Admission of a Partner Class 12 NCERT Solutions PDF

Concept used. On admission of a new partner the firm undergoes a reconstitution, existing relations among partners change. Six specific matters must be adjusted in the books before the new firm starts trading.

1. New Profit-Sharing Ratio. Re-state the new ratio in which the new partner and old partners will share future profits.
2. Sacrificing Ratio. Compute the ratio in which old partners surrender share for the new partner; this drives the goodwill compensation.
3. Treatment of Goodwill. Value the firm's goodwill, then adjust it through partners' capital accounts (premium method, revaluation method, or hidden-goodwill method depending on the deed).
4. Revaluation of Assets and Liabilities. Open a Revaluation A/c; transfer net gain/loss to old partners in their old PSR.
5. Distribution of Reserves and Accumulated Profits or Losses. Transfer existing balances (general reserve, P&L Cr. balance, workmen compensation reserve, etc.) to old partners in their old PSR before the admission entry.
6. Adjustment of Capitals. If the deed requires, adjust the capitals of all partners in the new PSR by introducing / withdrawing cash, or by routing through current accounts.

Six adjustments: (1) new PSR, (2) sacrificing ratio, (3) goodwill treatment, (4) revaluation of assets and liabilities, (5) distribution of reserves and accumulated P&L, and (6) adjustment of capitals to new ratio.

Concept used. When a new partner is admitted, the share of profit currently going to the old partners must be reduced (in some agreed proportion) to make room for the new partner's share. Therefore the old partners' new profit-sharing ratio is not their old ratio; it has to be recomputed.

1. Share given up. The total share given up by old partners exactly equals the new partner's share.
2. Reduction in old shares. Each old partner's new share = old share - his sacrifice.
3. Why this matters financially. Future profits will be distributed in the new ratio; for any year's P&L App A/c we need the new PSR. The new ratio also determines:
   • [leftmargin=18pt,topsep=2pt,itemsep=1pt]
   • the partners' capital proportion (if capitals are to be in the new ratio);
   • the share of revaluation gain / loss (in old ratio, but new ratio is needed for the cross-check);
   • how goodwill premium received from the new partner is divided among the sacrificing old partners.

The new PSR for old partners is needed because their old shares are no longer accurate after admission; every future profit, capital adjustment and goodwill calculation depends on the new ratio.

Concept used. Sacrificing ratio is the ratio in which the old partners surrender (sacrifice) parts of their old share in favour of the new partner.

Sacrifice of a partner = Old Share - New Share.

1. Definition. For each old partner, the sacrifice is positive (he loses share). The set of sacrifices, taken in order, defines the sacrificing ratio.
2. Why it is calculated.
   • [leftmargin=18pt,topsep=2pt,itemsep=1pt]
   • To distribute the goodwill premium brought in by the new partner among the old partners in the proportion in which they have surrendered share.
   • If the new partner does not bring his share of goodwill in cash, an adjustment journal entry passes debit to the new partner's capital and credit to the sacrificing partners' capitals in the sacrificing ratio.
   • Sacrificing ratio is also used to compute the gaining ratio on a future change in PSR (it is the mirror image).

Sacrificing ratio = Old Share - New Share, computed for each old partner. It is needed to distribute the new partner's goodwill premium and to pass goodwill-adjustment entries.

Concept used. The sacrificing ratio is used in any reconstitution event where one or more old partners give up share in favour of another partner.

1. Admission of a new partner. Goodwill premium brought in by the new partner is credited to the sacrificing partners in the sacrificing ratio.
2. Change in profit-sharing ratio among existing partners. When one partner gains and another sacrifices, the gaining partner compensates the sacrificing partner for his share of goodwill, in the sacrificing ratio (= gain ratio, mirrored).
3. Conversion of a partnership into a company (advanced topic, beyond Class 12 syllabus but commonly tested in B.Com first year).

Sacrificing ratio is used (i) on admission of a new partner to distribute goodwill premium; (ii) on a change in PSR among existing partners to record the goodwill compensation entry; and (iii) in conversion of a firm into a company.

Concept used. As per AS-26 (Accounting Standard 26) issued by the ICAI, self-generated goodwill cannot be shown on the balance sheet. Hence any goodwill already appearing in the books of the old firm must be written off before the new partner's admission.

1. Write off existing goodwill. The goodwill currently shown in the books is debited to the old partners' capital accounts in their old profit-sharing ratio, and the Goodwill A/c is credited.
   tabularlrr

   & Dr. (Rs.) & Cr. (Rs.)
   

   Old Partners' Capital A/c    Dr. (in old PSR) & xxx &
      To Goodwill A/c & & xxx
   3l(Existing goodwill written off)
   

   tabular

2. Record incoming goodwill premium. Cash brought in by the new partner for his share of goodwill is credited to the sacrificing partners in the sacrificing ratio.
   tabularlrr

   & Dr. (Rs.) & Cr. (Rs.)
   

   Cash / Bank A/c    Dr. & xxx &
      To Sacrificing Partners' Capital A/cs & & xxx
   3l(Goodwill premium brought by new partner)
   

   tabular

Existing goodwill is first written off to old partners' capital A/cs in the old PSR; then the new partner's incoming goodwill premium is credited to the sacrificing partners in the sacrificing ratio.

Concept used. At the date of admission of a new partner, the firm's assets and liabilities may be carrying book values that no longer reflect fair values. The new partner should neither benefit from undisclosed appreciation nor suffer hidden depreciation; similarly, the gain or loss on revaluation must accrue to the old partners (in their old PSR), not to the incoming partner.

