ADMISSION OF A PARTNER

1. State the reason of contributing for goodwill by a new partner at the time of his admission.
2. If a new partner has to bring proportionate capital which is not given, how can it be determined?
3. X and Y are partners sharing profits in the ratio of 3:2 in a firm, which provides technical services to industrial
enterprises. They admitted Z in the firm for 1/5th share in the profits. Z, an MBA, would help them to expand
their businesses. Z is given a guarantee that his share of profit in any year will not be less than Rs 5,00,000.
Deficiency, if any, will be borne by X and Y equally. Loss for the year ended on 31 st March, 2017, was
Rs 25,00,000.
Pass necessary Journal entries in the books of the firm.
4. X and Y are partners in a firm sharing profits in the ratio of 3:2. They admitted Z as a new partner and agreed
to new profit sharing-ratio as 3:3:2. At the time of admission of Z, Investments appeared at Rs 40,000. Half of
the investments to be taken by X and Y in their profit sharing-ratio at book value. Remaining investments to
be valued at 30,000. Pass necessary journal entries.
5. Karim and Rehman are partners in a firm sharing profits in the ratio of 2:3 respectively. They admitted Naval,
an old employee as a partner for ½ share in the profits. Naval will bring Rs 5,00,000 for his capital and the
capitals of Karim and Rehman will be adjusted in the profit-sharing ratio. For this Current Accounts will be
opened. The balance sheet of the firm as at 31st March, 2017 before Naval’s admission was as follows:
BALANCE SHEET OF KARIM AND REHMAN as at 31st March, 2017

Liabilities Rs. Assets Rs.

Creditors 1,20,000 Cash in Hand 40,000
Bills Payable 1,60,000 Sundry Debtors 2,05,000
General Reserve 80,000 Less: Provision for Doubtful Debts 5,000 2,00,000
Workmen Compensation Reserve 40,000 Furniture 2,00,000
Capital A/cs: Machinery 3,10,000
Karim 3,75,000 Building 1,10,000
Rehman 1,25,000 5,00,000 Profit and Loss A/c 40,000
9,00,000 9,00,000

The other terms of the agreement were as follows:

(i) Naval will bring Rs 1,75,000 for his share of goodwill.
(ii) Building will be revalued at Rs 3,90,000 and machinery be depreciated by Rs 70,000.
(iii) Outstanding rent amounted to Rs.4000.
(iv) All debtors are good.
(v) There is a claim against the firm for damages, liabilities to the extent of Rs 5000 is to be created.
Prepare Revaluation Account, Partners capital accounts, Partners current accounts and the balance
sheet of the new firm. Identify the value being highlighted in this case.
6. Give the journal entry to distribute ‘Investment Fluctuation Reserve’ of Rs 40,000 at the time of admission of
Sachin, when Investment (market value Rs 1,90,000) appears at Rs 2,00,000 in the books of the firm. The
firm has two partners Sunil and Dalip.
7. Mohan and Mahesh were partners in a firm sharing profits in the ratio of 3:2. On 1 st April, 2017 they
admitted Nusrat as a partner in the firm. The balance sheet of Mohan and Mahesh on that date was as
under:
BALANCE SHEET OF MOHAN AND MAHESH as at 1st April, 2017

Liabilities Rs. Assets Rs.

Creditors 2,10,000 Cash at Bank 1,40,000
Workmen Compensation Reserve 2,50,000 Debtors 1,60,000
General Reserve 1,60,000 Stock 1,20,000
Capital A/cs: Machinery 1,00,000
Mohan 1,00,000 Building 2,80,000
Mahesh 80,000 1,80,000
8,00,000 8,00,000
It was agreed that:

