Raman and Rohit were partners in a firm sharing profits and losses in the ratio of 2 : 1. On 31st March, 2018,

Question

Raman and Rohit were partners in a firm sharing profits and losses in the ratio of 2 : 1. On 31st March, 2018, their Balance Sheet was as follows :

Balance Sheet of Raman and Rohit as at 31st March, 2018

Liabilities	Amount ₹	Assets	Amount ₹
Capital :		Plant and Machinery	1,75,000
Raman 1,40,000		Furniture and Fixtures	65,000
Rohit 1,00,000	2,40,000	Stock	47,000
Workmen Compensation Fund	40,000	Debtors 1,10,000
Creditors	1,60,000	Less : Provision for doubtful debts 7,000	1,03,000
		Bank Balance	50,000
	4,40,000		4,40,000

On the above date, Saloni was admitted in the partnership firm. Raman surrendered 2/5 th of his share and Rohit surrendered 1/5 th of his share in favour of Saloni. It was agreed that : (i) Plant and machinery will be reduced by ₹ 35,000 and furniture and fixtures will be reduced to ₹ 58,500. (ii) Provision for bad and doubtful debts will be increased by ₹ 3,000. (iii) A claim for ₹ 16,000 for workmen's compensation was admitted. (iv) A liability of ₹ 2,500 included in creditors is not likely to arise. (v) Saloni will bring ₹ 42,000 as her share of goodwill premium and proportionate capital. Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the reconstituted firm.

OR Sushma, Gautam and Kanika were partners in a firm sharing profits in the ratio of 5 : 3 : 2. On 31st March, 2018, their Balance Sheet was as follows :

Balance Sheet of Sushma, Gautam and Kanika as at 31st March, 2018

Liabilities	Amount ₹	Assets	Amount ₹
Creditors	60,000	Cash at Bank	1,40,000
Employees' Provident Fund	40,000	Sundry Debtors	1,60,000
Profit and Loss Account	1,00,000	Stock	2,40,000
Capital :		Investments	2,00,000
Sushma 3,00,000		Fixed Assets	3,60,000
Gautam 2,50,000
Kanika 3,50,000	9,00,000
	11,00,000		11,00,000

On the above date, Sushma retired and it was agreed that : (i) Fixed Assets will be reduced to ₹ 2,90,000. (ii) A provision of 5% on debtors for bad and doubtful debts will be created. (iii) Stock was to be valued at ₹ 2,18,000. Sushma took over the stock at this value. (iv) Goodwill of the firm on Sushma's retirement was valued at ₹ 8,00,000. Sushma's share of goodwill was treated by debiting Gautam and Kanika's Capital Accounts. (v) Sushma was paid cash brought by Gautam and Kanika in such a way that their capitals became in profit sharing ratio and a balance of ₹ 58,000 was left in the bank. (vi) Gautam and Kanika will share the future profits in the ratio of 2 : 3. Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the reconstituted firm.

CBSECBSE Class XII Board 2019Subjective· 8mImportance★★★★★

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Part (a)Concept understanding — Admission Partner Adjustments

Let’s start with something you already know from daily life. Suppose you and a friend run a small tiffin service together. After a year, a third friend wants to join. You both agree to let her in. But the business has grown — you have a reputation, some regular customers, and maybe a little cash saved. She can’t just walk in and claim equal share of everything you built before she arrived. That wouldn’t be fair to you and your original partner.

So you sit down and decide: what is the business worth today? How much should the new partner bring in as her share of that past effort? And once she comes in, how do we rewrite the partnership deed so everyone’s rights are clear from Day 1?

That’s the heart of Admission of a Partner — and the adjustments that follow.

What does “Admission Partner Adjustments” mean?

When a new partner is admitted into an existing partnership, the old partnership is dissolved in the eyes of accounting, and a new one begins. The new partner brings in capital (cash or assets) and also buys a share of the goodwill — the value of the business’s reputation and past efforts. But that’s not all. Several things need to be revalued or adjusted so that the new partner doesn’t unfairly gain or lose from past decisions.

These adjustments are:

Revaluation of Assets and Liabilities – because the balance sheet values may be outdated.
Treatment of Goodwill – the new partner compensates old partners for their past efforts.
Adjustment of Reserves and Accumulated Profits/Losses – these belong to old partners only.
Adjustment of Capital Accounts – to bring all partners’ capitals in proportion to the new profit-sharing ratio.

Each of these has a clear accounting treatment. Let’s go through them one by one.

1. Revaluation of Assets and Liabilities

Why? The balance sheet shows assets at book value (historical cost minus depreciation). But the new partner should not benefit from an undervalued asset (like land that has appreciated) nor suffer from an overvalued one. Similarly, liabilities may be understated or overstated.

Accounting treatment:

We open a Revaluation Account (also called Profit & Loss Adjustment Account).

