CBSE Test Paper 01

Ch-4 Admission of a Partner

1. Kamal and Rahul are partner’s in a firm sharing profits and losses in the ratio of 7:3.
They admit Kaushal as a partner for 1/5th share. Kaushal acquires his share from
Kamal and Rahul in the ratio of 3:2. The goodwill of the firm has been valued at
Rs.25000. Kaushal paid Rs.10000 privately to X and Y as his share of goodwill. What
should be the journal entry
a. No entry will be passed
b.
Rahul A/c Dr.
Kamal A/c Dr.
To Kaushal A/c
c.
Kamal A/c Dr.
Cash A/c Dr.
To Goodwill A/c
d.
Rahul A/c Dr.
LoanA/c Dr.
To Cash A/c
2. Being Chander brought rs 20000 for his share of goodwill. Which account should be
debited?
a. Goodwill A/c
b. Cash/Bank A/c
c. Profit and Loss A/c
d. Partner’s capital account
3. If goodwill already existing in the --------, it should be written off by debiting old
partners in their old profit sharing ratio
a. Trading account
b. Balance sheet
c. Trial Balance
d. Profit and loss account

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 4. In case of undistributed accumulated losses whose account should be debited
a. New partner’s A/c
b. Old partner’s Capital A/c
c. Gaining Partner’s A/c
d. Goodwill A/c
5. What treatment should be given to Employee’s Provident Fund appearing in the
liabilities side of the Balance Sheet in case of admission of a partner
a. Not to be distributed
b. Should be distributed in equal ratio
c. Should be distributed as a part of reserve
d. Both treatment can be done

6. A and B were partners in a firm sharing profits and losses in the ratio of 5 : 3. They
admitted C as a new partner. The new profit sharing ratio between A, B and C was 3: 2
: 3. A surrendered th of his share in favour of C. Calculate B’s sacrifice.

7. Accounting Standard-26 requires that goodwill is to be recorded in the books of

accounts only when money or money’s worth has been paid for it. How will you deal
with the issue, if the new partner is unable to bring in his share of goodwill ?

8. 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 Rs 40,000. Record necessary
journal entry for the treatment of the same.

9. (All partners sacrifice) : A and B partners sharing profits and losses in the ratio of 3:2.
They admit C into partnership for 1/4 share in profits. C’s brings Rs. 3,00,000 as capital
and Rs. 1,00,000 as goodwill. New profit sharing ratio of the partners shall be 3:3:2.
Pass necessary Journal entries.

10. At the time of admission of a new partner, new profit-sharing ratio is ascertained. The
new of incoming partner acquires the share from old partners and as a result profit
share of old partners is reduced. What is it known as and why is it important to
ascertain it?

11. A and B who shared profits in the proportion of 5 : 3 had capitals of Rs 70,000 and Rs

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 40,000 respectively. They agree to admit C into partnership for th share in future
profits. C brings Rs 30,000 as capital and is unable to bring Rs 1,600 as his share of
goodwill in cash. Give journal entries.

12. Asha and Aditi are partners in a firm sharing profits and losses in the ratio of 3 :
2They admit Raghav as a partner for th share in the profits of the firm Raghav
brings Rs.6,00,000 as his capital and his share of goodwill in cash. Goodwill of the firm
is to be valued at two year's purchase of average profits of the last four years.
The profits of the firm during the last four years are given below:

Year Profit (Rs.)

2013 - 14 3,50,000

2014 - 15 4,75,000

2015 - 16 6,70,000

2016 - 17 7,45,000

The following additional information is given.

i. To occur management cost an annual charge or Rs. 56,250 should be made for the
purpose of valuation of goodwill.
ii. The closing stock for the year ended 31st March 2017 was overvalued by Rs. 15,000
Pass necessary journal entries on Raghav's admission showing the working notes
clearly.