(i) The value of Building and Stock be appreciated to Rs 3,80,000 and Rs 1,60,000 respectively.
(ii) The liabilities of Workmen Compensation were determined at Rs 2,30,000.
(iii) Nusrat brought in her share of goodwill Rs 1,00,000 in cash.
(iv) Nusrat was to bring further cash as would make her capital equal to 20% of the combined capital of
Mohan and Mahesh after above revaluation and adjustments are carried out.
(v) The future profit-sharing proportions will be Mohan 2/5th, Mahesh 2/5th and Nusrat 1/5th.
Pass necessary journal entries for the above arrangements and give Balance sheet of the new firm.
Also, show clearly the calculation of capital brought by Nusrat.
8. A and B are partners sharing profits in the ratio of 3:2. C is admitted as a new partner. A sacrificed 1/6 th of his
share and B sacrificed 1/8th from his share. Find new profit sharing-ratio and sacrificing ratio.
9. X and Y were partners in a firm sharing profits in the ratio of 2:1. Their balance sheet as at 31 st March, 2017
was as follows:
BALANCE SHEET OF X AND Y as at 31st March, 2017

Liabilities Rs Assets Rs
Sundry Creditors 5,90,000 Cash at Bank 3,32,500
Z's loan 1,50,000 Debtors 1,50,000
Capital A/cs: Less: Provision for Doubtful Debts 2,500 1,47,500
X 2,70,000 Stock 3,20,000
Y 1,80,000 4,50,000 Land and Building 3,00,000
Profit and Loss Account 90,000
11,90,000 11,90,000
Z was admitted to the partnership with effect from 1st April,2017 on the following terms:

(i) Z will get 1/4th share in the profits of the firm.

(ii) Z’s loan will be converted into his capital.
(iii) The goodwill of the firm was valued at Rs 2,40,000 and Z brought his share of goodwill premium by
cheque, half of which was withdrawn by X and Y.
(iv) There is likely to be a claim against the firm for damages, a provision of Rs 15,000 was to be made for
the same.
(v) A bill for Rs 13000 for electric charges has been omitted, now it is to be provided for.
(vi) A provision for 5% on Debtors was to be created for doubtful debts.
(vii) Included in Sundry creditors was an item of Rs 12,000 which was not to be paid and, therefore, had to be
written back.
After making the above adjustments, the capital accounts of X and Y were to be adjusted on the basis of
Z’s capital. Shortfall was to be brought in and excess was to be paid.
Prepare Revaluation account, Capital accounts of the partners and the Balance Sheet of the new firm.
10. What is the maximum limit of partners in a partnership firm? Name the Act under which it is provided.
11. Abhay and Beena are partners in a firm sharing profits in the ratio of 3:2. Their firm is manufacturing
handicrafts and khadi items.
They decided to admit Reema into the partnership for 1/6th share of the future profits. Goodwill, valued at 4
times the average super profit of the firm, was Rs 18000. The firm had Assets worth Rs 15,00,000 and
Liabilities Rs 12,00,000. The normal rate of return of such firms is 10% p.a. Find the Average Profit earned by
the firm during the last 4 years. Also identify the value being highlighted in this case.
12. A and B are partners in a firm sharing profits and losses in the ratio of 3:2. They admit C as a partner with
effect from 1st April, 2017 for 1/5th share. C acquires his share from A and B in the ratio of 2:3. Goodwill of
the firm is valued at 5 years purchase of Super profits based on Average profits of last 3 years. Average profit
and Normal profits are Rs 3,50,000 and Rs 2,00,000 respectively. Goodwill already appears in the books at Rs
 50,000. C brings in only 60% of his share of firms goodwill and Rs 10,00,000 as his capital by bank draft. 50%
of the goodwill is withdrawn by the partners.
Pass the necessary Journal entries.
13. Give the journal entry to distribute ‘General Reserve’ of Rs 20,000 at the time of admission of Z when 25% of
General Reserve is transferred to Workmen Compensation Reserve. The firm has two partners X and Y.
14. Raghu and Rishu are partners sharing profits and losses in the ratio 3:2. Their balance sheet as at 31st March,
2017 was as follows:

