Theory with sums combined

1. Prepared by
Sowndaryashree A.S

2.  A person may join as a new partner in an
existing partnership firm.
 The purpose of admission of a new partner
may be to raise additional capital for
expansion of business or managerial skill of
the new partner or both.
 New partner has to contribute capital to the
firm.

3. 1. Distribution of accumulated profits, reserves
and losses
2. Revaluation of assets and liabilities
3. Determination of new profit-sharing ratio
and sacrificing ratio
4. Adjustment for goodwill
5. Adjustment of capital on the basis of new
profit sharing ratio (if so agreed)

4.  (a) for transferring accumulated profits and
reserves:
Date Particulars L.F Dr. (Rs) Cr. (Rs)
P&L appropriation a/c dr. xxx
General reserve a/c dr. xxx
Reserve fund a/c dr. xxx
Work man compenstaion fund a/c dr. xxx
Investment fluctuation a/c dr. xxx
To old partners capital / current a/c xxx

5. (B) For transferring accumulated loss
Date Particulars L.F Dr. (Rs) Cr. (Rs)
Old partners capital/ current a/c dr. xxx
To profit and loss a/c xxx

6. Mala and Vimala were partners sharing profits and losses in the ratio of 3:2. On
31.3.2017. Varshini was admitted as a partner. On the date of admission, the book
of the firm showed a reserve fund of 50,000. Pass the journal entry to distribute the
reserve fund.
Date Particulars L.F Dr. (Rs) Cr. (Rs)
31.3.2017 Reserve fund a/c dr. 50000
To Mala capital a/c
To Vimala capital a/c
30000
20000
W.N
Mala a/c = 50000*3/5 =30000
Vimala a/c = 50000*2/5 = 20000
Solution:

7. Example No.2
Kavitha and Radha are partners of a firm sharing profits and losses in the ratio of 4:3. They
admit Deepa on 1.1.2019. On that date, their balance sheet showed debit balance of profit and
loss account being accumulated loss of 70,000 on the asset side of the balance sheet. Give the
journal entry to transfer the accumulated loss on admission.
Solution:
Date Particulars L.F Dr. (Rs) Cr. (Rs)
1.1.2019
Kavitha capital a/c dr.
Radha capital a/c dr.
40000
30000
To profit and loss a/c
(Being accumulated losses are shared
in old profit sharing ratio to partners) 70000
W.N:
Kavitha = 70000*4/7= 40000
Radha = 70000*3/7 = 30000
Journal entry:

8. Example No.3
Liabilities Amount Amount Assets Amount
capital account Building 30000
Rathna Kumar 30000 Plant 60000
Arockia Das 50000 80000Furniture 20000
P&L appropriation a/c 20000Debtors 10000
work man compensation
fund 15000Stock 15000
Creditors 30000Cash at bank 15000
General reserve 5000
150000 150000
Rathna Kumar and Arockia Das are partners in a firm sharing profits and
losses in the ratio of 3:2. Their balance sheet as on 31st March, 2017 is as
follows:
David was admitted into the partnership on 1.4.2017. Pass journal entry to
distribute the accumulated profits and reserve on admission.

9. Solution :
Date Particulars L.F Dr. (Rs) Cr. (Rs)
April 1
2017 P&L appropriation a/c dr. 20000
General reserve a/c dr. 5000
Work man compensation fund a/c dr. 15000
To Rathna Kumar capital a/c(40000*3/5) 24000
To Arokiya Das capital a/c(40000*2/5) 16000
(Being accumulated loss and other
reserves shared to partners in old ratio)
Journal entry :

10. The reasons for revaluation of assets and liabilities are as follows:
(i) To give a true and fair view of the state of affairs of the firm and
(ii) To share the gain arising from the revaluation of assets and liabilities as it
is due to the old partners.
There are two ways in which the revaluation of assets and liabilities may be
dealt with in the accounts.
(a) Revised value of assets and liabilities are shown in the books
(b) Revised value of assets and liabilities are not shown in the books

11. (A) When revised value of assets and liabilities are shown in the book of
accounts:
 Balance sheet which is prepared immediately after the admission of a
partner.
 It is a nominal account in nature.
 Revaluation account is opened to record the increase or decrease in
assets and liabilities.
 Revaluation account is also called Profit and loss adjustment account.
Format:
Particulars Amount Particulars Amount
To Decrease in asset xx By Increase in asset xx
To Increase in liability xx By Decrease in liability xx
To profit on revaluation a/c xx By loss on revaluation a/c xx

12. Rajesh and Ramesh are partners sharing profits in the ratio 3:2. Raman is admitted
as a new partner and the new profit sharing ratio is decided as 5:3:2. The following
revaluations are made. Prepare revaluation account.
(a) The value of building is increased by Rs.15,000.
(b) The value of the machinery is decreased by Rs. 4,000.
(c) Provision for doubtful debt is made for Rs.1,000.
Example No.4
Solution:
Revaluation a/c:
Particulars Amount Amount Particulars Amount
To Machinery a/c 4000 By Building a/c 15000
To P.B.D a/c 1000
To profit on revaluation
a/c
Rajesh capital a/c 6000
Ramesh capital a/c 4000 10000
15000 15000