13. X and Y are partners in a firm sharing profits in the ratio of 4 : 3. On 1st April, 2012,
they admitted Z as a new partner. Z brought in Rs 1,00,000 for his capital and Rs
21,000 for 1/3 rd share of goodwill premium. On Z’s admission goodwill appeared in
the books of the firm at Rs 28,000. Record the necessary journal entries on Z's
admission

14. A, B and C were partners in a firm sharing profits in the ratio of 3:2:1. On 31st March,
2019 their balance sheet was as follows

Balance Sheet
as at 31st March, 2015

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 Liabilities Amit (Rs) Assets Amt (Rs)

Creditors 84,000 Bank 17,000

General Reserve 21,000 Debtors 23,000

Capital A/cs Stock 1,10,000

A 60,000 Investments 30,000

B 40,000 Furniture and Fittings 10,000

C 20,000 1,20,000 Machinery 35,000

2,25,000 2,25,000

On the above date, D was admitted as a new partner and it was decided that

i. The new profit sharing ratio between A, B, C and D will be 2: 2: 1: 1.

ii. Goodwill of the firm was valued at Rs 90,000 and D brought his share of goodwill
premium in cash.
iii. The market value of investments was Rs 24,000.
iv. Machinery will be reduced to Rs 29,000.
v. A creditor of Rs 3,000 was not likely to claim the amount and hence to be written-
off.
vi. D will bring proportionate capital so as to give him l/6th share in the profits of the
firm.
Prepare revaluation account, partners’ capital accounts and the balance sheet of
the reconstituted firm.

15. On 31st March, 2010 the balance sheet of W and R who shared profits in 3: 2 ratio was
as follows

Balance Sheet
as at 31st March, 2010

Amt Amt
Liabilities Assets
(Rs) (Rs)

Creditors 20,000 Cash '5,000

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 Profit and Loss
15,000 Sundry Debtors 20,000
A/c

(-) Provision for Doubtful

Capital A/cs (700) 19,300
Debts

W 40,000 Stock 25,000

R 30,000 70,000 Plant and Machinery 35,000

Patents 20,700

1,05,000 1,05,000

On this date, B was admitted as a partner on the following conditions

i. B will get 4/15th share of profits.

ii. B had to bring Rs 30,000 as his capital to which amount other partners’ capital
shall have to be adjusted.
iii. He would pay cash for his share of goodwill which would be based on 2.5 years’
purchase of average profits of past 4 years.
iv. The assets would be revalued as under Sundry debtors at book value less 5%
provision for bad debts, stock at ? 20,000, plant and machinery at Rs 40,000.
v. The profits of the firm for the year’s ending on 31st March, 2007, 2008 and 2009
were Rs 20,000, Rs 14,000 and Rs 17,000 respectively.
Prepare revaluation account, partners’ capital account and balance sheet of the
new firm.

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 CBSE Test Paper 01
Ch-4 Admission of a Partner

Answer

1. a. No entry will be passed, Explanation: No need to pass any journal entry when
a new partner pays his premium for goodwill amount privately to the
sacrificing partners, it will not be recorded in the books of accounts.

2. b. Cash/Bank A/c, Explanation: When a new partner is admitted and he brings his
share of goodwill (premium for goodwill) in cash, in such a case Cash or Bank
account should be debited and Premium for goodwill account should be
credited.

3. b. Balance sheet, Explanation: The goodwill already existing in the balance sheet
of the old firm should be written off and transferred to the old partners capital
account in the old ratio.

4. b. Old partner’s Capital A/c, Explanation: At the time of admission of a new

partner, all accumulated profits and losses should be distributed among the old
partners in their old profit sharing ratio. Accumulated losses given in the assets
side of the balance sheet should also be written off to he old partners in the old
ratio. Hence the old partners capital accounts are to be debited to write off the
accumulated losses in the balance sheet.

5. a. Not to be distributed, Explanation: Employee provident fund is not a free

reserve.It is not an accumulated profit. Partners cannot distribute it among
themselves. This is outsiders’ liability which has to be paid to the employees
after sometime. It will be shown in the new balance sheet of the firm (if not
paid).

6. B's Sacrifice = Old Share - New Share

=

we can say, rd of B's share

7. When the new partner is unable to bring premium of goodwill in cash. In such a
situation, New Partner’s Capital Account will be debited with his share of goodwill

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 and sacrificing Partners’ Capital Accounts will be credited with their respective
shares. In case of Fixed Capital Accounts, new partners Current Accounts will be
debited and sacrificing partners current a/c will be credited.

8.

Books of Amit, Viney and Ranjan Journal

Dr. Cr.
Date Particulars L.F.
Rs. Rs.