1. Fairness to incoming partner. If the building is worth Rs. 12,00,000 but shown at Rs. 10,00,000, the unrecognised gain belongs to the old partners. Without revaluation, the new partner would automatically acquire a share of that hidden gain, which would be unfair.
2. Fairness to old partners. Hidden depreciation (e.g. outdated machinery, bad debts not provided for) must be absorbed by old partners, not foisted on the new partner.
3. Accounting accuracy. The Balance Sheet of the new firm must show assets and liabilities at fair value, in line with the prudence concept.
4. Mechanics. A Revaluation A/c (also called Profit & Loss Adjustment A/c) is opened. Increase in asset / decrease in liability is credited; decrease in asset / increase in liability is debited. The net balance is transferred to old partners' capital A/cs in old PSR.

Revaluation is needed so that any hidden gain or loss at the date of admission accrues only to the old partners, in their old PSR, and not to the new partner; this maintains fairness and ensures the new firm's Balance Sheet shows fair values.

Concept used. Yes, assets and liabilities must be revalued at the time of admission of a partner. The reasoning has three pillars: fairness, accounting accuracy, and statutory compliance. The mechanics of revaluation go through a Revaluation A/c (or Profit & Loss Adjustment A/c).

1. Why revalue?
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   • Any unrecognised appreciation belongs to the old partners (they earned it before admission).
   • Any unrecognised depreciation should be borne by old partners (it occurred during their tenure).
   • The new firm's Balance Sheet should disclose fair values.
   • Statutory compliance with AS-10 (Property, Plant and Equipment) and AS-29 (Provisions, Contingent Liabilities).
2. Open a Revaluation A/c.

   Credits (gains):

   • [leftmargin=18pt,topsep=2pt,itemsep=1pt]
   • Increase in value of asset.
   • Decrease in value of liability.
   • Unrecorded asset brought in.

   Debits (losses):

   • [leftmargin=18pt,topsep=2pt,itemsep=1pt]
   • Decrease in value of asset.
   • Increase in value of liability.
   • Unrecorded liability brought in.
   • New provision for doubtful debts.
3. Journal entries.
   tabularlrr

   & Dr. & Cr.
   

   Asset A/c    Dr. (increase) & xxx &
      To Revaluation A/c & & xxx
   

   Revaluation A/c    Dr. (decrease) & xxx &
      To Asset A/c & & xxx
   

   Liability A/c    Dr. (decrease) & xxx &
      To Revaluation A/c & & xxx
   

   Revaluation A/c    Dr. (increase in liab) & xxx &
      To Liability A/c & & xxx
   

   tabular

4. Transfer net balance to Old Partners' Capital A/cs. If credit side (gains) > debit side (losses), it is a gain on revaluation, credited to old partners' capitals in the old PSR. Otherwise it is a loss, debited similarly.
   tabularlrr

   & Dr. & Cr.
   

   Revaluation A/c (Gain)    Dr. & xxx &
      To Old Partners' Capitals (Old PSR) & & xxx
   

   Old Partners' Capitals (Old PSR)    Dr. (Loss) & xxx &
      To Revaluation A/c & & xxx
   

   tabular

Yes, revaluation is necessary. It is recorded in a Revaluation A/c: gains (asset increase, liability decrease) are credited; losses (asset decrease, liability increase, new provisions) are debited; the net balance is transferred to old partners' capital accounts in their old PSR.

Concept used. Goodwill is the present value of a firm's future earnings in excess of normal earnings on its capital employed, in other words, the value of the firm's reputation, customer relations, brand, and other intangible advantages that enable it to earn super profits.

1. Formal definition. Goodwill is an intangible asset representing the excess of the purchase consideration of a business over the fair value of its identifiable net assets.
2. Two kinds of goodwill.
   • [leftmargin=18pt,topsep=2pt,itemsep=1pt]
   • Purchased goodwill, paid for when one firm buys another; shown as an asset (AS-26 permits).
   • Self-generated goodwill, built up over years through reputation; cannot be shown on the balance sheet (AS-26 prohibits).
3. Factors affecting goodwill.
   • [leftmargin=18pt,topsep=2pt,itemsep=1pt]
   • Quality and reputation of the product / service. Higher quality ⇒ stronger customer loyalty ⇒ higher goodwill.
   • Efficient management. Skilled, forward-looking management adds to goodwill.
   • Favourable location. Prime commercial location boosts goodwill.
   • Strong customer base. Repeat customers signal goodwill.
   • Risk factor. Low-risk businesses (FMCG, pharma) carry higher goodwill than high-risk businesses (commodities).
   • Time factor. The longer a firm has been in business, the more goodwill it builds, ceteris paribus.
   • Capital required. A capital-light business can deliver high returns on small capital, raising goodwill.
   • Future prospects. Goodwill is forward- looking; a firm in a growth industry commands higher goodwill than one in decline.

Goodwill = present value of a firm's super-earning capacity. Factors affecting goodwill: product/service quality, efficient management, location, customer base, risk profile, age of the firm, capital required, and future prospects.

Concept used. Three principal methods are prescribed in the NCERT for valuing goodwill at admission, retirement or change in PSR.

1. Average Profit Method. Goodwill = Average Profit × Number of years' purchase. Average profit is computed over the last 3–5 years. ``Years' purchase'' is the multiplier (typically 2 to 4). Example: Average profit Rs. 50,000; 4 years' purchase ⇒ Goodwill = 50,000 × 4 = Rs. 2,00,000.
2. Super Profit Method.