13. Sriram and Raj are partners sharing profits and losses in the ratio of 2:1. Nelson
joins as a partner on 1st April 2017. The following adjustments are to be made:
(i) Increase the value of stock by Rs.5,000
(ii) Bring into record investment of Rs.7,000 which had not been recorded in the
books of the firm.
(iii) Reduce the value of office equipment by Rs.10,000
(iv) A provision would also be made for outstanding wages for Rs. 9,500.
Prepare revaluation account.
Example No.5
Particulars Amount Particulars Amount
To Office equipment a/c 10000 By Stock a/c 5000
To Outstanding wages a/c 9500 By investment a/c 7000
By Loss on revaluation a/c
Sriram capital a/c 5000
Raj capital a/c 2500 7500
19500 19500

14. Example No.6
Raghu and Sam are partners in a firm sharing profits and losses in the ratio of 3:2. Their
balance sheet as on 31st March, 2017 is as follows:
Liabilities Amount Amount Assets Amount Amount
Capital Machinery 30000
Raghu 40000 Furniture 10000
Sam 30000 70000Stock 10000
Creditors 30000Debtors 21000
Les: PBD 1000 20000
Bank 30000
100000 100000
Prakash is admitted on 1.4.2017 subject to the following conditions:
(a) He has to bring a capital of 10,000
(b) Machinery is valued at 24,000
(c) Furniture to be depreciated by 3,000
(d) Provision for doubtful debts should be increased to 3,000
(e) Unrecorded trade receivables of 1,000 would be brought into books now.
prepare revaluation account and capital account of partners after admission.

15. Particulars Amount Particulars Amount Amount
To Machinery 6000 By Trade receivables A/c 1000
To Furniture 3000 By Loss on revaluation transferred to
To P.B.D 2000 Raghu’s capital A/c (3/5) 6000
Sam’s capital A/c (2/5) 4000 10000
11000 11000
Solution
Revaluation a/c:
Partners capital a/c:
Particulars Raghu Sam Prakash Particulars Raghu Sam Prakash
To loss on revaluation
a/c 6000 4000
By balance
b/d 40000 30000
To balance c/d (Bf) 34000 26000 10000 By bank a/c 10000
40000 30000 10000 40000 30000 10000
By balance
b/d 34000 26000 10000

16. New profit sharing ratio:
It is necessary to determine the new profit sharing ratio at the time of admission
of a partner because the new partner is entitled to share the future profits of
the firm. New profit sharing
ratio is the agreed proportion in which future profit will be distributed to all the
partners including the new partner. If the new profit sharing ratio is not agreed,
the partners will share
the profits and losses equally.
Case 3
Profit sharing ratio:

17. Sacrificing ratio:
The old partners may sacrifice a portion of the share of profit to the new
partner. The sacrifice may be made by all the partners or some of the partners.
Sacrificing ratio is the proportion of
the profit which is sacrificed or foregone by the old partners in favor of the new
partner. The purpose of finding the sacrificing ratio is to share the goodwill
brought in by the new partner.
Sacrificing ratio = Old ratio – New ratio

18. Anbu and Raju are partners, sharing profits in the ratio of 3:2. Akshai is
admitted as a partner. The new profit sharing ratio among Anbu, Raju and
Akshai is 5:3:2. Find out the sacrificing ratio.
Case 3
Method 1
Solution:
Old ratio of Anbu & Raju = 3/5 : 2/5
New ratio of Anbu, Raju & Akshai = 5/10 : 3/10 : 2/10
Sacrificing ratio = Old ratio – New ratio
Anbu share = 3/5 – 5/10 = 6-5/10 = 1/10
Raju share = 2/5 – 3/10 = 4-3/10 = 1/10
Sacrificing ratio = 1/10 : 1/10 that is 1:1

19. Case 3
Method 2
Hari and Saleem are partners sharing profits and losses in the ratio of 5:3. They
admit Joel for 1/8 share, which he acquires entirely from Hari. Find out the new
profit sharing ratio and sacrificing ratio.
Hari = 1/8
Saleem = 0
Sacrificing ratio = 1:0
Old ratio of Hari and Saleem is 5:3 that is 5/8 : 3/8
New share of old partner = Old share - Share sacrificed
Hari = 5/8 – 1/8 = 4/8
Saleem = 3/8 – 0 = 3/8
Joel = 1/8
New ratio = 4:3:1
Solution:
Computation of SR & NR:

20. Case 3
Method 3
Ravi and Kumar share profits and losses in the ratio of 7:3. Christy is admitted as a new
partner with 3/7 share which he acquires 2/7 from Ravi and 1/7 from Kumar. Calculate
the new profit sharing ratio and sacrificing ratio.
Solution:
Computation of SR & NR:
Ravi = 2/7
Kumar = 1/7
Sacrificing ratio = 2:1
Old ratio of Ravi and Kumar is 7:3 that is 7/10 : 3/10
New share of old partner = Old share - Share sacrificed
Ravi = 7/10 – 2/7 = 49-20/70 = 29/70
Kumar = 3/10 – 1/7 = 21-10/70 = 11/70
Christy = 3*10/7*10 = 30/70
New ratio = 29:11:30

