Chapter reconstitution-of-a-partnership-firm-admission-of-a-partner: Reconstitution of a Partnership Firm – Admission of a Partner Case Study Questions | accountancy Class 12 CBSE

Chapter reconstitution-of-a-partnership-firm-admission-of-a-partner: Reconstitution of a Partnership Firm – Admission of a Partner Case Study Questions | accountancy Class 12 CBSE | ByteNotes.in

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Case Set 1

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Arjun and Bharat are partners in a firm sharing profits in the ratio of 3:2. They have been running a successful textile business for the past five years. Due to rapid business expansion, they decide to admit Chetan as a new partner. Chetan is offered 1/5 share in the profits of the firm. The existing partners decide that the new partner will acquire his share from them in their existing profit sharing ratio. The firm has built a strong reputation in the market with loyal customers and consistent profitability over the years. After Chetan's admission, the firm needs to calculate the new profit sharing ratio for all three partners and also determine the sacrificing ratio for Arjun and Bharat, so that the premium for goodwill brought in by Chetan can be distributed correctly.

Question 1: What will be the new profit sharing ratio of Arjun, Bharat and Chetan after Chetan's admission?

Chetan's share = 1/5; Remaining share = 1 - 1/5 = 4/5
Arjun's new share = 3/5 × 4/5 = 12/25
Bharat's new share = 2/5 × 4/5 = 8/25
Chetan's share = 1/5 = 5/25
New profit sharing ratio of Arjun : Bharat : Chetan = 12 : 8 : 5

Question 2: Calculate the sacrificing ratio of Arjun and Bharat.

Arjun's sacrifice = Old share − New share = 3/5 − 12/25 = 15/25 − 12/25 = 3/25
Bharat's sacrifice = Old share − New share = 2/5 − 8/25 = 10/25 − 8/25 = 2/25
Sacrificing ratio of Arjun and Bharat = 3 : 2 (same as old profit sharing ratio)

Question 3: If Chetan brings Rs. 25,000 as premium for goodwill, record the journal entries assuming the old partners retain the goodwill amount in the business.

Entry 1: Bank A/c Dr. 25,000 | To Premium for Goodwill A/c 25,000 (Goodwill brought in by Chetan)
Entry 2: Premium for Goodwill A/c Dr. 25,000 | To Arjun's Capital A/c 15,000 | To Bharat's Capital A/c 10,000 (Goodwill distributed in sacrificing ratio 3:2)
Since the partners retain the amount in business, no withdrawal entry is required.
The sacrificing ratio is 3:2, so Arjun gets Rs. 15,000 and Bharat gets Rs. 10,000.

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Case Set 2

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Meera and Neha are partners sharing profits in the ratio of 5:3. Their firm has been in the business of manufacturing electronic goods and has earned consistent profits over the years. They decide to admit Pooja as a new partner. It is agreed that Pooja will get 1/4 share in the profits of the firm. The new profit sharing ratio between Meera and Neha will be 2:1. Pooja brings Rs. 40,000 as capital and Rs. 8,000 as her share of premium for goodwill. On the date of Pooja's admission, a goodwill account existed in the books of the firm at Rs. 6,000. The partners decide that existing goodwill should be written off and Pooja's goodwill premium should be distributed as per sacrificing ratio.

Question 1: Calculate the sacrificing ratio of Meera and Neha.

Meera's old share = 5/8; Meera's new share = 2/3 × 3/4 = 6/12 = 1/2
Meera's sacrifice = 5/8 − 1/2 = 5/8 − 4/8 = 1/8
Neha's old share = 3/8; Neha's new share = 1/3 × 3/4 = 3/12 = 1/4
Neha's sacrifice = 3/8 − 1/4 = 3/8 − 2/8 = 1/8
Sacrificing ratio of Meera : Neha = 1 : 1 (equal)

Question 2: How will the premium for goodwill of Rs. 8,000 brought by Pooja be distributed between Meera and Neha?

The premium for goodwill is distributed in the sacrificing ratio.
Sacrificing ratio of Meera and Neha = 1:1
Meera's share = Rs. 8,000 × 1/2 = Rs. 4,000
Neha's share = Rs. 8,000 × 1/2 = Rs. 4,000

Question 3: Pass necessary journal entries for (a) premium brought by Pooja, (b) distribution of premium, and (c) writing off existing goodwill.

