NCERT Solution for Class 12 Accountancy Chapter 3 - Reconstitution of a Partnership Firm - Admission of a Partner

*According to the CBSE Syllabus 2023-24, this chapter has been renumbered as Chapter 2.

NCERT Solutions are said to be an extremely helpful book while preparing for the CBSE Class 12 Accountancy examinations. This study material contains in-depth knowledge, and the NCERT Solutions collected by the subject-matter wizards are not distinct.

NCERT Solution for Class 12 Accountancy Chapter 3 – Reconstitution of a Partnership Firm – Admission of a Partner furnishes us with all-inclusive data on all the concepts. As the students would have learnt the basic fundamentals about the subject of accountancy in Class 11, the solutions of Class 12 NCERT are a continual part of it, which explains the concepts in a great way.

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Access the solution for class 12 Accountancy Chapter 3 – Reconstitution of a Partnership Firm – Admission of a Partner

Short Questions for NCERT Accountancy Solutions Class 12 Part 1 Chapter 3

1. Identify various matters that need adjustments at the time of admission of a new partner.

The following matters need adjustment when adding a new partner:

1. Capital Adjustment among partners.

2. Revised calculation of profit sharing ratio.

3. Evaluating and adjusting the goodwill of partners who are sacrificing their share.

4. Accumulated profits, reserves and losses should be distributed to old partners as per the old ratio that was agreed upon.

5. Revaluation of the Liabilities and Assets to determine the current value and distribution of profit or loss as per the old ratio.

2. Why is it necessary to ascertain a new profit-sharing ratio even for old partners when a new partner is admitted?

At the time of admission of a new partner, the existing partners sacrifice their present profit-sharing ratio to make way for a share in profit sharing to the new partner, which results in reducing their profit. Therefore, it is essential to determine the new profit-sharing ratio for old partners on the occasion of adding a new partner, as it creates a more justified share of profit.

3. What is sacrificing ratio? Why is it calculated?

The portion of the profit-sharing ratio that is sacrificed by current partners when a new partner joins the firm is called as sacrificing ratio. It is calculated as the difference between the old profit-sharing ratio and the new profit-sharing ratio.

Sacrificing ratio = Old profit sharing ratio – New profit sharing ratio

It is compulsory to determine this ratio, as the new partner has to reimburse the existing partner for making the sacrifice of profit. It is paid to them as goodwill.

4. On what occasions is sacrificing ratio used?

Sacrificing ratio needs to be used in these occasions:

1. When it is mutually decided by the partners of the firm to change the profit-sharing ratio among the partners.

2. A new partner is introduced in the firm, and accordingly, the sum contributed by the new partner is distributed as goodwill based on the sacrificing ratio of existing partners.

5. If some goodwill already exists in the books and the new partner brings in his share of goodwill in cash, how will you deal with the existing amount of goodwill?

The goodwill that exists in the firms before the arrival of a new partner must be written off between the existing partners in the ratio of their profit sharing as previously decided. The following journal entry needs to be passed:

Old Partner’s Capital A/c

Dr.

To Goodwill A/c

(Being goodwill written off in the old ratio between existing partners)

6. Why is there a need for the revaluation of Liabilities and Assets on the admission of a partner?

When a new partner gets admitted to the firm, there is a need to revalue the Liabilities and Assets of the firm to determine the true value on that day. Revaluation is helpful as the value of Liabilities and Assets may increase or decrease, and as such, their values in the old balance sheet may not be justified; also, some assets or liabilities may not be recorded at all. Hence, for recording the changes in market value for the Liabilities and Assets, a revaluation account is to be prepared, and the associated profits or losses need to be distributed between the existing partners of the firm.

Long Questions for NCERT Accountancy Solutions Class 12 Part 1 Chapter 3

1. Do you advise that Liabilities and Assets must be revalued at the time of admission of a partner? If so, why? Also, describe how this is treated in the book of account.

It is logical to revalue Liabilities and Assets when a new partner gets admitted to the firm, as it is helpful in determining their true value of them on that day. Revaluation is helpful as the value of Liabilities and Assets may increase or decrease, and as such, their values in the existing balance sheet may not be justified; also, some assets or liabilities may not be recorded at all. Hence, for recording the changes in market value for the Liabilities and Assets, a revaluation account is needed to be prepared, and the associated profits or losses need to be distributed between the existing partners of the firm.

