,000
5,88,000
Working Notes:
Neither the new ratio or sacrificing ratio is provided in the problem. So, we’ll consider the old sharing ratio as the sacrificing ratio.
So, the new partner C’s share of goodwill should be distributed among the old partners A and B in ratio 2:1
Sacrificing Ratio
= 2:1
Distribution of Goodwill:
A’ share
{= ₹~60,000 × \dfrac{2}{3}}
= ₹ 40,000
B’ share
{= ₹~60,000 × \dfrac{1}{3}}
= ₹ 20,000
Appreciation in plant
= ₹ 1,20,000 – ₹ 1,00,000
= ₹ 20,000
Appreciation in Building
{= ₹~1,50,000 × \dfrac{10}{100}}
= ₹ 15,000
Doubtful Debts
{= ₹~60,000 × \dfrac{5}{100}}
= ₹ 3,000
28. Leela and Meeta were partners in a firm sharing profits and losses in the ratio of 5:3. In April 2017 they admitted Om as a new partner. On the date of Om’s admission the balance sheet of Leela and Meeta showed a balance of ₹ 16,000 in general reserve and ₹ 24,000 (Cr) in Profit and Loss Account. Record necessary journal entries for the treatment of these items on Om’s admission. The new profit sharing ratio between Leela, Meeta and Om was 5:3:2.
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
General Reserve A/c
Dr.
16,000
Profit and Loss A/c
Dr.
24,000
To Leela’s Capital A/c
25,000
To Meena’s Capital A/c
16,000
(Being General Reseve and Profit distributed to the existing partners in thier profit sharing ratio before admitting the new partner)
Working Notes:
The general reserves and profit should be distributed among the existing partners in their profit and loss sharing ratio i.e. 5:3
Genral Reserve
= ₹ 16,000
Profit
= ₹ 24,000
Amount to be distributed
= ₹ 40,000
Share of:
Leela
{= ₹~40,000 × \dfrac{5}{8}}
= ₹ 25,000
Meena
{= ₹~40,000 × \dfrac{3}{8}}
= ₹ 15,000
29. Amit and Viney are partners in a firm sharing profits and losses in 3:1 ratio. On 1.1.2017 they admitted Ranjan as a partner. On Ranjan’s admission the profit and loss account of Amit and Viney showed a debit balance of ₹ 40,000. Record necessary journal entry for the treatment of the same.
A debit balance in profit and loss indicates a loss. The loss should be written-off among the existing partners in their old profit and loss sharing ratio 3:1
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
Amit’s Capital A/c
Dr.
30,000
Viney’s Capital A/c
Dr.
10,000
To Profit and Loss A/c
40,000
(Being Loss written off among the old partners in their profit and loss sharing ratio i.e. 3:1)
Working Notes:
Share of Amit
{= ₹~40,000 × \dfrac{3}{4}}
= ₹ 30,000
Share of Viney
{= ₹~40,000 × \dfrac{1}{4}}
= ₹ 10,000