   First, define Super Profit and Normal Profit: Super Profit = Actual Avg Profit - Normal Profit.

   Normal Profit equals capital employed multiplied by normal rate divided by 100.

   Then the goodwill is computed as: Goodwill = Super Profit × Years' Purchase. Example: Avg profit Rs. 1,00,000; capital Rs. 5,00,000; normal rate 12%. Normal profit = 60,000; super profit = 40,000. Goodwill (3 years' purchase) = 40,000 × 3 = Rs. 1,20,000.

3. Capitalisation Method. Two sub-methods.

   Capitalisation of Average Profit: Goodwill = (Avg Profit × 100 ÷ Normal Rate) - Capital Employed.

   Capitalisation of Super Profit: Goodwill = Super Profit × 100 ÷ Normal Rate.

   Example: Avg profit Rs. 1,00,000; normal rate 10%; capital Rs. 8,20,000. Capitalised value = 100 × 1,00,000 / 10 = 10,00,000. Goodwill = 10,00,000 - 8,20,000 = Rs. 1,80,000.

4. Weighted Average Profit Method (advanced, a refinement of Average Profit Method). Assign higher weights to more recent years. Weighted Avg = ∑ (Profit × Weight)∑ Weight.

Three primary methods: (i) Average Profit (Avg × years' purchase); (ii) Super Profit (Super Profit × years' purchase, where Super = Actual - Normal); (iii) Capitalisation (either of Avg Profit minus Capital Employed, or Super Profit divided by Normal Rate). The Weighted Average method is a refinement.

Concept used. Proportionate capital adjustment on admission means that, after the new partner is admitted, each partner's capital must stand in the same ratio as the new profit-sharing ratio. The base for the new total capital is normally the capital brought in by the new partner (since his share of profits is known).

1. Identify the new partner's capital and share. Suppose C is admitted for 14 share and brings in Rs. 1,00,000.
2. Compute total new capital of the firm. Total capital = New partner's capitalNew partner's share = 1,00,0001/4 = Rs. 4,00,000.
3. Compute each old partner's new capital in the new PSR. If A and B were in 3:2 and now sit in 9:6:5 with C, aligned A's new capital &= 4,00,000 × 920 = Rs. 1,80,000,
   B's new capital &= 4,00,000 × 620 = Rs. 1,20,000,
   C's capital &= 4,00,000 × 520 = Rs. 1,00,000. aligned
4. Adjust each old partner's existing capital. If existing capital < new capital, partner brings in cash; if existing capital > new capital, excess is paid back in cash or transferred to a Current A/c.

Total new capital = New partner's capital ÷ his share. Allocate to each partner in the new PSR; adjust by cash or current account.

Concept used. When the incoming partner cannot pay his share of goodwill in cash, his share is adjusted by a debit to his Capital A/c and a credit to the old partners' Capital A/cs in their sacrificing ratio. The premium is never recorded in a Goodwill A/c (AS-26 prohibits creating self-generated goodwill).

1. Value goodwill using any standard method (Avg Profit, Super Profit, Capitalisation).
2. Compute new partner's share of goodwill = Total goodwill × his share.
3. Pass the adjustment entry:
   tabularlrr

   Particulars & Dr. (Rs.) & Cr. (Rs.)
   

   New partner's Capital A/c & xxxx &
   1emTo Old partners' Capital A/cs (sacrificing ratio) & & xxxx
   3l(Being new partner's share of goodwill credited
   3lto old partners in their sacrificing ratio)
   

   tabular

4. Why not raise a Goodwill A/c? AS-26 disallows capitalising self-generated goodwill; the adjustment must run through Capital A/cs.

Debit new partner's Capital with his share of goodwill; credit old partners' Capital in sacrificing ratio. No Goodwill A/c is raised.

Concept used. Four standard scenarios (only the first three are AS-26 compliant; the fourth handles inferred figures):

1. Premium Method (cash brought). New partner brings his share of goodwill in cash. Cash debited; old partners' Capital A/cs credited in sacrificing ratio.

   tabularlrr

   Cash A/c & Dr. xxxx &
   1emTo Premium for Goodwill A/c & & xxxx
   Premium for Goodwill A/c & Dr. xxxx &
   1emTo Old partners' Capital A/cs & & xxxx
   

   tabular

2. When new partner cannot bring cash. New partner's Capital A/c Dr.; old partners' Capital A/cs Cr. in sacrificing ratio.
3. When goodwill already appears in books. Write off old goodwill first by debiting old partners' Capital A/cs in old ratio, then apply Method 1 or 2.
4. Hidden goodwill (inferred). If the new partner's capital is given but total firm capital implies a higher figure, the difference is hidden goodwill: Hidden Goodwill = New partner's capitalhis share - Total adjusted capital. Then apply Method 2.

Four sub-cases: cash premium, no-cash via Capital A/c, existing goodwill written off, hidden goodwill computed. All AS-26 compliant.

Concept used. Accumulated profits, reserves, P&L (Cr. balance), and accumulated losses, P&L (Dr. balance), all belong to the old partners and must be distributed in the old profit-sharing ratio before the new partner is admitted.