Following journal entries are added to the account on the date a new partner is admitted to a firm.

i. When asset value increases:

Assets A/c Dr.

To Revaluation A/c

(For increase in asset value)

ii) When asset value decreases.

iii) When Liabilities increase.

iv) When liabilities decrease.

v) To record assets that are unrecorded.

vi) To record liabilities that are unrecorded.

vii) Transferring credit balance of Revaluation account.

vii) Transferring debit balance of Revaluation account.

2. What is goodwill? What are the factors that affect goodwill?

Goodwill refers to the intangible asset that represents the firm’s value and reputation and the brand name that it carries in the market. Goodwill is earned by a firm from the work it does, which helps earn people’s trust by meeting all customer demands both in quality and quantity. Having positive goodwill is very much helpful for a firm to earn extraordinary profits in comparison to its competitors. It also ensures profits that keep coming in the future and helps in retaining old customers.

Factors affecting firms’ goodwill are

1. Product Quality: A firm which is constantly delivering the best product for its customers will have greater goodwill.

2. Location: A central location makes it easy to reach and attracts more footfall, which leads to higher sales and more goodwill.

3. Management: Cost efficiency and higher productivity can be achieved by having efficient management in place; also, it ensures quality products at less price, which increases goodwill.

4. Market Structure: A firm will enjoy more benefits of goodwill if the market is monopolistic in nature and there are no substitutes; it will add more goodwill to the firm.

5. Other Advantages: A firm that is getting benefits such as the continuous supply of fuel, power and raw materials and uses them to produce quality goods enjoys higher goodwill.

3. Explain various methods of valuation of goodwill.

There are four different methods of goodwill valuation:

1. Average Profit Method: In this method, the calculation of goodwill is done based on the average profits of the past years. It can be calculated as

Goodwill = Average Profit × No. of Years Purchase

Here, the number of years of purchase signifies the years till which the firm expects profits to generate in the same way as the current period

The following steps are involved in this method:

1. Determine the total profit of past years.

2. Add all losses which are abnormal in nature, such as theft, fire, etc.

3. Add all normal income, if not done previously.

4. Deduct all incomes that are not obtained from business and all such abnormal incomes, for e.g., winning a lottery.

5. Deduct all normal expenses, if not deducted previously.

6. Calculate the average profit by dividing the total profit determined in the previous step.

7. Multiply the average profit hence obtained by the number of year’s purchases in order to determine goodwill.

Example:

Last 5 years profits are 3,00,000,  9,00,000,   (6,00,000),  15,00,000,  24,00,000.

Goodwill calculated as

Goodwill = 9, 00,000 × 4 = 36, 00,000

2. Weight Average Method: In this method, weights are allocated to each year’s profit, with the highest weight given to the recent year’s profit and lower weights marked for the past years’ profits. The product of the profits and weights are added and divided by the total weight to determine weighted average profits. It is a modified version of the Average Profit Method. The following formulae are used.

The following steps are involved:

1. Assign the highest weightage to the recent year’s profit and the lowest weightage to the past years’ profits.

2. Multiply weights with the profits corresponding to each year.

3. Determine the product’s total.

4. Divide the product total by the total weightage to find the Weighted Average Profit.

5. Multiply the weighted average profit by the number of years purchased.

For example,

Last 5 years profits are ₹ 3,00,000,   ₹ 9,00,000,   ₹ (6,00,000),   ₹ 15,00,000,   ₹ 24,00,000.

Goodwill calculated as,

3. Super Profit Method:  In this method, goodwill is determined by the excess profit earned by a firm as compared to profit earned by rivals in the same industry. The excess profit earned over normal profit is called a Super Normal Profit

The following steps are involved:

1. Calculate the average profit

2. Calculating average capital engaged

3. Calculating normal profit

4. Calculation of Super Normal Profit using the formulae: Super Normal Profit = Average Profit – Normal Profit

5. Multiply super normal profit with the number of years the purchase to determine goodwill.

4. Capitalisation Method: Goodwill is determined in two ways as follows:

a) By Average Profit capitalisation. b) By Super Profit capitalisation.

a) By Average Profit capitalisation

The following steps are involved:

1. Average profit is calculated.

2. Calculating average profits capitalised value using the formulae.

3. Determine Actual Capital Employed

4. Deduct Actual Capital Employed from Capitalised Average Profit to calculate goodwill.

Goodwill = Capitalised Average Profit – Actual Capital Employed

b) By Super Profit capitalisation.