30. A and B share profits in the proportions of 3/4 and 1/4. Their Balance Sheet on March 31, 2016 was as follows:
Balance Sheet of A and B as at March 31, 2016 March 31, 2017
Liabilities
Amount
Assets
Amount
Sundry creditors
41,500
Cash at Bank
26,500
Reserve Fund
4,000
Bills Receivable
3,000
Capital Accounts
Debtors
16,000
A
30,000
Stock
20,000
B
16,000
Fixtures
1,000
Land & Building
25,000
91,500
91,500
On April 1, 2017, C was admitted into partnership on the following terms:
(a)
That C pays ₹ 10,000 as his capital.
(b)
That C pays ₹ 5,000 for goodwill. Half of this sum is to be withdrawn by A and B.
(c)
That stock and fixtures be reduced by 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 by 20%.
(e)
There being a claim against the firm for damages, a liability to the extent of ₹ 1,000 should be created.
(f)
An item of ₹ 650 included in sundry creditors is not likely to 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 C.
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
2017
Apr 01
Bank A/c
Dr.
15,000
To C’s Capital A/c
10,000
5,000
(Being the Capital and Good will brought in by the new partner C)
Apr 01
Dr.
5,000
To A’s Capital A/c
3,750
To B’s Capital A/c
1,250
(Being the goodwill brought in by the new partner C is distributed to old partners in their sacrificing ratio of 3:1)
Apr 01
A’s Capital A/c
Dr.
1,875
B’s Capital A/c
Dr.
625
To Bank A/c
2,500
(Being half of the goodwill amount withdrawn by the old partners)
Apr 01
Revaluation A/c
Dr.
3,050
To Stock A/c
2,000
To Fixture A/c
100
To Provision for Doubtful Debts
on Debtors A/c
800
To Provision for Doubtful Debts
on Bills Receivable A/c
150
(Being decrease in the value of the assets on revaluation)
Apr 01
Land and Buillding A/c
Dr.
5,000
Apr 01
Sundry Creditors A/c
Dr.
650
To Revaluation A/c
5,650
(Being appreciation in the value of assets on revaluation)
Apr 01
Revaluation A/c
Dr.
1,000
To Claim for Damages A/c
1,000
(Being increase in the liability due to claim for damages identified on re-assessment)
Apr 01
Revaluation A/c
Dr.
1,600
To A’s Capital A/c
1,200
To B’s Capital A/c
400
(Being profit on revaluation transferred to old partners’ capital accounts)
Apr 01
Reserve Fund A/c
Dr.
4,000
To A’s Capital A/c
3,000
To B’s Capital A/c
1,000
(Being reserve fund distributed among old partners)
Date
Particulars
J.F.
Amount
Date
Particulars
J.F.
Amount
2017
2017
Apr 01
To Bank A/c
26,500
Apr 01
By A’s Capital A/c
1,875
Apr 01
To C’s Capital A/c
10,000
Apr 01
By B’s Capital A/c
625
Apr 01
5,000
Apr 01
By Balance c/d
39,000
41,500
41,500
Date
Particulars
J.F.
Amount