Entry 1: Bank A/c Dr. 48,000 | To Pooja's Capital A/c 40,000 | To Premium for Goodwill A/c 8,000
Entry 2: Premium for Goodwill A/c Dr. 8,000 | To Meera's Capital A/c 4,000 | To Neha's Capital A/c 4,000 (in sacrificing ratio 1:1)
Entry 3: Meera's Capital A/c Dr. 3,750 | Neha's Capital A/c Dr. 2,250 | To Goodwill A/c 6,000 (existing goodwill written off in old ratio 5:3)

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Case Set 3

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Ramesh and Suresh are partners in a firm sharing profits and losses in the ratio of 4:3. They admitted Mahesh as a new partner. The profit sharing ratio of Ramesh, Suresh and Mahesh will be 2:3:1. The firm is engaged in wholesale trading of consumer goods. On the date of Mahesh's admission, assets and liabilities of the firm were revalued. The firm had a general reserve of Rs. 42,000 and a debit balance in the Profit & Loss Account of Rs. 14,000. These must be appropriately dealt with before preparing the revised balance sheet after admission. Mahesh brings in Rs. 50,000 as capital and Rs. 12,000 as premium for goodwill in cash.

Question 1: Calculate the gain or sacrifice of Ramesh and Suresh on Mahesh's admission.

Ramesh: Old share = 4/7; New share = 2/6; Sacrifice = 4/7 − 2/6 = 24/42 − 14/42 = 10/42
Suresh: Old share = 3/7; New share = 3/6; Gain = 3/6 − 3/7 = 21/42 − 18/42 = 3/42
Ramesh is a sacrificing partner and Suresh is a gaining partner.

Question 2: How should the general reserve and debit balance of Profit & Loss Account be treated on Mahesh's admission?

General Reserve of Rs. 42,000 should be transferred to old partners' (Ramesh and Suresh) capital accounts in old profit sharing ratio 4:3.
Ramesh's share = 42,000 × 4/7 = Rs. 24,000; Suresh's share = 42,000 × 3/7 = Rs. 18,000
Debit balance of P&L Account Rs. 14,000 should be debited to old partners' capital accounts in ratio 4:3.
Ramesh's share = Rs. 8,000; Suresh's share = Rs. 6,000

Question 3: Pass journal entries for the treatment of general reserve, debit balance of P&L Account, and premium for goodwill brought by Mahesh.

Entry 1: General Reserve A/c Dr. 42,000 | To Ramesh's Capital A/c 24,000 | To Suresh's Capital A/c 18,000
Entry 2: Ramesh's Capital A/c Dr. 8,000 | Suresh's Capital A/c Dr. 6,000 | To Profit & Loss A/c 14,000
Entry 3: Bank A/c Dr. 62,000 | To Mahesh's Capital A/c 50,000 | To Premium for Goodwill A/c 12,000
Entry 4: Premium for Goodwill A/c Dr. 12,000 | To Ramesh's Capital A/c (in sacrificing ratio) | (Suresh being a gainer, does not receive any premium)

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Case Set 4

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Harish and Girish are partners in a firm sharing profits equally. The firm has been running a pharmaceutical distribution business. The following information is available as on April 1, 2024, the date when Manish was admitted as a partner for 1/4 share in profits: Land & Building (book value Rs. 2,00,000) was revalued at Rs. 2,40,000; Machinery (book value Rs. 80,000) was revalued at Rs. 75,000; Stock was found overvalued by Rs. 5,000; a provision for doubtful debts at 5% was to be created on debtors of Rs. 60,000; and an unrecorded liability of Rs. 3,000 was found. A Revaluation Account is to be prepared to determine the net gain or loss from revaluation.

Question 1: What is the purpose of preparing a Revaluation Account at the time of admission of a new partner?

Revaluation Account is prepared to record the effect of changes in the values of assets and liabilities.
It ensures that the gain or loss arising from revaluation is borne only by the old partners in their old profit sharing ratio.
The new partner does not share in profits or losses arising from events that occurred before his admission.

Question 2: Prepare the Revaluation Account and find out the net gain or loss on revaluation.

Credits (Gains): Land & Building increased by Rs. 40,000; Total Cr = Rs. 40,000
Debits (Losses): Machinery decreased Rs. 5,000; Stock overvalued Rs. 5,000; Provision for Doubtful Debts Rs. 3,000 (5% of 60,000); Unrecorded liability Rs. 3,000; Total Dr = Rs. 16,000
Net Profit on Revaluation = Rs. 40,000 − Rs. 16,000 = Rs. 24,000
This profit is distributed between Harish and Girish equally = Rs. 12,000 each

Question 3: Pass all journal entries for the revaluation adjustments and transfer of revaluation profit to partners' capital accounts.