1. For accumulated profits / General Reserve / P&L (Cr.) , distribute to old partners' Capital A/cs in old PSR.

   tabularlrr

   Reserve / Profit A/c & Dr. xxxx &
   1emTo Old partners' Capital A/cs & & xxxx
   3l(in old profit-sharing ratio)
   

   tabular

2. For accumulated losses / P&L (Dr.), charge to old partners' Capital A/cs in old PSR.

   tabularlrr

   Old partners' Capital A/cs & Dr. xxxx &
   1emTo P&L A/c (Dr. balance) & & xxxx
   

   tabular

3. Why old PSR? These items accrued when only the old partners existed; the new partner has no claim.

Accumulated profits credit old partners' Capital; accumulated losses debit them. Always in old profit-sharing ratio.

Concept used. After revaluation, every asset and liability is recorded at its revalued amount. The net gain or loss on revaluation is distributed among the old partners in the old PSR via the Revaluation A/c.

1. Revaluation A/c records the changes.
   • [leftmargin=18pt,topsep=2pt,itemsep=1pt]
   • Asset increase: Asset A/c Dr.; Revaluation A/c Cr.
   • Asset decrease: Revaluation A/c Dr.; Asset A/c Cr.
   • Liability increase: Revaluation A/c Dr.; Liability A/c Cr.
   • Liability decrease: Liability A/c Dr.; Revaluation A/c Cr.
2. Illustrative example. Pre-admission B/S items: Building Rs. 5,00,000; Stock Rs. 50,000; Creditors Rs. 80,000. Revaluation: Building +20%, Stock -10%, Creditors -5%. aligned Building (new) &= 5,00,000 × 1.20 = Rs. 6,00,000.
   Stock (new) &= 50,000 × 0.90 = Rs. 45,000.
   Creditors (new) &= 80,000 × 0.95 = Rs. 76,000. aligned
3. Post-revaluation Balance Sheet (extract):
   tabularlr|lr

   Liabilities & Rs. & Assets & Rs.
   

   Creditors & 76,000 & Building & 6,00,000
   Capitals (after adj.) & xxxx & Stock & 45,000
   

   tabular

   Net Revaluation gain = 1,00,000 - 5,000 + 4,000 = Rs. 99,000, credited to old partners' Capitals in old PSR.

All assets and liabilities are shown at their revalued (new) figures. The Revaluation A/c's net balance is transferred to old partners' Capitals in old PSR.

Concept used. When the question does not specify how the new partner acquires his share, the default assumption is that the new partner acquires his share from the old partners in their old profit-sharing ratio. The old partners' new shares are their old shares scaled down by (1 - new share).

1. Total share that remains for old partners. 1 - 16 = 56.
2. Old partners' new shares (in old ratio 3:2): A: 56 × 35 = 36 = 12 B: 56 × 25 = 26 = 13
3. Express in LCM. Common denominator 6: A: 36, B: 26, C: 16.
4. New profit-sharing ratio. A:B:C = 3:2:1.

New profit-sharing ratio A:B:C = 3:2:1.

Concept used. When the new partner's share is acquired equally from all old partners, each old partner sacrifices in their old PSR; the new PSR follows directly.

1. D's share = 10% = 110.
2. Remaining 910 split among A, B, C in 3:2:1. aligned A &= 910 × 36 = 2760 = 920.
   B &= 910 × 26 = 1860 = 620.
   C &= 910 × 16 = 960 = 320. aligned
3. D = 110 = 220. New PSR = 9:6:3:2.

New PSR = 9:6:3:2.

Concept used. New partner takes equally from each old partner.

1. Z's share = 110; each old partner sacrifices 120.
2. aligned X new &= 58 - 120 = 5080 - 480 = 4680 = 2340.
   Y new &= 38 - 120 = 3080 - 480 = 2680 = 1340.
   Z &= 110 = 440. aligned

New PSR X:Y:Z = 23:13:4.

Concept used. New partner's share is acquired from one specific old partner; only that partner's share is reduced.

1. A new share = 25 - 18 = 1640 - 540 = 1140.
2. B new = 25 = 1640 (unchanged).
3. C new = 15 = 840 (unchanged).
4. D = 18 = 540.

New PSR A:B:C:D = 11:16:8:5.

Concept used. R's share is acquired from old partners in a specified ratio (1:2), so P's sacrifice = 13 × 15 and Q's sacrifice = 23 × 15.

1. Sacrifices: P = 115; Q = 215.
2. P new = 23 - 115 = 1015 - 115 = 915 = 35.
3. Q new = 13 - 215 = 515 - 215 = 315 = 15.
4. R = 15.

New PSR P:Q:R = 3:1:1.

Concept used. D's share split per specified sacrifice ratio.

1. D's 15 split 2:2:1 (total 5): A sacrifices 225; B 225; C 125.
2. Compute new shares (over 175 to find common denominator). aligned A new &= 37 - 225 = 75 - 14175 = 61175.
   B new &= 27 - 225 = 50 - 14175 = 36175.
   C new &= 27 - 125 = 50 - 7175 = 43175.
   D &= 15 = 35175. aligned

New PSR A:B:C:D = 61:36:43:35.

Concept used. Specified sacrifice from each partner separately.

1. A new = 35 - 27 = 21 - 1035 = 1135.
2. B new = 25 - 17 = 14 - 535 = 935.
3. C = 37 = 1535.

New PSR A:B:C = 11:9:15.

Concept used. Specified per-partner sacrifices.

1. A new = 38 - 27 = 21 - 1656 = 556.
2. B new = 38 - 17 = 21 - 856 = 1356.
3. C new = 28 - 17 = 14 - 856 = 656.
4. D = 47 = 3256.