Increase in asset value → debit Asset, credit Revaluation A/c
Decrease in asset value → credit Asset, debit Revaluation A/c
Increase in liability → credit Liability, debit Revaluation A/c
Decrease in liability → debit Liability, credit Revaluation A/c

The net profit or loss on revaluation is transferred to the old partners’ capital accounts in their old profit-sharing ratio.

Note

The new partner does not share in revaluation profit/loss — it belongs entirely to the old partners.

Example format (Revaluation Account):

Particulars	₹	Particulars	₹
To Building (decrease)	10,000	By Land (increase)	20,000
To Provision for Doubtful Debts (increase)	5,000	By Creditors (decrease)	8,000
To Profit transferred to:
A’s Capital A/c (3/5)	7,800
B’s Capital A/c (2/5)	5,200
Total	28,000	Total	28,000

2. Treatment of Goodwill

Why? The new partner is buying a share of the business’s earning power built by old partners. She must compensate them for this.

Accounting treatment (as per NCERT):

The new partner brings her share of goodwill in cash. That cash is then withdrawn by the old partners (or left in the business). The journal entry:

When new partner brings goodwill in cash:

Cash/Bank A/c Dr.

To Goodwill A/c (or Premium for Goodwill A/c)
Then, distribute that amount to old partners in their sacrificing ratio:

Goodwill A/c Dr.

To Old Partners’ Capital A/cs (individually)

Watch out

The sacrificing ratio is the ratio in which old partners give up their share in favour of the new partner. It is not the same as the old ratio unless the new partner’s share is taken equally from all.

Sacrificing Ratio = Old Ratio – New Ratio

If the new partner does not bring cash for goodwill, we adjust through capital accounts (debit the new partner, credit the old partners).

3. Adjustment of Reserves and Accumulated Profits/Losses

Why? Any accumulated profits (like General Reserve, Profit & Loss A/c credit balance) belong to the old partners. The new partner should not get a share of past profits.

Accounting treatment:

Transfer the entire reserve/accumulated profit to old partners’ capital accounts in their old profit-sharing ratio.

Journal entry:

General Reserve A/c Dr.

To Old Partners’ Capital A/cs

Similarly, accumulated losses (debit balance of P&L A/c) are debited to old partners’ capital accounts.

4. Adjustment of Capital Accounts

Why? After all adjustments, the partners’ capitals may not be in the new profit-sharing ratio. The partnership deed may require capitals to be proportionate to profit shares.

Accounting treatment: …

Part (b)Concept understanding — Partnership Accounting

Partnership Accounting — Your First Look

Think of a partnership as a group of friends starting a food stall together. One brings the money, another brings the cooking skills, a third brings the location. They agree to share the profits — but not necessarily equally. They also agree that if the stall loses money, they'll share the loss too.

That's the everyday intuition. Now let's make it precise.

What is a Partnership?

According to the Indian Partnership Act, 1932, a partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The NCERT Class-12 textbook defines it as a business owned and run by two or more persons (maximum 50, as per Companies Act, 2013) who contribute capital and share profits/losses in an agreed ratio.

The key features are:

Two or more persons — minimum 2, maximum 50
Agreement — written (partnership deed) or oral
Profit-sharing — the core purpose
Unlimited liability — each partner is personally liable for the firm's debts
Mutual agency — each partner can bind the firm and other partners

Why Does Partnership Accounting Matter?

A sole proprietor has one owner — simple. A company has many shareholders — complex but structured. A partnership sits in between. The accounting challenge is: how do we track each partner's claim on the business?

The business is separate from the partners for accounting purposes, but the partners are personally involved. We need to record:

What each partner brings in (capital)
What each partner takes out (drawings)
What each partner earns (interest, salary, commission, share of profit)
What happens when a partner joins or leaves

The Two Key Accounts

1. Capital Account

This records the permanent investment of each partner. There are two methods:

Fixed Capital Method — Capital remains constant unless partners decide to change it. All other transactions go to a separate Current Account.

Fluctuating Capital Method — Capital changes with every transaction (drawings, interest, salary, share of profit/loss). Only one account per partner.

NCERT recommends the Fixed Capital Method for clarity. Here's the format:

Partner's Capital Account (Fixed Capital Method) | Particulars | A (₹) | B (₹) | | Particulars | A (₹) | B (₹) | |---|---|---|---|---|---| | To Balance c/d | 50,000 | 30,000 | | By Balance b/d | 50,000 | 30,000 | | | | | | By Bank (additional capital) | — | — | | Total | 50,000 | 30,000 | | Total | 50,000 | 30,000 |

The opening balance is the capital brought in. The closing balance is the same unless additional capital is introduced or capital is withdrawn permanently.

2. Current Account

This records everything else — drawings, interest on capital, interest on drawings, salary, commission, and share of profit/loss.