A
Amount

B
Amount

C
Date
Particulars
J.F.
Amount

A
Amount

B
Amount

C
2017
2017
Apr 01
To Bank A/c
1,875
625
Apr 01
By Balance b/d
30,000
16,000
Apr 01
To Balance c/d
36,075
18,025
10,000
Apr 01
By Bank A/c
10,000
Apr 01
3,750
1,250
Apr 01
By Revaluation A/c
1,200
400
Apr 01
By Reserve Fund A/c
3,000
1,000
37,950
18,650
10,000
37,950
18,650
10,000
Balance Sheet
as on March 31, 2017
Liabilities
Amount
Assets
Amount
Sundry Creditors
40,850
Cash at Bank
39,000
Claim for Damages
1,000
Bills Receivable
3,000
Capital
Provision
(150)
2,850
A
36,075
Debtors
16,000
B
18,025
Provision
(800)
15,200
C
10,000
64,100
Stock
18,000
Fixtures
900
Land and Building
30,000
1,05,950
1,05,950
Working Notes:
As neither the new profit sharing ratio nor the sacrificing ratio are given, we consider that both A and B sacrifice their share in the profits in the ratio of their profit and loss sharing ratio i.e. 3:1
The reserve fund and revaluation should also be share among the old partners in their profit sharing ratio i.e. 3:1
Sacrificing Ratio
{= \dfrac{3}{4} : \dfrac{1}{4}}
= 3:1
Goodwill paid by C
= ₹ 5,000
Goodwill Distributed to:
A
{= ₹~5,000 × \dfrac{3}{4}}
= ₹ 3,750
B
{= ₹~5,000 × \dfrac{1}{4}}
= ₹ 1,250
Goodwill Amount Withdrawn by:
A
{= ₹~3,750 × \dfrac{1}{2}}
= ₹ 3,750
B
{= ₹~1,250 × \dfrac{1}{2}}
= ₹ 625
Stock Reduction
{= ₹~20,000 × \dfrac{10}{100}}
= ₹ 2,000
Fixtures Reduction
{= ₹~1,000 × \dfrac{10}{100}}
= ₹ 100
Provision for Doubtful Debts:
Sundry Debtors
{= ₹~16,000 × \dfrac{5}{100}}
= ₹ 800
Bills Receivable
{= ₹~3,000 × \dfrac{5}{100}}
= ₹ 150
Appreciation on Land and Building
{= ₹~25,000 × \dfrac{20}{100}}
= ₹ 5,000
Reserve Fund Transferred to:
A
{= ₹~4,000 × \dfrac{3}{4}}
= ₹ 3,000
B
{= ₹~4,000 × \dfrac{1}{4}}
= ₹ 1,000
31. A and B are partners sharing profits and losses in the ratio of 3:1. On Ist April. 2017 they admitted C as a new partner for 1/4 share in the profits of the firm. C brings ₹ 20,000 as for his 1/4 share in the profits of the firm. The capitals of A and B after all adjustments in respect of goodwill, revaluation of assets and liabilities, etc. has been worked out at ₹ 50,000 for A and ₹ 12,000 for B. It is agreed that partner’s capitals will be according to new profit sharing ratio. Calculate the new capitals of A and B and pass the necessary journal entries assuming that A and B brought in or withdrew the necessary cash as the case may be for making their capitals in proportion to their profit sharing ratio?
C’s share
{= \dfrac{1}{4}}
Remaining share
{= 1- \dfrac{1}{4}}
{= \dfrac{3}{4}}
A’s new share
{= \dfrac{3}{4} × \dfrac{3}{4}}
{= \dfrac{9}{16}}
B’s new share
{= \dfrac{3}{4} × \dfrac{1}{4}}
{= \dfrac{3}{16}}
C’s share
{= \dfrac{1}{4}}
{= \dfrac{4}{16}}
New Ratio
{= \dfrac{9}{16} : \dfrac{3}{16} : \dfrac{4}{16}}
= 9 : 3 : 4
Based on C’s capital, which is 1/4 of the total capital, the total capital works out to be
Total Capital
{= \dfrac{4}{1} × \text{C's Capital}}
{= \dfrac{4}{1} × ₹~20,000}
= ₹ 80,000
A’s Capital
{= ₹~80,000 × \dfrac{9}{16}}
= ₹ 45,000
A’s Withdrawal
= ₹ 50,000 – ₹ 45,000
= ₹ 5,000
B’s Capital
{= ₹~80,000 × \dfrac{3}{16}}
= ₹ 15,000
= ₹ 15,000 – ₹ 12,000
= ₹ 3,000
Books of A, B and C
Journal
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
2017
Jan 01
A’s Capital A/c
Dr.
5,000
To Cash A/c
5,000
(Being excess capital withdrawn by A)
Jan 01
Cash A/c
Dr.
3,000
To B’s Capital A/c
3,000
32. Pinky, Qumar and Roopa partners in a firm sharing profits and losses in the ratio of 3:2:1. S Seema is admitted as a new partner for 1/4 share in the profits of the firm, whichs he gets 1/8 from Pinky, and 1/16 each from Qmar and Roopa. The total capital of the new firm after Seema’s admission will be ₹ 2,40,000. Seema is required to bring in cash equal to 1/4 of the total capital of the new firm. The capitals of the old partners also have to be adjusted in proportion of their profit sharing ratio. The capitals of Pinky, Qumar and Roopa after all adjustments in respect of goodwill and revaluation of assets and liabilities have been made are Pinky ₹ 80,000, Qumar ₹ 30,000 and Roopa ₹ 20,000. Calculate the capitals of all the partners and record the necessary journal entries for doing adjustments in respect of capitals according to the agreement between the partners?
We know that
New Ratio
= Old Ratio – Sacrificing Ratio
Pinky’s sacrifice
{= \dfrac{1}{8}}
Pinky’s new share
{= \dfrac{3}{6} - \dfrac{1}{8}}
{= \dfrac{12 - 3}{24}}
Qamar’s sacrifice
{= \dfrac{1}{16}}
Qamar’s new share
{= \dfrac{2}{6} - \dfrac{1}{16}}
{= \dfrac{16 - 3}{48}}
{= \dfrac{13}{48}}
Roopa’s sacrifice
{= \dfrac{1}{16}}
Roopa’s new share
{= \dfrac{1}{6} - \dfrac{1}{16}}
{= \dfrac{8 - 3}{48}}
{= \dfrac{5}{48}}
Seema’s share
{= \dfrac{1}{4}}
New Ratio
{= \dfrac{9}{24} : \dfrac{13}{48} : \dfrac{5}{48} : \dfrac{1}{4}}
{= \dfrac{18}{48} : \dfrac{13}{48} : \dfrac{5}{48} : \dfrac{12}{48}}
= 18 : 13 : 5 : 12
The total capital of the firm is given to be ₹ 2,40,000
Pinky’s Capital
{= ₹~2,40,000 × \dfrac{18}{48}}
= ₹ 90,000
Qamar’s Capital
{= ₹~2,40,000 × \dfrac{13}{48}}
= ₹ 65,000
Roopa’s Capital
{= ₹~2,40,000 × \dfrac{5}{48}}
= ₹ 25,000
Seema’s Capital
{= ₹~2,40,000 × \dfrac{12}{48}}
= ₹ 60,000
Pinky
= ₹ 90,000 – ₹ 80,000
= ₹ 10,000
Qamar
= ₹ 65,000 – ₹ 30,000
= ₹ 35,000
Roopa
= ₹ 25,000 – ₹ 20,000
= ₹ 5,000
Books of Pinky, Qamar, Roopa and Seema
Journal
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
Bank A/c
Dr.
60,000
To Seema’s Capital A/c
60,000
Being the new partner Seema brought in the capital for ¼ share in the profits
Bank A/c
Dr.
50,000
To Pinky’s Capital A/c
10,000
To Qamar’s Capital A/c
35,000
To Roopa’s Capital A/c
5,000
(Being deficiency made good by additional amount brought in by the old partmers Pinky, Qamar and Roopa)