New PSR A:B:C:D = 5:13:6:32.

Concept used. Sacrifice = fraction of own share.

1. Radha sacrifices 13 × 35 = 15; Rukmani sacrifices 14 × 25 = 110.
2. Radha new = 35 - 15 = 25 = 410.
3. Rukmani new = 25 - 110 = 410 - 110 = 310.
4. Gopi = 15 + 110 = 310.

New PSR Radha:Rukmani:Gopi = 4:3:3.

Concept used. Compute each old partner's sacrifice as fraction of own share.

1. Sacrifices. aligned Singh &= 13 × 38 = 18.
   Gupta &= 14 × 28 = 116.
   Khan &= 15 × 38 = 340. aligned
2. LCM 80. Convert. Singh new = 3080 - 1080 = 2080; Gupta new = 2080 - 580 = 1580; Khan new = 3080 - 680 = 2480; Jain = 1080 + 580 + 680 = 2180.

New PSR Singh:Gupta:Khan:Jain = 20:15:24:21.

Concept used. Sacrificing ratio is the ratio in which the old partners surrender their shares. For each old partner: Sacrifice = Old Share - New Share.

1. Express all shares with a common denominator. Old PSR 5:3 (total 8) ⇒ Sandeep 5/8; Navdeep 3/8. New PSR 4:2:1 (total 7) ⇒ Sandeep 4/7; Navdeep 2/7; C 1/7. LCM of 8 and 7 is 56. Sandeep old = 5/8 = 35/56; new = 4/7 = 32/56. Navdeep old = 3/8 = 21/56; new = 2/7 = 16/56.
2. Compute sacrifice. Sandeep's sacrifice = 35/56 - 32/56 = 3/56. Navdeep's sacrifice = 21/56 - 16/56 = 5/56.
3. Sacrificing ratio. 3 : 5

Sacrificing Ratio (Sandeep : Navdeep) = 3:5.

Concept used. Rao and Swami's new share of remaining 7/8 follows 4:3.

1. Remaining share after Ravi: 78.
2. Rao new = 78 × 47 = 48 = 12.
3. Swami new = 78 × 37 = 38.
4. Ravi = 18. New PSR Rao:Swami:Ravi = 48:38:18 = 4:3:1.
5. Sacrificing Ratio. Rao = 35 - 12 = 6 - 510 = 110. Swami = 25 - 38 = 16 - 1540 = 140. Ratio 110:140 = 4:1.

New PSR = 4:3:1; Sacrificing Ratio = 4:1.

Concept used. Average Profit Method: Goodwill = Average Profit × Number of years' purchase.

1. Total profit of last 5 years. 40,000 + 50,000 + 60,000 + 50,000 + 60,000 = Rs. 2,60,000.
2. Average Profit. 2,60,0005 = Rs. 52,000.
3. Goodwill. Goodwill = 52,000 × 4 = Rs. 2,08,000.

Goodwill = Rs. 2,08,000.

Concept used. Super Profit Method. The Super Profit equals Actual Profit minus Normal Profit, where Normal Profit equals Capital Employed times Normal Rate divided by 100. Goodwill is then Super Profit times Years' Purchase. In symbols: Super Profit = Actual Profit - (Cap. Emp. × Rate / 100). Goodwill = Super Profit × Years' Purchase.

1. Normal Profit. 2,00,000 × 15100 = Rs. 30,000.
2. Super Profit. 48,000 - 30,000 = Rs. 18,000.
3. Goodwill. 18,000 × 3 = Rs. 54,000.

Goodwill = Rs. 54,000.

Concept used. Average Super Profit Method: Goodwill = (Avg Profit - Normal Profit) × years' purchase.

1. Average Profit. (40 + 50 + 55 + 70 + 85)/5 = 300/5 = Rs. 60,000.
2. Normal Profit. 5,00,000 × 10% = Rs. 50,000.
3. Super Profit = 60,000 - 50,000 = Rs. 10,000.
4. Goodwill = 10,000 × 3 = Rs. 30,000.

Goodwill = Rs. 30,000.

Concept used. Capitalisation of Average Profit Method: Capitalised Value of Profits = Avg Profit × 100Normal Rate; Goodwill = Capitalised Value - Capital Employed.

1. Capital Employed. 3,00,000 + 2,00,000 = Rs. 5,00,000.
2. Capitalised Value of Profits. 1,50,000 × 10020 = 1,50,00,00020 = Rs. 7,50,000.
3. Goodwill. 7,50,000 - 5,00,000 = Rs. 2,50,000.

Goodwill = Rs. 2,50,000.

Concept used. When the question gives assets and external liabilities separately: Capital Employed = Assets - External Liabilities. Then apply the capitalisation method.

1. Capital Employed. 10,00,000 - 1,80,000 = Rs. 8,20,000.
2. Capitalised Value of Average Profit. 1,00,000 × 10010 = Rs. 10,00,000.
3. Goodwill. 10,00,000 - 8,20,000 = Rs. 1,80,000.

Goodwill = Rs. 1,80,000.

Concept used. When the new partner brings goodwill in cash, the cash is credited to the sacrificing partners in their sacrificing ratio. The sacrificing ratio (since the source of new partner's share is unspecified) equals the old PSR = 5:3. The Rs. 4,000 is split: Verma's share = 4,000 × 5/8 = Rs. 2,500; Sharma's share = 4,000 × 3/8 = Rs. 1,500.