Partner's Current Account (Fixed Capital Method) | Particulars | A (₹) | B (₹) | | Particulars | A (₹) | B (₹) | |---|---|---|---|---|---| | To Drawings | 5,000 | 4,000 | | By Balance b/d | 2,000 | 1,000 | | To Interest on Drawings | 250 | 200 | | By Interest on Capital | 3,000 | 1,800 | | To Balance c/d | 5,750 | 3,600 | | By Salary | 6,000 | — | | | | | | By Commission | — | 4,000 | | | | | | By Share of Profit | — | 1,000 | | Total | 11,000 | 7,800 | | Total | 11,000 | 7,800 |

The balance in the Current Account can be debit (overdrawn) or credit (undrawn profit).

The Profit and Loss Appropriation Account

This is the heart of partnership accounting. It shows how the net profit is distributed among partners — not how it is earned.

Important

The Profit and Loss Appropriation Account is an extension of the Profit and Loss Account. It starts with Net Profit (from the P&L Account) and then shows appropriations.

Format:

Profit and Loss Appropriation Account | Particulars | Amount (₹) | | Particulars | Amount (₹) | |---|---|---|---| | To Interest on Capital: | | | By Net Profit (transferred from P&L A/c) | 1,00,000 | | — A | 6,000 | | By Interest on Drawings: | | | — B | 4,000 | | — A | 500 | | To Partner's Salary: | | | — B | 300 | | — A | 12,000 | | | | | To Partner's Commission: | | | | | | — B | 8,000 | | | | | To Profit transferred to: | | | | | | — A's Current A/c (3/5) | 42,120 | | | | | — B's Current A/c (2/5) | 28,080 | | | | | Total | 1,00,800 | | Total | 1,00,800 |

Notice: The total on the debit side equals the total on the credit side. The net profit plus interest on drawings is the distributable profit. …

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Part (a)

Raman & Rohit (2:1) admit Saloni. Raman surrenders 2/5 of his share, Rohit 1/5 of his. New ratio 6:4:5; sacrificing ratio 4:1.

Revaluation Account

Particulars	₹	Particulars	₹
To Plant & Machinery	35,000	By Creditors (2,500)	2,500
To Furniture (65,000−58,500)	6,500	By Loss: Raman 28,000; Rohit 14,000	42,000
To Prov. for Doubtful Debts	3,000
Total	44,500	Total	44,500

Partners' Capital Accounts

Particulars	Raman	Rohit	Saloni	Particulars	Raman	Rohit	Saloni
To Revaluation (loss)	28,000	14,000	—	By Balance b/d	1,40,000	1,00,000	—
To Balance c/d	1,61,600	1,02,400	1,32,000	By WCF (24,000)	16,000	8,000	—
				By Premium (GW)	33,600	8,400	—
				By Bank (capital)	—	—	1,32,000
Total	1,89,600	1,16,400	1,32,000	Total	1,89,600	1,16,400	1,32,000

WCF 40,000 − claim 16,000 = 24,000 (2:1). Goodwill 42,000 (4:1). Adjusted capitals Raman 1,61,600 + Rohit 1,02,400 = 2,64,000 for 10/15 → total 3,96,000; Saloni (5/15) = 1,32,000. Bank = 50,000 + 42,000 + 1,32,000 = 2,24,000.

Balance Sheet (Raman, Rohit, Saloni)

Liabilities	₹	Assets	₹
Creditors (1,60,000−2,500)	1,57,500	Plant & Machinery	1,40,000
Workmen Compensation Claim	16,000	Furniture	58,500
Capitals: 1,61,600+1,02,400+1,32,000	3,96,000	Stock	47,000
		Debtors 1,10,000 − Prov. 10,000	1,00,000
		Bank	2,24,000

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Part (a): Saloni admitted — revaluation loss ₹42,000, capitals 1,61,600/1,02,400/1,32,000, Balance Sheet ₹5,69,500.

Part (b): Sushma retires — revaluation loss ₹1,00,000, Sushma paid ₹4,82,000, Gautam 2,40,000/Kanika 3,60,000, Balance Sheet ₹7,00,000.

Part (a)

Working Notes

Raman sacrifices 2/3×2/5 = 4/15; Rohit 1/3×1/5 = 1/15; Saloni = 5/15. New ratio 6:4:5; sacrificing ratio 4:1.
Revaluation: P&M −35,000, Furniture −6,500, Provision −3,000, Creditors +2,500 ⇒ loss 42,000 (2:1 → 28,000/14,000).
WCF 40,000 − claim 16,000 = 24,000 (2:1 → 16,000/8,000). Goodwill premium 42,000 (4:1 → 33,600/8,400).
Adjusted capitals: Raman 1,61,600, Rohit 1,02,400 (combined 2,64,000 = 10/15) ⇒ total 3,96,000; Saloni (5/15) = 1,32,000.
Bank = 50,000 + 42,000 + 1,32,000 = 2,24,000. …

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Same / Similar Concept — real previous-year questions on the same or a closely similar concept, not this exact question.

Showing the 12 most recent of 153 on this concept.