The following steps are involved:

1. Capital Employed for calculation

2. Calculation of Normal profit

3. Calculation of average profit

4. Calculating Super Normal Profit

Super Normal Profit = Average Profit – Normal Profit

Step 5: Goodwill calculation by the following formula:

4. If it is agreed that the capital of all the partners is proportionate to the new profit-sharing ratio, how will you work out the new capital of each partner? Give examples and state how necessary adjustments will be made.

When a new partner is admitted to the firm, the capital of all partners must be determined using the new profit-sharing ratio. In such cases new capital of each partner is determined and is dependent on the following instances:

1. New partner’s capital is given

2. Firm’s total capital is given

1) New partner’s capital is given

It involves the following steps:

1. Calculation of the total capital of the firm based on the new partners’ capital.

2. Divide the total capital of the firm by individual shares of the partner’s profits to determine each partner’s new capital.

3. After posting adjustments, determine each partner’s capital balance.

4. The capital determined previously is written in the Partners Capital account on the credit side.

5. Calculation of surplus or deficit. If new capital is more than the old share, then it needs to be contributed by old partners and is termed deficit, and if new capital is less than old capital, it is called surplus and the difference is paid to old partners.

Let us understand the above steps with the help of an example.

A & B are partners in business who share profits and losses equally. They agree to admit C for
share in profit. C brings ₹ 1, 00,000 as capital. A and B have old capital of ₹ 80,000 and ₹ 60,000, respectively, at the time of admission of C.

Step 3:

So both A and B need to pay 20,000 and 40,000 more as shares for their new capital.

2) When new firms’ total capital is known:

When the new partner’s capital is not mentioned, then new capital is determined based on the total capital of the firm on a proportionate basis. The amount that is determined has to be brought in by the new partner as capital. The following steps are taken to determine the new partners’ capital:

1. Finding the total old capital of the existing partners after performing all adjustments.

2. Finding the total capital of the new firm by multiplying the old capital of existing partners with the reciprocal of the old partner’s total share.

3. The new capital of each partner is determined on the basis of the total capital calculated, which is multiplying the new profit ratio with the total capital, individually, for all partners. Here is an example to help you understand the concept.

Ram and Shyam are partners in a firm, sharing profit and loss equally. They agreed to admit Anil for 1/3^rd share in profit and decided to share future profit and loss equally. X’s capital is ₹ 1, 00,000 and Y’s capital is ₹ 50,000. Z brings sufficient capital for his share in profit.

1. Old Capital= ₹ 1, 00,000 + 50,000 = 1, 50,000

2. Calculation of total capital

3. New Partners Capital

5. Explain how will you deal with goodwill when a new partner is not in a position to bring his share of goodwill in cash?

In a situation in which a new partner is unable to bring his share of goodwill in cash, the goodwill account gets adjusted through the Old Partners account. The new partners’ capital account is debited with the share of goodwill, and the same gets credited to Old Partner’s account.

Note: According to Para 16 of Accounting Standard 10, Goodwill is recorded only when it is any transaction equivalent to money or money’s worth. It is a mandatory practice that is followed.

6. Explain various methods for the treatment of goodwill on the admission of a new partner?

Goodwill is treated in the following ways on the introduction of a new partner:

1. Premium Method

2. Revaluation Method

When a new partner pays the share of goodwill in the form of cash, it is called a premium method. There can be two scenarios:

1. New partners pay directly to old partners

2. Partner brings goodwill in the form of cash, and it is retained in the business.

The corresponding entries are:

(i) When goodwill brought in cash by the new partner

Cash/Bank A/c Dr.

To Premium for Goodwill A/c

(Amount of goodwill brought in by new partner)

(ii)When goodwill is retained by the business:

Premium for Goodwill A/c Dr

To Sacrificing Partners’ Capital A/c

(Goodwill brought by the new partner is distributed among old partners as per the sharing ratio.)

Revaluation Method: Situations when a new partner is unable to bring goodwill in the form of cash.

New Partner’s Capital A/c Dr. (Goodwill amount not brought by new partner)

To Old Partners’ Capital A/c

(Goodwill of new partner distributed to old partners as per their sharing ratio.)