33. The following was the Balance Sheet of Arun, Bablu and Chetan sharing profits and losses in the ratio of {\dfrac{6}{14} : \dfrac{5}{14} : \dfrac{3}{14}} respectively.
Liabilities
Amount
Assets
Amount
Capital Accounts
9,000
Land and Buildings
24,000
Bills Payable
3,000
Furniture
3,500
Arun
1,900
Stock
14,500
Bablu
16,000
Debtors
12,600
Chetan
8,000
43,000
Cash
900
55,000
55,000
They agreed to take Deepak into partnership and give him a share of 1/8 on the following terms: a) that Deepak should bring in ₹ 4,200 as goodwill and ₹ 7,000 as his Capital; (b) that furniture be depreciated by 12%; (c) that stock be depreciated by 10% (d) that a Reserve of 5% be created for doubtful debts: (e) that the value of land and buildings having appreciated be brought upto ₹ 31,000 ;(f) that after making the adjustments the capital accounts of the old partners (who continue to share in the same proportion as before) be adjusted on the basis of the proportion of Deepak’s Capital to his share in the business, i.e., actual cash to be paid off to, or brought in by the old partners as the case may be.
Prepare Cash Account, Profit and Loss Adjustment Account (Revaluation Account) and the Opening Balance Sheet of the new firm.
Deepak’s share
{= \dfrac{1}{8}}
Remaining share
{= 1- \dfrac{1}{8}}
{= \dfrac{8 - 1}{8}}
{= \dfrac{7}{8}}
Arun’s new share
{= \dfrac{7}{8} × \dfrac{6}{14}}
{= \dfrac{42}{112}}
Bablu’s new share
{= \dfrac{7}{8} × \dfrac{5}{14}}
{= \dfrac{35}{112}}
Chetan’s new share
{= \dfrac{7}{8} × \dfrac{3}{14}}
{= \dfrac{21}{112}}
New Ratio
{= \dfrac{42}{112} : \dfrac{35}{112} : \dfrac{21}{112} : \dfrac{1}{8}}
{= \dfrac{42}{112} : \dfrac{35}{112} : \dfrac{21}{112} : \dfrac{14}{112}}
= 6:5:3:2
It is given in the problem that the old partners continue to share in the same proportion as before. This implies that their old profit and loss sharing ratio will also be same as the new one (only for three old partners) i.e. 6:5:2. The goodwill brought in by the new partner Deepak will be shared among the existing partners in their old profit sharing ratio as given below. Also note that the Profit and Loss Adjustment Account is used synonymously with the Revaluation Account (the problem is indirectly asking to prepare Revaluation Account). Ideally we should be preparing the Journal. However, to keep the scope of the problem simple, we’re directly preparing the ledger accounts and balance sheet.
Arun’s share
{= ₹~4,200 × \dfrac{6}{14}}
= ₹ 1,800
Bablu’s share
{= ₹~4,200 × \dfrac{5}{14}}
= ₹ 1,500
Chetan’s share
{= ₹~4,200 × \dfrac{3}{14}}
= ₹ 900
Depreciation on Furniture
{= ₹~3,500 × \dfrac{12}{100}}
= ₹ 420
Depreciation on Stock
{= ₹~14,000 × \dfrac{10}{100}}
= ₹ 1,400
Reserve for Doubtful Debts
{= ₹~12,600 × \dfrac{5}{100}}
= ₹ 630
Appreciation of Land and Building
= ₹ 31,000 – ₹ 24,000
= ₹ 6,000
Based on Deepak’s capital, which is ⅛ of the total capital, the total capital works out to be as follows:
Total Capital
{= \dfrac{8}{1} × ₹~7,000}
= ₹ 56,000
Arun’s Capital
{= ₹~56,000 × \dfrac{6}{16}}
= ₹ 21,000
Bablu’s Capital
{= ₹~56,000 × \dfrac{5}{16}}
= ₹ 17,500
Chetan’s Capital
{= ₹~56,000 × \dfrac{3}{16}}
= ₹ 10,500
Date
Particulars
J.F.
Amount
Date
Particulars
J.F.
Amount
To Furniture A/c
420
By Land and Buildings A/c
7,000
To Stock A/c
1,400
To Reserve for Doubtful Debts A/c
630
Profit on Revaluation Transferred:
To Arun’s Capital A/c
1,950
To Bablu’s Capital A/c
1,625
To Chetan’s Capital A/c
975
4,550
7,000
7,000
We need to prepare the cash account also, as the Cash need to be transferred to the balance sheet.
Date
Particulars
J.F.
Amount
Date
Particulars
J.F.
Amount
To Balance b/d
900
By Arun’s Capital A/c
1,750
To Chetan’s Capital A/c
625
By Bablu’s Capital A/c
1,625
To Deepak’s Capital A/c
7,000
By Balance c/d
9,350
4,200
12,725
12,725
Date
Particulars
J.F.
Amount