CBSE 2026Set 67/3/11 markMCQ
$Q. Dharam and Karan were partners in a firm sharing profits and losses in the ratio of 7 : 3. On 1st April, 2025, they admitted Vinod as a new partner in the firm. Dharam surrendered 1/3rd of his share in favour of Vinod and Karan surrendered 1/4th of his share in favour of Vinod. The new profit sharing ratio will be : (A) 7 : 3 : 1 (B) 56 : 27 : 10 (C) 27 : 56 : 10 (D) 56 : 27 : 37$
›Reveal solutionSolution
The new profit-sharing ratio after Vinod's admission is 56 : 27 : 37 (Option D). Dharam and Karan each sacrifice a portion of their original 7:3 ratio to give Vinod his share.

Concept First: Why We Calculate Sacrifice and New Ratio

When a new partner is admitted, the old partners surrender (sacrifice) a part of their own profit share to the newcomer. The new ratio is simply the old partners' remaining shares plus the new partner's acquired share. The key rule: the sacrificing ratio is the proportion in which the old partners give up their share; the new ratio is what remains after the sacrifice.

Here, Dharam and Karan do not sacrifice equally — Dharam gives up 1/3rd of his share, and Karan gives up 1/4th of his share. So we must first find each old partner's original share, then deduct the surrendered portion, and finally add Vinod's share.

Watch out

A common mistake is to treat the surrendered fractions (1/3 and 1/4) as fractions of the total profit. They are fractions of each partner's own share, not of the whole. Always read "surrendered 1/3rd of his share" as 1/3 × (that partner's old ratio).

Step-by-Step Solution

Step 1: Write the old ratio.

Dharam : Karan = 7 : 3.

Total parts = 7 + 3 = 10.

So Dharam's old share = 7/10, Karan's old share = 3/10.

Step 2: Calculate the surrendered shares.

Dharam surrenders 1/3 of his share = 1/3 × 7/10 = 7/30.

Karan surrenders 1/4 of his share = 1/4 × 3/10 = 3/40.

Step 3: Calculate the new shares of old partners.

Dharam's new share = Old share – Surrendered = 7/10 – 7/30. Convert to common denominator 30: 21/30 – 7/30 = 14/30 = 7/15.

Karan's new share = 3/10 – 3/40. Convert to common denominator 40: 12/40 – 3/40 = 9/40.

Step 4: Calculate Vinod's share.

Vinod gets the total surrendered amount:

= Dharam's surrender + Karan's surrender = 7/30 + 3/40.

LCM of 30 and 40 is 120: 28/120 + 9/120 = 37/120.

Step 5: Express all shares with a common denominator to find the ratio.

Dharam: 7/15 = 56/120 (multiply numerator and denominator by 8).

Karan: 9/40 = 27/120 (multiply by 3).

Vinod: 37/120.

So the new ratio = 56 : 27 : 37 (check: $56+27+37=120$ , matching the common denominator). Comparing with the given options — (A) 7:3:1, (B) 56:27:10, (C) 27:56:10, (D) 56:27:37 — this matches option (D). …
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CBSE 2026Set 67/3/11 markMCQ
$Q. Assertion (A) : In case of admission of a new partner in the partnership firm, there is a need to ascertain the new profit sharing ratio among all the partners. Reason (R) : On admission of a new partner, the profit sharing ratio among the old partners will change, keeping in view their respective contribution to the profit sharing ratio of the incoming partner. Choose the correct option from the following : (A) Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A). (B) Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A). (C) Assertion (A) is correct, but Reason (R) is incorrect. (D) Assertion (A) is incorrect, but Reason (R) is correct.$
›Reveal solutionSolution

Both the assertion and the reason are correct, and the reason correctly explains why a new profit-sharing ratio is necessary upon the admission of a new partner.

When a new partner is admitted into a partnership firm, it signifies a fundamental change in the existing partnership agreement. A partnership is defined by the agreement among its partners, particularly concerning how profits and losses are shared.

Let's break down the assertion and the reason:

Assertion (A): In case of admission of a new partner in the partnership firm, there is a need to ascertain the new profit sharing ratio among all the partners.

This assertion is correct.

The moment a new partner joins, they become entitled to a share of the firm's future profits. Since the total profit pie remains 100%, and this pie must now be shared among more individuals (the old partners plus the new partner), the existing profit-sharing arrangement becomes obsolete. A new agreement, and consequently a new profit-sharing ratio, must be established to define how profits will be distributed among all partners, including the newly admitted one. Without a new ratio, there would be no clear basis for distributing profits.

Reason (R): On admission of a new partner, the profit sharing ratio among the old partners will change, keeping in view their respective contribution to the profit sharing ratio of the incoming partner.