1. (a) Goodwill retained in the business.
   tabularlrr

   & Dr. & Cr.
   

   Cash / Bank A/c    Dr. & 24,000 &
      To Ghosh's Capital A/c (capital) & & 20,000
      To Premium for Goodwill A/c & & 4,000
   

   Premium for Goodwill A/c    Dr. & 4,000 &
      To Verma's Capital A/c & & 2,500
      To Sharma's Capital A/c & & 1,500
   

   tabular

   Cash remains with the firm.
2. (b) Goodwill fully withdrawn. Above entries, plus:
   tabularlrr

   & Dr. & Cr.
   

   Verma's Capital A/c    Dr. & 2,500 &
   Sharma's Capital A/c    Dr. & 1,500 &
      To Cash / Bank A/c & & 4,000
   

   tabular

3. (c) 50% withdrawn.
   tabularlrr

   & Dr. & Cr.
   

   Verma's Capital A/c    Dr. & 1,250 &
   Sharma's Capital A/c    Dr. & 750 &
      To Cash / Bank A/c & & 2,000
   

   tabular

4. (d) Paid privately. If the new partner pays the old partners directly (outside the firm), no entry is passed in the firm's books for the goodwill premium. Only the capital entry is made:
   tabularlrr

   & Dr. & Cr.
   

   Cash / Bank A/c    Dr. & 20,000 &
      To Ghosh's Capital A/c & & 20,000
   

   tabular

Goodwill credited to Verma Rs. 2,500 and Sharma Rs. 1,500 in sacrificing ratio (= old PSR 5:3). (a) Retained: cash stays with firm. (b) Fully withdrawn: Verma and Sharma withdraw their shares. (c) 50% withdrawn: half goes out. (d) Privately paid: no entry in firm's books.

Concept used. Premium method; full withdrawal of goodwill by old partners.

1. C's goodwill share = 20,000 × 14 = Rs. 5,000.
2. Sacrificing ratio. A = 35 - 24 = 12 - 1020 = 220; B = 25 - 14 = 8 - 520 = 320. Ratio A:B = 2:3.
3. Journal entries.

   tabularlrr

   Particulars & Dr. (Rs.) & Cr. (Rs.)
   

   Cash A/c & 35,000 &
   1emTo C's Capital A/c & & 30,000
   1emTo Premium for Goodwill A/c & & 5,000
   

   Premium for Goodwill A/c & 5,000 &
   1emTo A's Capital (2/5) & & 2,000
   1emTo B's Capital (3/5) & & 3,000
   

   A's Capital A/c & 2,000 &
   B's Capital A/c & 3,000 &
   1emTo Cash A/c & & 5,000
   

   tabular

C's goodwill Rs. 5,000 credited to A (Rs. 2,000) and B (Rs. 3,000) in sacrificing ratio 2:3; fully withdrawn in cash.

Concept used. Existing goodwill written off in old PSR first.

1. Write off existing goodwill Rs. 5,000 in 3:2.

   tabularlrr

   Particulars & Dr. (Rs.) & Cr. (Rs.)
   

   Arti's Capital A/c & 3,000 &
   Bharti's Capital A/c & 2,000 &
   1emTo Goodwill A/c & & 5,000
   

   tabular

2. Sacrificing ratio. Arti = 35 - 24 = 220; Bharti = 25 - 14 = 320. Ratio 2:3.
3. Sarthi's contribution.

   tabularlrr

   Cash A/c & 60,000 &
   1emTo Sarthi's Capital & & 50,000
   1emTo Premium for Goodwill A/c & & 10,000
   

   Premium for Goodwill A/c & 10,000 &
   1emTo Arti's Capital (2/5) & & 4,000
   1emTo Bharti's Capital (3/5) & & 6,000
   

   tabular

Existing goodwill Rs. 5,000 written off in old PSR 3:2; new goodwill Rs. 10,000 split 2:3.

Concept used. Write off existing goodwill in old PSR; then premium method.

1. Write off Rs. 40,000 in 4:3: X Rs. 40,000 × 47 ≈ Rs. 22,857; Y Rs. 40,000 × 37 ≈ Rs. 17,143.
2. Sacrificing ratio. With Z's 1/8 acquired equally (default), each gives 1/16. X = 47 - (47 - 116) = 116; Y similar = 116. SR = 1:1.
3. Sarthi's, sorry, Z's, contribution. Cash A/c Dr. Rs. 27,000; To Z's Capital Rs. 20,000; To Premium for Goodwill Rs. 7,000. Premium for Goodwill Rs. 7,000 split 1:1 ⇒ X Rs. 3,500; Y Rs. 3,500.

Existing goodwill Rs. 40,000 written off in 4:3; new Rs. 7,000 split 1:1.

Concept used. Partial cash ⇒ Rs. 10,000 via premium; balance Rs. 5,000 via debit to Christopher's Capital.

1. Sacrificing ratio (as in Q19): A:B = 2:3.
2. Journal.

   tabularlrr

   Particulars & Dr. (Rs.) & Cr. (Rs.)
   

   Cash A/c & 60,000 &
   1emTo Christopher's Capital & & 50,000
   1emTo Premium for Goodwill A/c & & 10,000
   

   Premium for Goodwill A/c & 10,000 &
   Christopher's Capital A/c & 5,000 &
   1emTo Aditya's Capital (2/5) & & 6,000
   1emTo Balan's Capital (3/5) & & 9,000
   

   tabular

Rs. 10,000 via premium + Rs. 5,000 debit to Christopher.