Arun
Amount

Bablu
Amount

Chetan
Amount

Deepak
Date
Particulars
J.F.
Amount

Arun
Amount

Bablu
Amount

Chetan
Amount

Deepak
To Bank A/c
1,750
1,625
By Balance b/d
19,000
16,000
8,000
To Balance c/d
21,000
17,500
10,500
7,000
By Cash A/c
7,000
1,800
1,500
900
By Revaluation A/c
1,950
1,625
975
By Bank A/c
625
22,750
19,125
10,500
7,000
22,750
19,125
10,500
7,000
Balance sheet
Liabilities
Amount
Assets
Amount
Creditors
9,000
Land and Buildings
31,000
Bills Payable
3,000
Furniture
3,080
Capital
Stock
12,600
Arun
21,000
Debtors
12,600
Bablu
17,500
Reserve for Doubtful Debts
(630)
11,970
Chetan
10,500
Cash
9,350
Deepak
7,000
56,000
68,000
68,000

34. Azad and Babli are partners in a firm sharing profits and losses in the ratio of 2:1. Chintan is admitted into the firm with 1/4 share in profits. Chintan will bring in ₹ 30,000 as his capital and the capitals of Azad and Babli are to be adjusted in the profit sharing ratio. The Balance Sheet of Azad and Babli as on March 31, 2016 (before Chintan’s admission) was as follows:
Balance Sheet of A and B
as on 31.03.2016
Liabilities
Amount
Assets
Amount
Creditors
8,000
Cash in hand
2,000
Bills Payable
4,000
Cash at bank
10,000
General Reserve
6,000
Sundry debtors
8,000
Capital accounts:
Stock
10,000
50,000
Furniture
5,000
Babli
32,000
Machinery
25,000
Buildings
40,000
1,00,000
1,00,000
It was agreed that:
i)
Chintan will bring in ₹ 12,000 as his share of goodwill premium.
ii)
Buildings were valued at ₹ 45,000 and Machinery at ₹ 23,000.
iii)
A provision for doubtful debts is to be created @ 6% on debtors.
iv)
The capital accounts of Azad and Babli are to be adjusted by opening current accounts.
Record necessary journal entries, show necessary ledger accounts and prepare the Balance Sheet after admission.
Books of Azad, Babli and Chitan
Journal
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
2016
Mar 31
To Bank A/c
Dr.
42,000
To Chintan’s Capital A/c
30,000
12,000
(Being the new Partner Chintan brought in the capital and Premium for Goodwill)
Mar 31
Dr.
12,000
8,000
To Babli’s Capital A/c
4,000
(Being premium for Goodwill brought in by the new partner Chintan is distributed to the old partners’s capital accounts)
Mar 31
Building A/c
Dr.
5,000
To Revaluation A/c
5,000
Being appreciation in the building asset on revaluation
Mar 31
Revalutaion A/c
Dr.
2,480
To Machinery A/c
2,000
To Provision for Doubtful Debts A/c
480
(Being decrease in the value of the assets on revaluation)
Mar 31
Revaluation A/c
Dr.
2,480
1,680
To Babli’s Capital A/c
1,680
(Being excess profit on revaluation transferred to the old partners capital accounts)
Mar 31
General Reserve A/c
Dr.
6,000
4,000
To Babli’s Capital A/c
2,000
Being the general reserve funds distributed among the old partners
Mar 31
Dr.
3,680
Being the excess capital transferred to the partner’s current account
Date
Particulars
J.F.
Amount
Date
Particulars
J.F.
Amount
2016
Mar 31
To Machinery A/c
2,000
By Building A/c
5,000
Mar 31
To Provision for Doubtful Debts A/c
480
Mar 31
Profit Transferred:
1,680
To Babli’s Capital A/c
840
2,520
5,000
5,000
Date
Particulars
J.F.
Amount