This reason is also correct. …
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CBSE 2026Set 67/3/11 markMCQ
$Q. Chaman, Raman and Suman were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. With effect from 1st April, 2025, they decided to share the future profits in the ratio of 2 : 3 : 5. For this purpose, it was agreed that the goodwill of the firm be valued at ₹ 1,00,000. The treatment of goodwill without opening goodwill account will be : (A) Debit Chaman's Capital A/c by ₹ 30,000 and Credit Suman's Capital A/c by ₹ 30,000 (B) Debit Suman's Capital A/c by ₹ 30,000 and Credit Chaman's Capital A/c by ₹ 30,000 (C) Debit Chaman's Capital A/c and Suman's Capital A/c by ₹ 15,000 each and credit Raman's Capital A/c by ₹ 30,000 (D) Debit Raman's Capital A/c by ₹ 30,000 and Credit Chaman's Capital A/c and Suman's Capital A/c by ₹ 15,000 each$
›Reveal solutionSolution
Suman, the gaining partner, will compensate Chaman, the sacrificing partner, by debiting Suman's Capital Account and crediting Chaman's Capital Account with ₹ 30,000 for their respective shares of goodwill.

When partners decide to change their profit-sharing ratio, it means some partners will gain a larger share of future profits, while others will sacrifice a portion of their existing share. This change has an implication for the firm's goodwill. Goodwill represents the firm's reputation and its ability to earn super profits. If a partner gains a share in future profits, they are effectively gaining a share in these future super profits, which are attributable to the firm's existing goodwill, without having contributed to earning that goodwill in the past.

To ensure fairness, the gaining partner(s) must compensate the sacrificing partner(s) for their respective shares of the firm's goodwill. This compensation is typically done by adjusting the partners' capital accounts directly, without opening a separate Goodwill Account in the books. The capital account of the gaining partner is debited (as they are effectively paying for the share of goodwill they are acquiring), and the capital account of the sacrificing partner is credited (as they are receiving compensation for the share of goodwill they are giving up). This treatment ensures that the financial impact of the change in profit-sharing ratio, particularly concerning goodwill, is reflected in the partners' capital balances.

Working Notes

WN 1: Calculation of Sacrificing and Gaining Ratios

The sacrificing or gaining ratio for each partner is calculated by subtracting their new profit share from their old profit share.

A positive result indicates a sacrifice.

A negative result indicates a gain.

Old Ratio (Chaman : Raman : Suman) = $5 : 3 : 2$ (Total 10 parts)

New Ratio (Chaman : Raman : Suman) = $2 : 3 : 5$ (Total 10 parts)

Chaman's Share:

Old Share = $5/10$

New Share = $2/10$

Change = $5/10 - 2/10 = 3/10$ (Sacrifice)

Raman's Share:

Old Share = $3/10$

New Share = $3/10$

Change = $3/10 - 3/10 = 0$ (Neither sacrifice nor gain)

Suman's Share:

Old Share = $2/10$

New Share = $5/10$

Change = $2/10 - 5/10 = -3/10$ (Gain)

WN 2: Calculation of Goodwill Adjustment

The firm's goodwill is valued at ₹ 1,00,000. The adjustment for goodwill is made based on the sacrificing or gaining share of each partner.

Chaman's Share of Goodwill (Sacrifice):

₹ $1,00,000 \times 3/10 = ₹ 30,000$

Suman's Share of Goodwill (Gain): …
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CBSE 2026Set 67/3/11 markMCQ
$Q. (a) Anup, Bharti and Manoj were partners in a firm sharing profits and losses in the ratio of 11 : 8 : 1. From 1st April, 2025, they decided to share the future profits in the ratio of 2 : 2 : 1. The gain or sacrifice of each partner due to change in profit sharing ratio will be : (A) Anup's gain 3/20, Manoj's sacrifice 3/20 (B) Anup's sacrifice 3/20, Manoj's gain 3/20 (C) Anup's gain 3/20, Manoj's gain 3/20 (D) Anup's sacrifice 3/20, Manoj's sacrifice 3/20$
(OR)
$(b) Arun, Varun and Tarun were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. On 31st March, 2025, Arun died. Varun and Tarun decided to share future profits equally. The gaining ratio of Varun and Tarun will be : (A) 1 : 1 (B) 3 : 2 (C) 2 : 3 (D) 5 : 2$
›Reveal solutionSolution
Part (a): Anup sacrifices 3/20, Manoj gains 3/20 — option (B).

Part (b): Gaining ratio of Varun and Tarun = 2:3 — option (C).

Part (a)

Sacrifice/gain = Old share − New share (positive = sacrifice, negative = gain). Using denominator 20:

Old: Anup 11/20, Bharti 8/20, Manoj 1/20

New (2:2:1): Anup 8/20, Bharti 8/20, Manoj 4/20

Anup: 11/20 − 8/20 = +3/20 → sacrifice 3/20

Bharti: 0 → no change …
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CBSE 2026Set 67/3/11 markMCQ
$Q. Atul and Nisha were partners in a firm sharing profits and losses in the ratio of 4 : 1. Their capitals were ₹ 1,20,000 and ₹ 90,000 respectively. On 1st April, 2025, they admitted Mona as a new partner in the firm for 1/4th share in the future profits. Mona brought ₹ 1,00,000 as her capital. The value of goodwill of the firm was : (A) ₹ 22,500 (B) ₹ 4,00,000 (C) ₹ 90,000 (D) ₹ 1,00,000$
›Reveal solutionSolution
Solution: Valuation of Goodwill on Admission of a Partner

The value of goodwill of the firm is ₹90,000 (Option C), calculated by comparing Mona's capital contribution with her share in the reconstituted firm.