Concept used. Kanwar's share = 80,000 × 14 = Rs. 20,000, debited to his Capital A/c.

1. Sacrificing ratio. Amar = 34 - (34 × 34) = 34 × 14 = 316; Samar = 14 × 14 = 116. Ratio 3:1.
2. Journal.

   tabularlrr

   Particulars & Dr. (Rs.) & Cr. (Rs.)
   

   Kanwar's Capital A/c & 20,000 &
   1emTo Amar's Capital (3/4) & & 15,000
   1emTo Samar's Capital (1/4) & & 5,000
   

   tabular

Kanwar's Capital Dr. Rs. 20,000; Amar Cr. Rs. 15,000; Samar Cr. Rs. 5,000.

Concept used. Compute new goodwill; write off existing goodwill in old PSR; debit Ram Lal's Capital with his share.

1. New goodwill. Avg = (50 + 60 + 90 + 70)/4 = 67,500. Goodwill = 67,500 × 3 = Rs. 2,02,500. Ram Lal's share = 2,02,500 × 14 = Rs. 50,625. Borne by Mohan and Sohan in 3:2.
2. Case (a) Existing = Rs. 2,02,500. Write off Rs. 2,02,500 in 3:2: Mohan Rs. 1,21,500; Sohan Rs. 81,000. Then debit Ram Lal Rs. 50,625; credit Mohan Rs. 30,375; Sohan Rs. 20,250.
3. Case (b) Existing = Rs. 2,500. Write off Rs. 2,500 in 3:2; rest as in (a).
4. Case (c) Existing = Rs. 2,05,000. Write off Rs. 2,05,000 in 3:2; rest as in (a).

New goodwill Rs. 2,02,500; Ram Lal's share Rs. 50,625; existing written off in 3:2.

Concept used. AS-26 prohibits raising goodwill. Hari's share debited; sacrifice via Capital A/c.

1. Sacrificing ratio. Rajesh = 12 - 49 = 9 - 818 = 118; Mukesh = 12 - 39 = 9 - 618 = 318. Ratio 1:3.
2. Hari's share of goodwill = 36,000 × 29 = Rs. 8,000.
3. Journal.

   tabularlrr

   Particulars & Dr. (Rs.) & Cr. (Rs.)
   

   Hari's Capital A/c & 8,000 &
   1emTo Rajesh's Capital (1/4) & & 2,000
   1emTo Mukesh's Capital (3/4) & & 6,000
   

   tabular

Hari's Capital Dr. Rs. 8,000; Rajesh Cr. Rs. 2,000; Mukesh Cr. Rs. 6,000.

Concept used. As Q25 with different figures.

1. Sacrificing ratio. Amar = 12 - 49 = 118; Akbar = 12 - 39 = 318. Ratio 1:3.
2. Journal. Anthony's Capital A/c Dr. Rs. 45,000; To Amar (1/4) Rs. 11,250; To Akbar (3/4) Rs. 33,750.

Anthony Dr. Rs. 45,000; Amar Cr. Rs. 11,250; Akbar Cr. Rs. 33,750.

Concept used. Full admission entries: capital, premium, revaluation, distribution of accumulated reserves (none here), new B/S.

1. Revaluation A/c. aligned Plant &= 1,20,000 - 1,00,000 = +20,000.
   Buildings &= 1,50,000 × 10% = +15,000.
   Stock loss &= -4,000.
   Provision on Debtors &= 60,000 × 5% = -3,000.
   Unrecorded Creditors &= -1,000. aligned Net = 35,000 - 8,000 = Rs. 27,000 gain. In 2:1: A Rs. 18,000; B Rs. 9,000.
2. Sacrificing ratio. Assume equal sacrifice ⇒ A:B = 2:1 (old PSR).
3. Goodwill distribution Rs. 60,000 in 2:1: A Rs. 40,000; B Rs. 20,000.
4. Closing capitals. aligned A &= 1,80,000 + 18,000 + 40,000 = Rs. 2,38,000.
   B &= 1,50,000 + 9,000 + 20,000 = Rs. 1,79,000.
   C &= Rs. 1,00,000. aligned
5. B/S after admission, total Rs. 5,88,000 (per NCERT).

Revaluation gain Rs. 27,000; B/S total Rs. 5,88,000.

Concept used. Accumulated profits distributed in OLD PSR to OLD partners only.

1. General Reserve Rs. 16,000 in 5:3: Leela Rs. 10,000; Meeta Rs. 6,000.
2. P&L (Cr.) Rs. 24,000 in 5:3: Leela Rs. 15,000; Meeta Rs. 9,000.
3. Journal.

   tabularlrr

   Particulars & Dr. (Rs.) & Cr. (Rs.)
   

   General Reserve A/c & 16,000 &
   Profit & Loss A/c & 24,000 &
   1emTo Leela's Capital A/c & & 25,000
   1emTo Meeta's Capital A/c & & 15,000
   

   tabular

Reserve and P&L Rs. 40,000 split 5:3: Leela Rs. 25,000; Meeta Rs. 15,000.

Concept used. Accumulated loss debited to OLD partners' Capital in OLD PSR.

1. Loss Rs. 40,000 in 3:1: Amit Rs. 30,000; Viney Rs. 10,000.
2. Journal.

   tabularlrr

   Particulars & Dr. (Rs.) & Cr. (Rs.)
   