Amount

Babli
Amount

Chintan
Date
Particulars
J.F.
Amount

Amount

Babli
Amount

Chintan
2016
2016
Mar 31
To Current A/c
3,680
8,840
By Balance b/d
50,000
32,000
Mar 31
To Balance c/d
60,000
30,000
30,000
By Bank A/c
30,000
By Goodwill A/c
8,000
4,000
By General Reserve A/c
4,000
2,000
By Revaluation A/c
1,680
840
63,680
38,840
30,000
63,680
38,840
30,000
Balance Sheet
Liabilities
Amount
Assets
Amount
Creditors
8,000
Cash in Hand
2,000
Bills Payable
4,000
Cash at Bank
52,000
Capital Account
Sundry Debtors
8,000
60,000
Provision for Doubtful Debts
(480)
7,520
Babli
30,000
Stock
10,000
Chintan
30,000
1,20,000
Furniture
5,000
Current Account
Machinery
23,000
3,680
Building
45,000
Babli
8,840
12,520
1,44,520
1,44,520
Working Notes:
Distribution of Goodwill to:
{= ₹~12,000 × \dfrac{2}{3}}
= ₹ 8,000
Babli
{= ₹~12,000 × \dfrac{1}{3}}
= ₹ 4,000
Appreciation on Building
= ₹ 45,000 – ₹ 40,000
= ₹ 5,000
Depreciation on Building
= ₹ 25,000 – ₹ 23,000
= ₹ 2,000
Provision on Doubtful Debts
{= ₹~8,000 × \dfrac{6}{100}}
= ₹ 480

35. Ashish and Dutta were partners in a firm sharing profits in 3:2 ratio. On Jan. 01, 2015 Mar. 31, 2016 they admitted Vimal for 1/5 share in the profits. The Balance Sheet of Ashish and Dutta as on March 31, 2016 was as follows:
Balance Sheet of A and B
as on 1.03.2016 31.03.2016
Liabilities
Amount
Assets
Amount
Ashish’s Capital
80,000
Land and Buildings
35,000
Dutta’s Capital
35,000
Plant
45,000
Creditors
15,000
Debtors
22,000
Bills Payable
10,000
Provision
2,000
20,000
Stock
35,000
Cash
5,000
1,40,000
1,40,000
It was agreed that:
i)
The value of Land and Building be increased by ₹ 15,000.
ii)
The value of plant be increased by 10,000.
iii)
Goodwill of the firm be valued at ₹ 20,000.
iv)
Vimal to bring in capital to the extent of 1/5th of the total capital of the new firm.
Record the necessary journal entries and prepare the Balance Sheet of the firm after Vimal’s admission.
Books of Ashish, Dutta and Vimal
Journal
Date
Particulars
L.F.
Debit
Amount
Credit
Amount
2016
Mar 31
Land and Building A/c
Dr.
15,000
Plant A/c
Dr.
10,000
To Revaluation A/c
25,000
(Being increase in the value of the assets on revaluation)
Mar 31
Revaluation A/c
Dr.
25,000
To Ashish’s Capital A/c
15,000
To Dutta’s Capital A/c
10,000
(Being Profit on revaluation transferred to old partners’ capital accounts)
Mar 31
To Cash A/c
Dr.
36,000
To Vimal’s Capital A/c A/c
36,000
(Being capital brought in by the new partner Vimal)
Mar 31
Vimal’s Current A/c
Dr.
4,000
To Ashish’s Capital A/c
2,400
To Dutta’s Capital A/c
1,600
(Being share of new partner Vimal’s goodwill adjusted through his current account)
Date
Particulars
J.F.
Amount