Concept: Goodwill Valuation through Capitalisation Method

When a new partner is admitted and brings capital for a specified share, we can infer the firm's total value (including goodwill) by treating her capital as proportionate to her share. The logic is straightforward: if Mona brings ₹1,00,000 for a 1/4th share, then the total capital of the firm should be ₹4,00,000 (since ₹1,00,000 ÷ 1/4 = ₹4,00,000).

The goodwill is the difference between this total capitalised value and the actual tangible capital contributed by all partners.

Treatment

Calculate Total Capitalised Value of the firm based on the new partner's capital and share.

Sum the Actual Capital brought in or standing (old partners' capital + new partner's capital).

Goodwill = Total Capitalised Value − Total Actual Capital.

This method assumes that the new partner's capital contribution correctly values her fractional ownership in the entire firm, tangible assets plus intangible goodwill.

Solution

Working Note 1: Total Capitalised Value of the Firm

Mona is admitted for 1/4th share and brings ₹1,00,000 as capital.

If ₹1,00,000 represents 1/4th of the total firm value, then:
$\text{Total Capitalised Value} = \frac{\text{Mona's Capital}}{\text{Mona's Share}} = \frac{₹1,00,000}{1/4} = ₹1,00,000 \times 4 = ₹4,00,000$
Working Note 2: Total Actual Capital in the Firm

The actual capital standing in the firm after Mona's admission comprises:

Partner Capital (₹)
Atul 1,20,000
Nisha 90,000
Mona 1,00,000
Total Actual Capital 3,10,000
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CBSE 2026Set 67/3/11 markMCQ
$Q. Yashoda and Devi were partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2025, their balance sheet showed land and building at ₹ 20,00,000 and furniture at ₹ 6,00,000. On that date they admitted Poonam as a new partner for 1/4th share in the future profits of the firm. On Poonam's admission, it was found that land and building is undervalued by 20%. On Poonam's admission, Revaluation Account will be : (A) debited by ₹ 5,00,000 (B) debited by ₹ 25,00,000 (C) credited by ₹ 25,00,000 (D) credited by ₹ 5,00,000$
›Reveal solutionSolution

Land and building is undervalued by 20%, so its book value of ₹20,00,000 must be increased by ₹5,00,000. This gain is credited to the Revaluation Account. The correct answer is (D) credited by ₹5,00,000.

When a new partner is admitted, the firm's assets and liabilities are revalued to reflect their current fair values. This ensures the incoming partner does not benefit from hidden reserves or suffer from hidden losses. The Revaluation Account is a nominal account that captures all gains and losses from revaluation. Gains are credited, losses are debited. The net balance is then transferred to the old partners' capital accounts in their profit-sharing ratio.

Here, the only revaluation is the increase in land and building. The book value is ₹20,00,000, and it is undervalued by 20%. "Undervalued by 20%" means the book value is 20% less than the true value — i.e., the book value represents only 80% of the true value. So the true value = book value ÷ (1 – 0.20) = ₹20,00,000 ÷ 0.80 = ₹25,00,000. The increase is ₹25,00,000 – ₹20,00,000 = ₹5,00,000.

This increase is a gain, so it is credited to the Revaluation Account. The journal entry is:

Date Particulars L.F. Debit (₹) Credit (₹)
2025
Mar 31 Land and Building A/c Dr. 5,00,000
To Revaluation A/c 5,00,000
(Being increase in value of land and building on revaluation)
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CBSE 2026Set 67/4/11 markMCQ
$Q. P, Q and R were partners in a firm sharing profits and losses in the ratio of 6 : 5 : 4. They admitted S as a new partner for 1/8th share in the profits of the firm. It was agreed that Q would retain his original share. The sacrificing ratio of P and R will be : (A) 6 : 5 (B) 4 : 5 (C) 3 : 2 (D) 5 : 4$
›Reveal solutionSolution
The sacrificing ratio of P and R is 3 : 2 (Option C).

Concept: Sacrificing Ratio on Admission of a Partner

When a new partner is admitted, the existing partners sacrifice a portion of their profit share in favour of the incoming partner. The sacrificing ratio measures how much each old partner gives up. It is calculated as:
$\text{Sacrificing Ratio} = \text{Old Share} - \text{New Share}$
The partner who sacrifices more is entitled to a larger share of goodwill compensation from the new partner. In this problem, Q retains his original share (sacrifices nothing), so only P and R sacrifice. We must first determine the new profit-sharing ratio, then compute individual sacrifices.

Treatment and Solution

Step 1: Determine the old profit-sharing ratio

P, Q and R share profits in the ratio $6 : 5 : 4$ .