BALANCE SHEET OF RAGHU AND RISHU as at 31st March, 2017

Liabilities Rs Assets Rs
Creditors 86,000 Cash in Hand 2,000
Employees Provident Fund 10,000 Cash at Bank 75,000
Investment Fluctuation Reserve 4,000 Debtors 42,000
Capital A/cs: Less: Provision for Doubtful Debts 7,000 35,000
Raghu 1,19,000 Investments 21,000
Rishu 1,12,000 231,000 Building 98,000
Plant and Machinery 100,000
3,31,000 3,31,000

Rishabh was admitted on that date for 1/4th share of profit on the following terms:
(i) Rishabh will bring Rs 50,000 as his share of capital.
(ii) Goodwill of the firm is valued at Rs 42000 and Rishabh will bring his share of Goodwill in cash.
(iii) Building was appreciated by 20%.
(iv) All Debtors were good.
(v) There was a liability of Rs 10,800 included in creditors which has ceased to exist.
(vi) Expenses on revaluation amount to Rs 7,400 and are paid by Raghu.
(vii) New profit-sharing ratio will be 2:1:1.
(viii) Capital of Raghu and Rishu will be adjusted on the basis of Rishabh share of capital and any excess or
deficiency will be made by withdrawing or bringing in cash by the partners as the case may be.
(ix) It was decided by the partners that 10% of profit will be spent on cleanliness of the locality where it
runs its business.
Prepare Revaluation Account, Partners capital accounts and the balance sheet of the new firm.
Also identify the value being highlighted.
15. Name the accounts which are maintained for the partners when capitals of the partners are fixed.
16. State the need for treatment of goodwill on change in profit-sharing ratio.
17. A, B and C are partners sharing profits and losses in the ratio of 3:2:1. D is admitted as a new partner on 31 st
March, 2017 for 1/4th share and is to pay Rs 2,50,000 as capital. Following is the balance sheet on that date
of admission:

Liabilities Rs Assets Rs
Capital A/cs: Building 2,50,000
A 3,00,000 Machinery 2,00,000
B 3,00,000 Furniture 1,50,000
C 2,00,000 Stock 1,00,000
Creditors 1,50,000 Debtors 1,50,000
Bills Payable 50,000 Bills Receivable 1,00,000
Bank 50,000

10,00,000 10,00,000

Following are required adjustments on D’s admission:

 (i) Out of the creditors, a sum of Rs 50,000 is owing to D. This amount shall be adjusted as a part of his
capital.
(ii) Bills of Rs 80,000 were discounted with the bank, out of which, a bill of Rs 20,000 was dishonoured
on 31st March, 2017 but no entry has been passed for it. Due dates of the other discounted bills fall
in April, 2017.
(iii) Advertisement Expenditure of Rs 6000 is to be carried forward to the next accounting period.
(iv) Expenses debited in the P&L Account includes a sum of Rs 10,000 paid for B’s personal life insurance
policy.
(v) A provision for Doubtful Debts @5% is to be created against Debtors.
(vi) Expenses on revaluation amounting to Rs 10,100 are paid by A.
(vii) During 2016-17, part of the furniture was sold for Rs 25,000. The book value of the furniture sold
was Rs 40,000. The proceeds was wrongly credited to the Sales account.
(viii) The value of the goodwill is Rs 7,56,000 and D brings his share by cheque.
Prepare Revaluation account, Partners Capital accounts and the Balance Sheet after D’s admission.
18. State any two circumstances when there is a change in profit-sharing ratio.
19. A and B were partners in a firm sharing profits in the ratio of 4:1. On 1st April, 2017 they admitted C as a new
partner for 1/3rd share in the profits of the firm. Partners agreed to share future profits in the ratio of 4:2:3.
On the date of admission, Profit and Loss A/c showed a debit balance of Rs 32,000 and General reserve of Rs
1,00,000. C is to bring Rs 60,000 as premium for his share of goodwill. Pass necessary Journal entries.
20. E and F are partners in a firm sharing profits and losses in the ratio of 7:3. On 1 st April, 2016 they admitted G
as a new partner for 1/5th share in the profits with a guaranteed profit of Rs 60,000. The new profit-sharing
ratio between E and F will remain the same but they agreed to bear any deficiency on account of guarantee
to G in the ratio of 3:7. The profits of the firm for the year ended 31st March, 2017 was Rs 2,70,000. Prepare
P & L Appropriation account of E, F and G for the year ended 31st March, 2017.
21. Ram and Mohan were partners in a firm sharing profits in the ratio of 3:2. They admitted Sohan as a new
partner for 1/3rd share in the profits. Sohan is to bring Rs 30,000 for goodwill and such an amount as his
capital, so that his capital will be equal to 1/3rd of the total capital of the new firm. On 31st March, 2017 the
Balance sheet of Ram and Mohan was as follows:

Liabilities Rs Assets Rs
Creditors 30,000 Cash 100,000
Bills Payable 10,000 Debtors 30,000
Workmen Compensation Reserve 10,000 Stock 50,000
General Reserve 30,000 10% Government Bonds 20,000
Capital A/cs: Furniture 10,000
Ram 1,35,000 Machinery 1,20,000
Mohan 1,25,000 2,60,000 Goodwill 10,000
3,40,000 3,40,000

It was decided that:

(a) Stock is found overvalued by Rs 5000.
(b) Depreciate furniture by 10% and machinery by 5%.
(c) Make provision of Rs 3000 on debtors for doubtful debts.
(d) A debtor whose dues of Rs 5000 were written off as bad debts last year, paid Rs 4000 in full.
(e) Revaluation Expenses amounting to Rs 4000 are paid by firm.
Prepare Revaluation account, Partners Capital accounts and Balance sheet of the new firm.
22. X and Y are partners in a firm. They admit Z as a new partner with 1/4th share in the profits of the firm. Z
brings Rs 2,00,000 as his share of capital. The value of the total assets of the firm is Rs 5,40,000 and outside
liabilities are valued at Rs 1,00,000 on that date. Calculate Z’s share of goodwill.
 23. Arpit and Harshit are partners in a firm sharing profits and losses equally. In order to financially support their
old classmate Shyam, they admit him as a partner with 1/4th share in the profits of the firm. Shyam brings Rs
4,00,000 as his share of capital. The value of the total assets of the firm is Rs 10,80,000 and outside liabilities
are valued at Rs 2,00,000 on that date. Give necessary journal entries to record goodwill at the time of
Shyam’s admission. Identify the values highlighted in this case.
24. A and B are partners sharing profits and losses in the ratio of 3:2. They admit C, a new partner who acquires
1/5th of his share from A and 4/25th share from B. Calculate the New profit-sharing ratio.
25. X and Y are partners in a firm sharing profits and losses in the ratio of 5:3. On 31st March, 2017 they admitted
Z (a physically challenged person) as a new partner for 1/5th share in the profits, when the Balance sheet of
the firm was as follows:

Liabilities Rs Assets Rs
Creditors 200,000 Land and Building 1,500,000
Workmen Compensation Reserve 400,000 Plant and Machinery 400,000
Capital A/cs: Furniture 50,000
X 1,500,000 Stock 200,000
Y 900,000 Debtors 470000
Less: Provision for Doubtful Debts 12000 458,000
Bills Receivable 70,000
Bank 42,000
Profit and Loss A/c 200,000
Advertisement Expenditure 80,000
3,000,000 3,000,000

On Z’s admission, it was agreed that:

(i) Z will bring Rs 4,00,000 as his capital and Rs 1,60,000 for his share of goodwill premium, half of
which was withdrawn by X and Y.
(ii) Provision for doubtful debts was to be reduced by Rs 250.
(iii) Included in the sundry creditors is Rs 35,000 which was not to be paid and hence to be adjusted and
Rs 10,000 paid to the creditors which is not recorded in the books.
(iv) A provision was to be made for an outstanding bill of electricity Rs 30,000.
(v) A claim of Rs 3250 for damages against the firm was likely to be admitted. Provision for the same
was to be made.
After the above adjustments, the capitals of old partners are to be adjusted on the basis of new
partner’s capital. Actual cash was to be brought in or to be paid off as the case may be.
Prepare Revaluation account, Capital accounts of the partners and the Balance sheet of the new
firm. Also identify the value being highlighted in this case.
26. A, B and C share profits and losses in the ratio of 3:2:1. D is admitted with 1/6th share which he gets from A.
Calculate New profit-sharing ratio.
27. X and Y are partners in a firm sharing profits in the ratio of 3:2. They admitted Z as a new partner for 1/5 th
share in future profits. At the time of admission of Z, investments appeared at Rs 1,00,000 in the balance
sheet. Half of the investments to be taken over by X and Y in their profit-sharing ratio at book value.
Remaining investments were valued at Rs 62,500. One month after Z’s admission, X and Y decided to allow a
salary of Rs 50,000 p.a. to Z for the extra efforts and time devoted by him to the business.
Pass necessary Journal entries. State the value that is being reflected in the above case.
28. A and B are partners in a firm sharing profits in the ratio of 2:1. They admitted C for 1/4th share in profits. C
was to bring Rs 30,000 as his capital and capitals of A and B were to be adjusted in the profit sharing-ratio on
the basis of C’s capital. The balance sheet of A and B as at 31 st March, 2017 (before C’s admission) was:
Liabilities Rs Assets Rs
Sundry Creditors 20,000 Cash 2,000
Bills Payable 19,000 Sundry Debtors 50,000
General Reserve 6,000 Stock 10,000
Workmen Compensation Reserve 10,000 Machinery 25,000
Capital A/cs: Building 40,000
A 50,000 Goodwill 10,000
B 32,000 82,000
137,000 137,000

Other terms of the agreement were:

(i) C will bring Rs 12000 for his share of goodwill.
(ii) Building was valued at Rs 45000 and Machinery at Rs 23000.
(iii) A provision of Doubtful debts was created @6% on Sundry debtors.
(iv) ‘X’ and old customer whose account was written off as bad promised in writing to pay Rs 3500 in
settlement of his full debt of Rs 5000.
(v) Revaluation expenses paid by the firm were Rs 3500.
(vi) Capital Accounts of A and B were adjusted by opening Current accounts.
Prepare Revaluation account, Partner’s capital accounts and the Balance sheet of A, B and C.
29. X and Y are in partnership sharing profits and losses in the ratio of 3:1. They admit Z for 1/3rd share of the
profits. From the following Journal entries, calculate the New profit-sharing ratio:
JOURNAL

Date Particulars LF. Dr. (Rs) Cr.(Rs)

Bank A/c ….Dr. 22,500
To Premium for Goodwill A/c 22,500
(Being the amount brought in by Z towards goodwill)
Premium for Goodwill A/c ….Dr. 22,500
Z's Capital A/c ….Dr. 15,000
To X's Capital A/c 37,500
(Being the gained share of goodwill of new partner credited
to sacrificing partner)
Y's Capital A/c ….Dr. 9,375
To X's Capital A/c 9,375
(Being the adjustment made on account of change in
profit-sharing ratio)

30. A and B are partners in a firm sharing profits in the ratio 2:1. C is admitted into the firm on 1st April, 2017 for
1/4th share in profits. He will bring in Rs 30,000 as capital and capitals of A and B are to be adjusted in the
new profit sharing-ratio. The balance sheet of A and B as at 31st March, 2017 (before C’s admission) was as
under:

Liabilities Rs Assets Rs
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 A/cs: Stock 10,000
A 50,000 Furniture 5,000
B 32,000 82,000 Machinery 25,000
Building 40,000
100,000 100,000
 Other terms of agreement are as under:
(a) C will bring in Rs 12000 as his share of goodwill.
(b) Building be valued at Rs 45000 and Machinery at Rs 23000.
(c) A provision for doubtful debts is to be created @6% on Sundry Debtors.
(d) Sikha, an old customer, whose account was written off as bad debts, has promised to pay Rs 1750 in full
settlement of her dues.
(e) The capital accounts of A and B are to be adjusted by Opening Current accounts.
Prepare Revaluation account, Partner’s capital accounts and the Balance sheet of the new firm.
31. How is new firm’s total capital calculated on the basis of new partner’s capital?
32. X and Y are partners with capitals of Rs 2,60,000 and Rs 1,80,000 respectively. They admit Z as partner with
1/5th share in the profit of the firm. Z brings Rs 1,60,000 as his capital. Calculate Z’s share of goodwill.
33. Annu and Mannu are partners in a firm sharing profits in the ratio of 3:2. Their Balance sheet as on 31st
March, 2017 is as follows:

Liabilities Rs Assets Rs
Creditors 56,000 Cash at Bank 77,000
General Reserve 10,000 Debtors 42,000
Investment Fluctuation Reserve 4,000 Less: Provision for Doubtful Debts 7,000 35,000
Capital A/cs: Investments (Market Price Rs 19,000) 21,000
Annu 1,19,000 Building 98,000
Mannu 1,12,000 2,31,000 Machinery 70,000
3,01,000 3,01,000
st
On 1 April, 2017 they admit Sonu into partnership on the following terms:

(i) Sonu will bring Rs 56000 as his share of capital.

(ii) Goodwill of the firm is valued at Rs 84000 and Sonu will bring his share of goodwill in cash.
(iii) Machinery is appreciated by 20%.
(iv) All debtors are good.
(v) There is a liability of Rs 9800 included in Creditors, which is not likely to arise.
(vi) New profit-sharing ratio will be 2:1:1.
(vii) Capitals of Annu and Mannu will be adjusted on the basis of Sonu’s share of capital and any excess or
deficiency will be made good by withdrawing or bringing amount by the concerned partner as the case
may be.

Prepare Revaluation account, Partner’s capital accounts and the Balance sheet of the new firm.

34. X and Y are partners, sharing profits and losses in the ratio of 3/5 : 2/5. They admit Z, a differently abled
person into the firm on 1st April, 2017 when their Balance sheet was as follows:

Liabilities Rs Assets Rs
Creditors 45,000 Cash at Bank 15,000
General Reserve 36,000 Debtors 60,000
Capital A/cs: Less: Provision for Doubtful Debts 2,400 57,600
X 180,000 Patents 44,400
Y 90,000 2,70,000 Investments 24,000
Current A/cs: Fixed assets 2,16,000
X 30,000 Goodwill 30,000
Y 6,000 36,000
3,87,000 3,87,000
Z is admitted on the following terms:
(a) Provision for Doubtful debts is to be maintained at 5% on Debtors.
(b) Outstanding rent amounted to Rs 15000.
(c) An accrued income of Rs 4500 does not appear in the books of the firm. It is now to be recorded.
(d) X takes over the Investments at an agreed value of Rs 18000.
(e) New profit-sharing ratio of partners will be 4:3:2.
(f) Z will bring in Rs 60,000 as his capital by cheque.
(g) Z is to pay an amount equal to his share in firm’s goodwill valued at twice the average profit of the last three
years which were Rs 90,000; Rs 78,000; Rs 75,000 respectively.
(h) Half of the amount of goodwill is to be withdrawn by X and Y.

Give the necessary Journal entries, Partner’s capital and Current Accounts, and the Balance sheet of the new
firm. Identify the value being highlighted by admitting Z as a partner in the firm.