Note: According to Para 16 of Accounting Standard 10, Goodwill is recorded only when it is any transaction equivalent to money or money’s worth. It is a mandatory practice that is followed.

7. How will you deal with the accumulated profit and losses and reserves on the admission of a new partner?

A new partner is not entitled to bear the losses or enjoy the profits of a previous business. Hence, when a new partner is added to the firm, the accumulated profits or losses or reserves need to be distributed to current partners (partners of the old firm) in their profit-sharing ratio.

Treatment of accumulated losses, profits and reserve.

Profit and Loss A/C Dr.

General Reserve A/C Dr.

Contingency Reserve A/C Dr.

When losses accumulate over a period.

For Profits and losses

Deferred Advertising expense Dr.

(Losses accumulated shared to old partners as per sharing ratio)

8. At what figures does the value of Liabilities and Assets appear in the books of the firm after revaluation has been done? Show with the help of an imaginary balance sheet.

After revaluation has been done, the Liabilities and Assets appear at their current market values on the Balance Sheet of the reconstituted firm. This can be better explained with the help of the below-explained example.

Anil and Bijay shares profit and loss equally.

1) On that date, Chetan is admitted as he is the new partner for 1/3^rd share and offers 2, 00,000 as capital.

2) Value of stocks increased by ₹ 7,000.

3) A ₹ 2,000 provision has been created against Debtors.

4) ₹ 35,000 value obtained after revaluating furniture.

5) A machinery costing ₹ 100,000 purchased is not recorded in books.

6) Outstanding rent ₹ 2,000.

Prepare Revaluation Account, Partners’ Capital Account, Cash Account and Balance Sheet.

Numerical Question for NCERT Accountancy Solutions Class 12 Part 1 Chapter 3

1. A and B were partners in the firm sharing profits and losses in the ratio of 3:2. They admit C into the partnership with a 1/6 share in the profits. Calculate the new profit-sharing ratio.

The solution is as follows:

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.

The solution is as follows:

D admits for
 share in the new firm

Let new firm profit = 1

Remaining share of A, B and C in new firm = 1 − D’s share

New Ratio = Old Ratio × Remaining Share of A, B and C in the new firm

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 the new profit-sharing ratio.

The solution is as follows:

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 the new profit-sharing ratio.

The solution to this question is as follows:

5. P and Q are partners sharing profits in 2:1 ratio. They admitted R into the partnership, giving him 1/5 share, which he acquired from P and Q in 1:2 ratio. Calculate the new profit-sharing ratio.

The solution to this question is as follows:

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 the new profit-sharing ratio.

The solution to this question is as follows:

New Ratio = Old Ratio − Sacrificing Ratio

7. A and B were partners in the firm, sharing profits in 3:2 ratio. They admitted C for 3/7 shares which he took 2/7 from A and 1/7 from B. Calculate the new profit-sharing ratio.

The solution to this question is as follows:

New Ratio = Old Ratio − Sacrificing Ratio

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 the new profit-sharing ratio.

The solution to this question is as follows:

New Ratio = Old Ratio − Sacrificing Ratio

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 the new profit-sharing ratio.

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 the new profit-sharing ratio.

The solution to this question is as follows:

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.

The solution to this question is as follows:

Sacrificing Ratio = Old Ratio − New Ratio

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 the new profit-sharing ratio and sacrificing ratio.

The solution to this question is as follows:

New Ratio = Combined Share of Rao and Swami × Proportion of Rao and Swami in the combined share

4:3:1

Sacrificing Ratio = Old Ratio − New Ratio

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 =  = 52,000

Goodwill = Average Profit × Number of Year’s Purchases = 52,000 × 4 = ₹ 2, 08,000

14. Capital employed in a business is ₹.2, 00,000. The normal rate of return on capital employed 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.

The solution to this question is as follows:

15. The books of Ram and Bharat showed that the capital employed 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%.

The solution to this question is as follows:

Average Super Profit = Average Actual Profit – Normal Profit

= 60,000 – 50,000

= ₹ 10,000

Goodwill = Average Super Profit × Number of year purchase

= 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, assuming that the normal rate of return is 20%.

The solution to this question is as follows:

Normal Rate of Return = 20%

Alternative Method

Normal Profit = Capital Employed ×

= 5,00,000 ×

= ₹ 1,00,000

Super profit = Actual Profit − Normal Profit

= 1, 50,000 − 1, 00,000

= ₹ 50,000

Goodwill = Super Profit ×

= 50,000 ×

= ₹ 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%.