01.01.17 Amit’s Capital A/c Dr. 30,000

Viney’s Capital A/c Dr. 10,000

To Profit and Loss A/c 40,000

(Being debit balance of Profit and Loss Account

distributed between old partner in their old ratio,
i.e., 3 : 1)

9. Journal

Debit Credit
Date Particulars L.F.
(Rs.) (Rs.)

i Bank A/c Dr. 4,00,000

To Premium for Goodwill A/c 1,00,000

To C’s Capital A/c 3,00,000

(Being the amount of goodwill and capital brought

in by new partner.)

Premium for Goodwill A/c Dr. 1,00,000

To A’s Capital A/c 90,000

To B’s Capital A/c 10,000

(Being the goodwill distributed between A and B in

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 their sacrificing ratio i.e., 9 : 1, see W.N.1)

Working Note:-

Calculating sacrificing Ratio

Sacrificing Share = Old Share - New Share

A=

B=

10. When a new partner is admitted in the firm, he has to be given a share in the profit of
the firm. This part of the profit has to be compensated by the old partners. Hence
their part of share in profit gets reduced. The reduced part of the profit-sharing ratio
of the old partners is known as Sacrificing Ratio. It is important to ascertain the
sacrificing ratio because of the reason that the new partner will have a share in an
existing firm for which he compensates by paying goodwill to the sacrificing partner
or partners in the sacrificing ratio.

11. Books of A, B and C

Journal

Dr. Cr.
Date Particulars L.F.
(Rs) (Rs)

(i) Bank A/c Dr. 30,000

To C's Capital A/c 30,000

(Being cash brought in by C for his share of

capital.)

(ii) C's Capital A/c Dr. 1,600

To A's Capital A/c 1,000

To B's Capital A/c 600

(Being share of goodwill on C’s admission is

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 adjusted in sacrificing ratio, i.e., 5 : 3.)

12. JOURNAL Entries

Date Particulars LF Dr. Cr.

2017 Rs. Rs.

Apr
Cash A/c.......Dr. 8,50,000
01

To Raghav's Capital A/c 6,00,000

To Premium for Goodwill A/c 2,50,000

(Being Rahgav brought his capital and goodwill.)

Apr
Premium for Goodwill A/c.......Dr. 2,50,000
01

To Asha's Capital A/c 1,50,000

To Aditi's Capital A/c 1,00,000

(Being goodwill brought by new partner distributed

among the old partners in their sacrificing ratio.)

Working Note:
Calculation of Adjusted Profit

Year Profit Adjustments Adjusted Profit

2013 - 14 3,50,000 - 56,250 = 2,93,750

2014 - 15 4,75,000 - 56,250 = 4,18,750

2015 - 16 6,70,000 - 56,250 = 6,13,750

2016 - 17 7,45,000 - 56,250 - 15,000 = 6,73,750

Total 20,00,000

Average Adjusted profit = = Rs. 5,00,000

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 Goodwill = Average profit × Number of years' purchase
= 5,00,000 × 2 = Rs. 10,00,000
Raghav's share of goodwill = 10,00,000 × = Rs. 2,50,000 to be shared by Asha and
Aditi in 3 : 2 ratio.

13. Journal

Debit
Credit
Date Particulars L.F. Amount
Amount(Rs)
(Rs)

01/04/2012 X's Capital A/c Dr. 16,000

Y's Capital A/c Dr. 12,000

To Goodwill A/c 28,000

(Being the existing goodwill written

off prior to Z’s admission between X
and Y in their Profit Sharing Ratio,
which is 4:3)

01/04/2012 Bank A/c Dr. 1,21,000

1,00,000
To Z's Capital A/c

To premium of Goodwill A/c 21,000

(Being Z brought in cash for his

capital and his share of goodwill for
1/4th share in future profit)

01/04/2012 Premium of Goodwill A/c Dr. 21,000

To X's Capital A/c 12,000

To Y's Capital A/c 9,000

(Being the premium for goodwill

brought in by Z transferred to the
Capital Accounts of X and Y in their

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 sacrificing ratio, which is 4 : 3)