   Amit's Capital A/c & 30,000 &
   Viney's Capital A/c & 10,000 &
   1emTo Profit & Loss A/c & & 40,000
   

   tabular

Loss Rs. 40,000 charged in 3:1 to Amit and Viney.

Concept used. Standard 6-pass admission.

1. Revaluation. aligned Stock &= -2,000; Fixtures = -100.
   Prov. on Debtors+B/R &= -950.
   Land & Bldg &= +5,000.
   Damages provision &= -1,000.
   Creditors write back &= +650. aligned Net = 5,650 - 4,050 = Rs. 1,600 gain (per NCERT). In 3:1: A Rs. 1,200; B Rs. 400.
2. Reserve Rs. 4,000 in 3:1: A Rs. 3,000; B Rs. 1,000.
3. Goodwill Rs. 5,000 in 3:1: A Rs. 3,750; B Rs. 1,250. Half withdrawn (Rs. 1,875 + Rs. 625 = Rs. 2,500).
4. Closing balances + B/S total Rs. 1,05,950 (per NCERT).

Revaluation gain Rs. 1,600; B/S total Rs. 1,05,950.

Concept used. Total firm capital = C's capital ÷ his share = 20,000 / (1/4) = Rs. 80,000.

1. New PSR. A:B's remaining 3/4 in 3:1: A = 9/16; B = 3/16; C = 4/16. Hence PSR 9:3:4.
2. New capitals. A = 80,000 × 916 = Rs. 45,000; B = 80,000 × 316 = Rs. 15,000; C = 80,000 × 416 = Rs. 20,000.
3. Adjustments. A withdraws 50,000 - 45,000 = Rs. 5,000; B brings in 15,000 - 12,000 = Rs. 3,000.

New capitals: A Rs. 45,000; B Rs. 15,000; C Rs. 20,000. A withdraws Rs. 5,000; B brings in Rs. 3,000.

Concept used. Total firm capital given ⇒ allocate per new PSR.

1. New PSR. Pinky = 36 - 18 = 12 - 324 = 924; Qumar = 26 - 116 = 16 - 348 = 1348; Roopa = 16 - 116 = 8 - 348 = 548. Common denominator 48: 1848:1348:548:1248 ⇒ 18:13:5:12.
2. Total new capital Rs. 2,40,000. Seema = 2,40,000 × 1248 = Rs. 60,000 (= 1/4 of Rs. 2,40,000 ). Pinky = 2,40,000 × 1848 = Rs. 90,000; Qumar = 2,40,000 × 1348 = Rs. 65,000; Roopa = 2,40,000 × 548 = Rs. 25,000.
3. Adjustments. Pinky brings in Rs. 10,000; Qumar brings in Rs. 35,000; Roopa brings in Rs. 5,000.

Capitals: Pinky Rs. 90,000; Qumar Rs. 65,000; Roopa Rs. 25,000; Seema Rs. 60,000.

Concept used. Comprehensive 6-pass admission with proportionate capital adjustment.

1. Revaluation. aligned Furniture &= -420.
   Stock &= -1,400.
   Provision &= -630.
   Land & Bldg &= +7,000. aligned Net = 7,000 - 2,450 = Rs. 4,550 gain. In 6:5:3: Arun Rs. 1,950; Bablu Rs. 1,625; Chetan Rs. 975.
2. Goodwill Rs. 4,200 in 6:5:3: Arun Rs. 1,800; Bablu Rs. 1,500; Chetan Rs. 900.
3. Total capital = 7,000 / (1/8) = Rs. 56,000. Old partners' share 7/8 in 6:5:3: Arun = 56,000 × 78 × 614 = Rs. 21,000; Bablu Rs. 17,500; Chetan Rs. 10,500.
4. B/S total Rs. 68,000 (per NCERT).

Revaluation gain Rs. 4,550; B/S total Rs. 68,000.

Concept used. Capital adjustments via Current A/c (not cash).

1. Revaluation. Buildings +5,000; Machinery -2,000; Provision -480. Net +2,520. In 2:1: Azad Rs. 1,680; Babli Rs. 840.
2. Reserve Rs. 6,000 in 2:1: Azad Rs. 4,000; Babli Rs. 2,000.
3. Goodwill Rs. 12,000 in 2:1: Azad Rs. 8,000; Babli Rs. 4,000.
4. B/S total Rs. 1,44,520 (per NCERT).

Revaluation gain Rs. 2,520; B/S total Rs. 1,44,520.

Concept used. Vimal's capital derived from total firm capital after adjustments.

1. Revaluation gain. L&B +15,000 + Plant +10,000 = Rs. 25,000. In 3:2: Ashish Rs. 15,000; Dutta Rs. 10,000.
2. Adjusted capitals before Vimal. Ashish = 80,000 + 15,000 = Rs. 95,000; Dutta = 35,000 + 10,000 = Rs. 45,000. Combined 4/5 share = Rs. 1,40,000. ⇒ Total firm capital = 1,40,000 / (4/5) = Rs. 1,75,000. Vimal's capital = 1,75,000 × 15 = Rs. 35,000.
3. Goodwill Rs. 20,000 Vimal's share = 20,000/5 = Rs. 4,000; Ashish Cr. Rs. 2,400; Dutta Cr. Rs. 1,600.
4. B/S total Rs. 2,05,000 (per NCERT).

Revaluation gain Rs. 25,000; B/S total Rs. 2,05,000.