21. Case 3
Method 4
Suresh and Dinesh are partners sharing profits in the ratio of 3:2. They admit Ramesh
as a new partner. Suresh surrenders 1/5 of his share in favour of Ramesh. Dinesh
surrenders 2/5 of his share in favour of Ramesh. Calculate the new profit sharing ratio
and sacrificing ratio.
Solution:
Computation of SR & NR:
Share sacrificed = Old share * proportion of share sacrificed
Suresh = 3/5 * 1/5 = 3/25
Dinesh = 2/5 * 2/5 = 4/25
S.R = 3:4
New ratio = old share – sacrificing share
Suresh = 3/5 – 3/25 = 15-3/25 = 12/25
Dinesh = 2/5 – 4/25 = 10-4/25 = 6/25
Ramesh = 3/25 + 4/25 = 7/25
New ratio = 12:6:7

22. Case 3
Method 5
Ramesh and Raju are partners sharing profits in the ratio of 2:1. They admit Ranjan into
partnership with 1/4 share of profit. Ranjan acquired the share from old partners in the ratio
of 3:2. Calculate the new profit sharing ratio and sacrificing ratio.
Solution:
Computation of SR & NR:
Ranjan share = ¼
Old ratio = 2/3: 1/3 (2:1)
Proportion of share sacrificed = 3/5 : 2/5
Share sacrificed = New partners share * proportion of share sacrificed
Ramesh = 1/4* 3/5 = 3/20
Raju = 1/4 * 2/5 = 2/20
S.R = 3:4
New ratio = old share – sacrificing share
Ramesh = 2/3 – 3/20 = 40-9/60 = 31/60
Dinesh = 1/3 – 2/20 = 20-6/60 = 14/60
Ramesh =1/4 * 15/15 = 15/60
New ratio = 31:14:15

23. Case 3
Method 6
Mahesh and Dhanush are partners sharing profits and losses in the ratio of 2:1. Arun is
admitted for 1/4 share which he acquired equally from both Mahesh and Dhanush.
Calculate the new profit sharing ratio and sacrificing ratio.
Solution:
Computation of SR & NR:
Arun share = ¼
Old ratio = 2/3: 1/3 (2:1)
Proportion of share sacrificed = 1/2 : 1/2
Share sacrificed = New partners share * proportion of share sacrificed
Mahesh = 1/2* 1/4 =1/8
Dhanush = 1/2* 1/4 =1/8
S.R = 1:1
New ratio = old share – sacrificing share
Mahesh = 2/3 – 1/8 = 16-3/24 = 13/24
Dhanush = 1/3 – 1/8 = 8-3/24 = 5/24
Arun =1/4 *6/6 = 6/24
New ratio = 13:5:6

24. Case 3
Method 7
Vimal and Athi are partners sharing profits in the ratio of 2:1. Jeyam is admitted for
1/4 share in the profits. Calculate the new profit sharing ratio.
Solution:
Computation of SR & NR:
Let us assume
Total share = 1
Remaining share = total share – Jeyam share of profit
Remaining share = 1-1/4 = ¾
Computation of New profit sharing ratio:
New share = Remaining share * old share
Vimal =3/4x 2/3 = 6/12
Athi = 3/4x 1/3 = 3/12
Jeyam = 1/4 x 3/3 = 3/12
New profit sharing ratio = 6:3:3 (or) 2:1:1

25. 1. When new partner brings cash towards goodwill
2. When the new partner does not bring goodwill in cash or in kind
3. When the new partner brings only a part of the goodwill in cash or in kind
4. Existing goodwill

26. 1. When new partner brings cash towards goodwill:
(A) For the goodwill brought in cash credited to old partners’ capital account
Date Particulars L.F Dr. (Rs) Cr. (Rs)
Cash / bank a/c dr. xxx
To old partners capital /current a/c xxx
(B)For the goodwill brought in kind (in the form of assets) credited to old partners’
capital account:
Date Particulars L.F Dr. (Rs) Cr. (Rs)
Respective asset dr. xxx
To old partners capital /current a/c xxx
(C) For withdrawal of cash received for goodwill by the old partners
Date Particulars L.F Dr. (Rs) Cr. (Rs)
Old partners capital a/c dr. xxx
To cash / bank a/c xxx

27. 2. When the new partner does not bring goodwill in cash or in kind:
Date Particulars L.F Dr. (Rs) Cr. (Rs)
New partners capital a/c dr. xxx
To old partners capital /current a/c xxx

28. 3. When the new partner brings only a part of the goodwill in cash or in kind
Date Particulars L.F Dr. (Rs) Cr. (Rs)
Cash / bank a/c dr.
New partners capital a/c dr.
xxx
xxx
To old partners capital /current a/c xxx

29. 4. Existing goodwill:
Date Particulars L.F Dr. (Rs) Cr. (Rs)
old partners capital /current a/c dr. xxx
To goodwill a/c xxx

30. What are the accounts to be opened:
 Revaluation a/c
 Partners capital a/c
 Balance sheet or position statement

31. THE END