The solution to this question is as follows:

Capital Employed = Assets − External Liabilities

= 10, 00,000 − 1, 80,000

= Rs 8, 20,000

Normal Profit = Capital Employed ×

= Rs 82,000

Super Profit = Actual Profit − Normal Profit

= 1, 00,000 − 82,000

= Rs 18,000

Goodwill = Super Profit ×

= Rs 1, 80,000

Alternative Method

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.

The solution to this question is as follows:

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.

The solution to this question is as follows:

Sacrificing Ratio = Old Ratio − New Ratio

Goodwill of the firm = Rs 20,000

C’s share of Goodwill =

A will receive

Or

B will receive

Or

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.

The solution to this question is as follows:

Sarthi admitted for
share in a new firm.

Sacrificing Ratio = Old Ratio − New Ratio

Arti will receive

Bharti will receive

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. Subsequently X, Y and Z decided to show goodwill in their books at ₹. 40,000. Show necessary journal entries in the books of X, Y and Z.

The solution to this question is as follows:

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 upon 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.

The solution to this question is as follows:

Sacrificing Ratio = Old Ratio − New Ratio

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 the goodwill premium in cash. The Goodwill of the firm was valued at ₹. 80,000 on Kanwar’s admission. Record necessary journal entries for goodwill on Kanwar’s admission.

The solution to this question is as follows:

Kanwar admitted for 1/4 share of profit.

New Firm’s Goodwill = ₹ 80,000

Kanwar’s Share of Goodwill = 80,000 × (1/4) = 20,000

Kanwar’s Goodwill will be taken by Amar and Samar in their sacrificing ratio here. Sacrificing Ratio will be equal to the old ratio because the new and sacrificing ratio is not given; if sacrificing and new ratio is not given, it is assumed that the old partners sacrificed in their old ratio.

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. It was agreed that the goodwill of the firm would be valued at 3 years’ purchase of the average profits of the 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 the 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.

The solution to this question is as follows:

Goodwill = Average Profit × No. of Years Purchases = 67,500 × 3 = 2, 02,500

Ram Lal entered into the firm for 1/4 share of the Profit.

Ram Lal’s share of goodwill = 2, 02, 500 × (1/4) = ₹ 50,625

Here, sacrificing ratio of Mohan Lal and Sohan Lal will be equal to the old ratio because the new and sacrificing ratio is not given.

Mohan Lal will get = Ram Lal’s Share of Goodwill × (3/5) = 50,625 × (3/5) = 10,125 × 3 = ₹ 30,375

Sohan Lal will = Ramlal Share of Goodwill × (1/5) = 50,625 × (1/5) ₌ ₹ 10,125 × 2 = ₹ 20,250

Case (a)

Case (b)

Case (c)

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, the goodwill of the firm is valued at ₹ 36,000. Hari is unable to bring his share of the goodwill premium in cash. Rajesh, Mukesh and Hari decided not to show goodwill on their balance sheet. Record necessary journal entries for the treatment of goodwill on Hari’s admission.

The solution to this question is as follows:

Working Notes:

1) Goodwill of a firm = 36,000

Hari’s share in the goodwill.

= Goodwill of firm × admitting Partner Share

2) Sacrificing Ratio = Old Ratio − New Ratio

Sacrificing Ratio between Rajesh and Mukesh 1:3.

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 adjustments for goodwill without opening a goodwill account. Pass the necessary journal entry for the treatment of goodwill.

 The solution to this question is as follows:

Working Notes:

1) Sacrificing Ratio = Old Ratio − New Ratio

Sacrificing Ratio between Amar and Akbar = 1:3

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.

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 overvalued 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.

The solution to this question is as follows:

Working Note:

1) Sacrificing ratio = Old Ratio − New Ratio

Sacrificing ratio between A and B = 2:1.

28. Leela and Meeta were partners in a firm, sharing profits and losses in a ratio of 5:3. On Jan. 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 the 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.

The solution to this question is as follows:

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 the necessary journal entry for the treatment of the same.

The solution to this question is as follows:

30. A and B share profits in the proportions of 3/4 and 1/4. Their Balance Sheet on Dec. 31, 2016, was as follows.

On Jan. 1, 2017, C was admitted into the 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.