Ashish
Amount

Dutta
Amount

Vimal
Date
Particulars
J.F.
Amount

Ashish
Amount

Dutta
Amount

Vimal
2016
2016
Mar 31
To Balance c/d
97,000
46,600
36,600
By Balance b/d
80,000
35,000
By Revaluation A/c
15,000
10,000
By Cash A/c
36,000
By Vimal’s Current A/c
2,400
1,600
97,400
46,600
36,000
97,400
46,600
36,000
Date
Particulars
J.F.
Amount
Date
Particulars
J.F.
Amount
2016
Mar 31
To Ashish’s Capital A/c
2,400
By Balance b/d
4,000
To Dutta’s Capital A/c
1,600
4,000
4,000
Balance Sheet
as on March 31, 2016
Liabilities
Amount
Assets
Amount
Creditors
15,000
Land and Building
50,000
Bills Payable
10,000
Plant
55,000
Capital
Debtors
22,000
Ashish
97,400
Provision
(2,000)
20,000
Dutta
46,600
Stock
35,000
Vimal
36,000
1,80,000
Cash
41,000
Vimal’s Current Account
4,000
2,05,000
2,05,000
Working Notes:
In the problem, the goodwill of the firm is given. However, Vimal didn’t bring his share of goodwill. So, the premium for goodwill should be adjusted through his current account.
Vimal’s share
{= \dfrac{1}{5}}
Remaining share
{= 1 - \dfrac{1}{5}}
{= \dfrac{4}{5}}
Ashish’s new share
{= \dfrac{4}{5} × \dfrac{3}{5}}
{= \dfrac{12}{25}}
Dutta’s new share
{= \dfrac{4}{5} × \dfrac{2}{5}}
{= \dfrac{8}{25}}
New ratio
{= \dfrac{12}{25} : \dfrac{8}{25} : \dfrac{1}{5}}
{= \dfrac{12}{25} : \dfrac{8}{25} : \dfrac{5}{25}}
= 12:8:5
As neither the sacrificing ratio nor the new ratio are given, we can consider that the sacrificing ratio is same as the profit sharing ratio i.e. 3:2
Also, as Vimal didn’t bring his share of goodwill and he has to bring the capital equal to 1/5th of the total capital of the new firm, his share of goodwill should be adjusted through the current account.
Revaluation
Land and Building
= ₹ 15,000
Plant
= ₹ 10,000
Revaluation Amount
= ₹ 25,000
Distribution of Revaluation Amount
Ashish
{= ₹~25,000 × \dfrac{3}{5}}
= ₹ 15,000
Dutta
{= ₹~25,000 × \dfrac{2}{5}}
= ₹ 10,000
Vimal’s share of goodwill
{= ₹~20,000 × \dfrac{1}{5}}
= ₹ 4,000
Goodwill Distribution:
Ashish
{= ₹~4,000 × \dfrac{3}{5}}
= ₹ 2,400
Dutta
{= ₹~4,000 × \dfrac{3}{5}}
= ₹ 1,600
New Capital
= Old Capital + Revaluation Amount + Goodwill Distribution
Ashish
= ₹ 80,000 + ₹ 15,000 + ₹ 2,400
= ₹ 97,400
Dutta
= ₹ 35,000 + ₹ 10,000 + ₹ 1,600
= ₹ 46,600
Total adjusted capital of old partners
= ₹ 97,400 + ₹ 46,600
= ₹ 1,44,000
The total adjusted capital of the old partners will be equal to their total (added) share of capital i.e. \dfrac{4}{5}
∴ New Capital
{= ₹~1,80,000 × \dfrac{5}{4}}
= ₹ 1,80,000
Vimal’s capital
{= ₹~1,80,000 × \dfrac{1}{5}}
= ₹ 36,000