Land & Building A/c Dr. 40,000 | To Revaluation A/c 40,000
Revaluation A/c Dr. 5,000 | To Machinery A/c 5,000
Revaluation A/c Dr. 5,000 | To Stock A/c 5,000
Revaluation A/c Dr. 3,000 | To Provision for Doubtful Debts A/c 3,000
Revaluation A/c Dr. 3,000 | To Unrecorded Liability A/c 3,000
Revaluation A/c Dr. 24,000 | To Harish's Capital A/c 12,000 | To Girish's Capital A/c 12,000 (profit distributed equally)

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Case Set 5

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Aditya and Bhushan are partners in a firm sharing profits in the ratio of 3:2. Their firm has been growing steadily in the IT services sector. They decide to admit Chandra for 1/4 share. Aditya sacrifices 1/8 of his share and Bhushan sacrifices 3/8 of his share in favour of Chandra. The firm's goodwill has been valued at Rs. 80,000. Chandra is unable to bring his share of goodwill in cash. There is no existing goodwill in the books. The partners agree that Chandra's current account shall be debited for the goodwill not brought in cash, and the sacrificing partners' capital accounts shall be credited in the sacrificing ratio.

Question 1: Calculate the new profit sharing ratio of Aditya, Bhushan and Chandra.

Aditya sacrifices 1/8; Aditya's new share = 3/5 − 1/8 = 24/40 − 5/40 = 19/40
Bhushan sacrifices 3/8 × 2/5? — Re-reading: Bhushan sacrifices 3/8 of his share = 3/8 × 2/5 = 6/40
Actually Chandra's share = 1/8 + 6/40 — recalculate: Aditya's sacrifice = 1/8, Bhushan's sacrifice = 1/8 (as given Chandra's share = 1/4 = 2/8 = 1/8+1/8)
Aditya's new share = 3/5 − 1/8 = 24/40 − 5/40 = 19/40
Bhushan's new share = 2/5 − 1/8 = 16/40 − 5/40 = 11/40
Chandra's share = 1/4 = 10/40; New ratio = 19:11:10

Question 2: What is the sacrificing ratio of Aditya and Bhushan? How much goodwill will each receive?

Aditya's sacrifice = 1/8; Bhushan's sacrifice = 1/8
Sacrificing ratio = 1:1 (equal)
Chandra's share of goodwill = 1/4 × Rs. 80,000 = Rs. 20,000
Aditya receives = Rs. 10,000; Bhushan receives = Rs. 10,000

Question 3: Pass the necessary journal entry for the treatment of goodwill when Chandra does not bring goodwill in cash and no goodwill exists in the books.

Chandra's Current A/c Dr. 20,000 | To Aditya's Capital A/c 10,000 | To Bhushan's Capital A/c 10,000
Explanation: Since Chandra cannot bring goodwill in cash, his current account is debited.
Aditya and Bhushan's capital accounts are credited in sacrificing ratio (1:1).
No goodwill account is raised in the books as per AS 26 guidelines.

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Chapter reconstitution-of-a-partnership-firm-admission-of-a-partner: Reconstitution of a Partnership Firm – Admission of a Partner | Case Study Questions

Passage

Question 1: What will be the new profit sharing ratio of Arjun, Bharat and Chetan after Chetan's admission?

Question 2: Calculate the sacrificing ratio of Arjun and Bharat.

Question 3: If Chetan brings Rs. 25,000 as premium for goodwill, record the journal entries assuming the old partners retain the goodwill amount in the business.

Passage

Question 1: Calculate the sacrificing ratio of Meera and Neha.

Question 2: How will the premium for goodwill of Rs. 8,000 brought by Pooja be distributed between Meera and Neha?

Question 3: Pass necessary journal entries for (a) premium brought by Pooja, (b) distribution of premium, and (c) writing off existing goodwill.

Passage

Question 1: Calculate the gain or sacrifice of Ramesh and Suresh on Mahesh's admission.

Question 2: How should the general reserve and debit balance of Profit & Loss Account be treated on Mahesh's admission?

Question 3: Pass journal entries for the treatment of general reserve, debit balance of P&L Account, and premium for goodwill brought by Mahesh.

Passage

Question 1: What is the purpose of preparing a Revaluation Account at the time of admission of a new partner?

Question 2: Prepare the Revaluation Account and find out the net gain or loss on revaluation.

Question 3: Pass all journal entries for the revaluation adjustments and transfer of revaluation profit to partners' capital accounts.

Passage

Question 1: Calculate the new profit sharing ratio of Aditya, Bhushan and Chandra.

Question 2: What is the sacrificing ratio of Aditya and Bhushan? How much goodwill will each receive?

Question 3: Pass the necessary journal entry for the treatment of goodwill when Chandra does not bring goodwill in cash and no goodwill exists in the books.

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