Question

Consider the following statements :
1. At the time of admission of new partner undistributed profit or losses are distributed to all partners in new ratio.
2. Profit or loss on revaluation of assets and liabilities is transferred to old partner's capital account in old profit sharing ratio.
3. Goods brought in by incoming partner in cash for joining in a partnership firm is taken away by the old partner's in their new profit-sharing ratio.
Which of the above statement/s is/are true ?

• A. Only 1
• B. Only 2
• C. Only 3
• D. 1,2 and 3

Answer 1

Answer: (B)

Only 2

At the time of admission of new partner undistributed profit or losses are distributed among the existing partner’s capital account in existing profit sharing ratio.

Any profit or loss that arises out of revaluation account should be credited or debited to the old partners' capital account in their old profit sharing ratio.

The new partner may bring his share of goodwill and capital in kind i.e. in the form of assets instead of in cash. In such a situation, the assets brought in are debited and the incoming partner's capital account is credited with capital brought in and Premium account is credited with amount of Goodwill brought in.