Total parts = $6 + 5 + 4 = 15$

P's old share = $\frac{6}{15} = \frac{2}{5}$

Q's old share = $\frac{5}{15} = \frac{1}{3}$

R's old share = $\frac{4}{15}$

Step 2: S is admitted for $\frac{1}{8}$ share

The remaining share available for P, Q and R together = $1 - \frac{1}{8} = \frac{7}{8}$

Step 3: Q retains his original share

Q's new share = Q's old share = $\frac{1}{3}$

This is the critical constraint. Q does not sacrifice anything.

Step 4: Calculate the combined new share of P and R

Since Q takes $\frac{1}{3}$ out of the $\frac{7}{8}$ available to the old partners:

Combined share of P and R = $\frac{7}{8} - \frac{1}{3}$

To subtract, find a common denominator (24):
$\frac{7}{8} - \frac{1}{3} = \frac{21}{24} - \frac{8}{24} = \frac{13}{24}$
Step 5: P and R will share this $\frac{13}{24}$ in their old ratio of $6 : 4$ (i.e., $3 : 2$ )

P's new share = $\frac{3}{5} \times \frac{13}{24} = \frac{39}{120} = \frac{13}{40}$

R's new share = $\frac{2}{5} \times \frac{13}{24} = \frac{26}{120} = \frac{13}{60}$

Note

When one partner retains his original share, the remaining partners continue to share the balance in their old mutual ratio.

Working Notes

W.N. 1: Sacrifice by P
$\text{P's sacrifice} = \text{Old share} - \text{New share} = \frac{2}{5} - \frac{13}{40}$
Convert $\frac{2}{5}$ to denominator 40: $\frac{2}{5} = \frac{16}{40}$ …
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CBSE 2026Set 67/4/11 markMCQ
$Q. Ravi, Sunil and Amit were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 5. On 1st April, 2025, Ravi retired. Sunil and Amit decided to share future profits in the ratio of 2 : 3. After all adjustments with respect to general reserve, goodwill and revaluation, etc., the balances in the capital accounts of Ravi, Sunil and Amit stood at ₹ 3,00,000; ₹ 2,40,000 and ₹ 3,60,000 respectively. It was decided that the amount payable to Ravi will be brought by Sunil and Amit in such a way so as to make their capitals proportionate to their new profit sharing ratio. The amount brought in by Sunil and Amit will be : (A) Sunil ₹ 1,00,000, Amit ₹ 2,00,000 (B) Sunil ₹ 1,20,000, Amit ₹ 1,80,000 (C) Sunil ₹ 1,50,000, Amit ₹ 1,50,000 (D) Sunil ₹ 80,000, Amit ₹ 2,20,000$
›Reveal solutionSolution
After Ravi’s retirement, Sunil and Amit adjust their capitals to be proportionate to their new profit-sharing ratio (2:3). The required additional contributions are Sunil ₹1,20,000 and Amit ₹1,80,000 — option (B).

Concept First — Why This Treatment?

When a partner retires, the continuing partners often decide to adjust their capital accounts so that the capitals are in the new profit-sharing ratio. This ensures that capital contributions align with the risk and reward sharing going forward. The amount payable to the retiring partner is brought in by the continuing partners in the same proportion as their new ratio, unless otherwise agreed.

The key rule: Total capital of the new firm is determined first (usually based on the retiring partner’s capital or a mutually agreed figure), then each continuing partner’s capital is calculated as their share of that total. The difference between this required capital and their existing balance is the amount they must bring in (or withdraw).

Watch out

Common Pitfall

Students often mistakenly use the old ratio to divide the amount payable to the retiring partner. Remember: after retirement, the continuing partners share future profits in the new ratio, so the capital adjustment must also follow the new ratio.

Step-by-Step Solution

Step 1: Determine the Total Capital of the New Firm

After all adjustments (general reserve, goodwill, revaluation), the balances are:

Ravi: ₹3,00,000 (this is the amount payable to him)

Sunil: ₹2,40,000

Amit: ₹3,60,000

The continuing partners (Sunil and Amit) decide to bring in cash so that their capitals become proportionate to their new ratio of 2:3.

The total capital of the new firm is not simply the sum of Sunil and Amit’s existing capitals. Instead, we use the retiring partner’s capital as a base. Since Ravi’s capital is ₹3,00,000 and his old share was 4/12, the total capital of the firm before retirement was:

Total old capital = Ravi’s capital ÷ his old share = ₹3,00,000 ÷ (4/12) = ₹3,00,000 × 12/4 = ₹9,00,000

But after retirement, the firm’s capital belongs only to Sunil and Amit. Their combined existing capital is ₹2,40,000 + ₹3,60,000 = ₹6,00,000. The difference of ₹3,00,000 (Ravi’s capital) is what needs to be brought in by Sunil and Amit.