The solution to this question is as follows:

Working Note:

1)

2)

3)

Sacrificing ratio = Old Ratio − New Ratio

Note: Assuming that the ratio between A and B has not changed, hence, the sacrificing ratio should be the same as the old ratio.

31. A and B are partners sharing profits and losses in the ratio of 3:1. On 1st Jan. 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 Liabilities and Assets, etc., have been worked out at ₹ 50,000 for A and ₹ 12,000 for B. It is agreed that the partner’s capital will be according to the 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.

The solution to this question is as follows:

1) Calculation of New Profit sharing Ratio

New Profit sharing ratio of A, B and C will be 9:3:4

2) New Capital of A and B.

C bring ₹ 20,000 for 1/4^th share of profit in the new firm.

Thus, the total capital of the firm on the basis of C’s share=

Thus, B’s will bring 15,000 − 12,000 = 3,000

32. Pinky, Qumar and Roopa are partners in a firm, sharing profits and losses in the ratio of 3:2:1. S is admitted as a new partner for 1/4 share in the profits of the firm, which 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 to their profit-sharing ratio. The capitals of Pinky, Qumar and Roopa after all adjustments in respect of goodwill and revaluation of Liabilities and Assets 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 making adjustments in respect of capitals according to the agreement between the partners.

The solution to this question is as follows:

1) Calculation of new profit sharing Ratio = Old Ratio − Sacrificing Ratio

New profit-sharing ratio between Pinky, Qumar, Roopa and Seema

2) Required capital of all partners in the new firm

3) Amount to be brought by each partner

Pinky = 90,000 − 80,000 = 10,000

Qumar = 65,000 − 30,000 = 35,000

Roopa = 25,000 − 20,000 = 5,000

Seema = 2,40,000

=60,000

33. The following was the Balance Sheet of Arun, Bablu and Chetan, sharing profits and losses in the ratio of respectively.

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 up to ₹ 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.

The solution to this question is as follows:

Working Note:

1)

2) Calculation of New Profit Sharing Ratio

New Profit sharing ratio of Arun, Bablu, Chetan and Deepak

= 42:35:21:14 or 6:5:3:2

3) Calculation of capital of Arun, Bablu, and Chetan in the new firm

Deepak bring ₹ 7,000 for
 th share of profit.

Hence total capital of the new firm =

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 December 31, 2016 (before Chintan’s admission) was as follows:

It was agreed that:

i) Chintan will bring in ₹ 12,000 as his share of the 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.

Working Note:

1) Calculation of New Profit Sharing Ratio

New Profit sharing ratio of Azad, Babli and Chintan

2) New Capital of Azad and Babli

Chintan bring ₹ 30,000 for
share of profit. Hence total capital of a firm = 30,000×
=1, 20,000

Azad’s Capital =

Babli’s Capital =

35. Ashish and Dutta were partners in a firm, sharing profits in 3:2 ratio. On Jan. 01, 2015, they admitted Vimal for 1/5 share in the profits. The Balance Sheet of Ashish and Dutta as on Jan. 01, 2016, was as follows:

It was agreed that:

i) The value of Land and Building be increased by ₹ 15,000.

ii) The value of the 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.

The solution to this question is as follows:

1) Working Note:

2)

3) Calculation of New Profit Sharing Ratio

4) Sacrificing Ratio = Old Ratio – New Ratio

Sacrificing Ratio between Ashish and Dutta is 3:2

Note: Here, Goodwill has been adjusted through the current account because Vimal has not brought his share of goodwill, and he is to bring capital in proportion to the total capital of the new firm after adjustment.

5) Capital of new firm on the basis of old partners’ adjusted capital

Total adjusted capital of old partners

Concepts covered in this chapter

• Modes of Reconstitution of a partnership
• Admission of a new partner
• Sacrificing Ratio
• Goodwill
• Adjustment of capitals
• Change in profit sharing ratio among the existing partners

Conclusion

NCERT Solutions for Class 12 Accountancy chapter 3 provides a wide degree of illustrative examples, which assists the students in comprehending and learning quickly. The above-mentioned are the illustrations for the Class 12 CBSE syllabus. For more solutions and study materials of NCERT solutions for class 12 Accountancy, visit BYJU’S or download the app for more information.

Also, explore – 

NCERT Solutions for Class 12 Accountancy Part I