14. Working Notes:

i. total Goodwill = 90,000

D's share = 90,000 1/6 = 15,000
Calculation Of Gain Or Sacrifice
Sacrifice = Old Share - New Share
A's Sacrifice = 3/6 - 2/6 = 1/6
B's Sacrifice = 2/6 - 2/6 = 0
C's Sacrifice = 1/6 - 1/6 = 0
So Cash Brought By D for Goodwill Will Be Credited To A's Account only.
ii. Calculation of D's Capital
Adjusted Capital Of A = 81,000
Adjusted Capital Of B = 44,000
Adjusted Capital Of C = 22,000
Total Adjusted Capital = 1,47,000
Combined Share Of A, B, C = 1 - 1/6 = 5/6
So D's Share In Capital = 1,47,000 6/5 1/6 = 29,400

Revaluation Account

Particulars Amount Particulars Amount

To Investment 6,000 By Creditors a/c 3,000

To Machinery A/c 6,000 By Revaluation Loss T/F

A's Capital A/c 4,500

B's Capital A/c 3,000

C's Capital A/c 1,500 9,000

12,000 12,000

Partner's Capital A/c:-

Particulars A B C D Particulars A B C D

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 To Revaluation
4,500 3,000 1,500 By Bal b/d 60,000 40,000 20,000
(Loss)

By General
To Bal C/d 81,000 44,000 22,000 29,400 10,500 7,000 3,500
Reserve

By Premium for
15,000
Goodwill (WN1)

By Bank (WN 2) 29,400

85,500 47,000 23,500 29,400 85,500 47,000 23,500 29,400

Balance Sheet:-

Liabilities Amount Assets Amount

Creditors 81,000 Bank 61,400

Capital A/c Debtors 23,000

A 81,000 Stock 1,10,000

B 44,000 Investment 24,000

C 22,000 Furniture And Fittings 10,000

D 29,400 1,76,400 Machinery 29,000

2,57,400 2,57,400

15.

Dr Revaluation Account Cr

Particulars Amt(Rs) Particulars

To Provision for Bad Debts A/c 300 By Plant and Machinery A/c 5,000

To Stock A/c 5,000 By Loss Transferred to

W's Capital A/c (300×3/5) 180

R's Capital A/c (300×2/5) 120 300

5,300 5,300

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Dr Partners’ Capital Account Cr

W W
Particulars R (Rs) B (Rs) Particulars R (Rs) B (Rs)
(Rs) (Rs)

To Revaluation
180 120 __ By Balance b/d 40,000 30,000 __
A/c (Loss)

To Cash A/c 5,920 7,280 __ By Cash A/c __ __ 30,000

(Balancing By Premium for

6,600 4,400
figure) Goodwill A/c

By Profit and
To Balance c/d 49,500 33,000 30,000 9,000 6,000
Loss A/c

55,600 40,400 30,000

Balance Sheet
as at 31st March, 2010

Liabilities Amt(Rs) Assets Amt(Rs)

Creditors 20,000 Debtors 20,000

Capital
(-) Provision for Doubtful Debts (1,000) 19,000
A/cs

W 49,500 Stock (25,000- 5,000) 20,000

Plant and Machinery (35,000+

R 33,000 40,000
5,000)

B 30,000 1,12,500 Patents 20,700

Cash 32,800

1,32,500 1,32,500

Working Note
Calculation of New Profit Sharing Ratio

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Let total profit be 1
B ’s share of profit = Remaining share
W's new share = ; R's new share =
B's new share =
New profit sharing ratio = 33:22:20
Calculation of Goodwill
4years average profit =
Value of Firm's Goodw = Average Profit Number of Year's Purchase

B ’s share of goodwill = to be credited to W and R in

Sacrificing ratio i.e., 3:2

Dr Cash Account Cr

Particulars Amt(Rs) Particulars Amt(Rs)

To Balance b/d 5,000 By W's Capital A/c 5,920

To B's Capital A/c 30,000 By R's Capital A/c 7,280

To Premium for Goodwill A/c 11,000 By Balance c/d (Balancing figure) 32,800

46,000 46,000

Calculation of Adjustment of Capital

B’s share
B ’s capital = Rs 30,000
For th share, capital = Rs 30,000
Total capital =
W ’s new capital =
R ’s new capital =
B’s new capital =

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