Tip

Shortcut

The amount payable to the retiring partner (₹3,00,000) is exactly the amount that the continuing partners must bring in total. This amount is then divided in the new profit-sharing ratio (2:3) to find each partner’s contribution.

Step 2: Calculate the Amount to be Brought in by Each Partner

Total amount to be brought in = ₹3,00,000 (Ravi’s capital)

New ratio of Sunil : Amit = 2 : 3

Sunil’s share = 2/5 × ₹3,00,000 = ₹1,20,000

Amit’s share = 3/5 × ₹3,00,000 = ₹1,80,000

Step 3: Verify the New Capital Balances

After bringing in the cash:

Sunil’s new capital = ₹2,40,000 + ₹1,20,000 = ₹3,60,000

Amit’s new capital = ₹3,60,000 + ₹1,80,000 = ₹5,40,000

Check proportionality: Sunil : Amit = ₹3,60,000 : ₹5,40,000 = 2 : 3 ✓ …
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CBSE 2026Set 67/4/11 markMCQ
$Q. (a) Ravi, Sohan and Neena were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. On 1st April 2025, Sohan retired and his share was taken up by Ravi and Neena in the ratio of 2 : 1. The new profit sharing ratio between Ravi and Neena will be : (A) 3 : 2 (B) 2 : 1 (C) 5 : 4 (D) 7 : 3$
(OR)
$(b) Kunal, Raj and Leela were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 2. On 1st April, 2025, Kunal retired. Raj and Leela decided to share profits in the future in the ratio of 5 : 3. The gaining ratio between Raj and Leela will be : (A) 5 : 3 (B) 3 : 2 (C) 21 : 11 (D) 7 : 5$
›Reveal solutionSolution

Part (a): New ratio Ravi:Neena = 7:3 -> (D). Part (b): Gaining ratio Raj:Leela = 21:11 -> (C).

Part (a) …
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CBSE 2026Set 67/4/11 markMCQ
$Q. (a) Rohan and Meeta were partners in a firm sharing profits and losses in the ratio of 5 : 4. Their capitals were ₹ 3,00,000 and ₹ 2,00,000 respectively. They admitted Kabir as a new partner for 1/5th share in the profits of the firm. Kabir brought ₹ 1,50,000 as his capital. Kabir's share in the goodwill of the firm was : (A) ₹ 50,000 (B) ₹ 20,000 (C) ₹ 1,00,000 (D) ₹ 2,50,000$
(OR)
$(b) Ravi, Nisha and Priya were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 1. Ravi retired and the balance in his Capital Account after making necessary adjustments on account of reserves and revaluation of assets and re-assessment of liabilities was ₹ 2,40,000. Nisha and Priya agreed to pay him ₹ 2,70,000 in full settlement of his claim. The value of goodwill of the firm was : (A) ₹ 30,000 (B) ₹ 90,000 (C) ₹ 60,000 (D) ₹ 1,20,000$
›Reveal solutionSolution

Part (a): Kabir's share of goodwill = Rs.20,000 -> (B). Part (b): Value of firm's goodwill = Rs.60,000 -> (C).

Part (a)

Hidden goodwill = capital implied by new partner - actual capital = (1,50,000 x 5) - 6,50,000 = 1,00,000. Kabir's 1/5 share = Rs.20,000. …
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CBSE 2026Set 67/4/11 markMCQ
$Q. Asha, Manan and Niyati were partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. With effect from 1st April, 2025, they agreed to share profits and losses equally. Due to change in the profit sharing ratio, Asha's gain or sacrifice will be : (A) Sacrifice 1/6 (B) Gain 1/6 (C) Sacrifice 1/12 (D) Gain 1/12$
›Reveal solutionSolution
Asha's old profit share was $3/6$ and her new share is $1/3$ . The difference, $1/6$ , represents her sacrifice due to the change in the profit-sharing ratio.

When partners decide to change their existing profit-sharing ratio, it means that some partners will now get a larger share of future profits, while others will get a smaller share. The partner whose share increases is said to 'gain', and the partner whose share decreases is said to 'sacrifice'. This adjustment is crucial because it often necessitates accounting for accumulated profits, reserves, and revaluation of assets and liabilities to ensure fairness, as the future distribution of these items will be based on the new ratio.

To determine whether a partner gains or sacrifices, we compare their old profit share with their new profit share.
$\text{Sacrificing Share} = \text{Old Share} - \text{New Share}$
Alternatively, you can use:
$\text{Gaining Share} = \text{New Share} - \text{Old Share}$
Both formulas yield the same absolute value, but the sign convention differs. For consistency, we will use the first formula: $\text{Sacrificing Share} = \text{Old Share} - \text{New Share}$ .

Let's apply this to Asha.

Working Notes

1. Calculation of Asha's Sacrifice or Gain

Old Profit Sharing Ratio: Asha : Manan : Niyati = 3 : 2 : 1

Total parts in old ratio = $3 + 2 + 1 = 6$

Asha's Old Share = $3/6$

New Profit Sharing Ratio: Asha : Manan : Niyati = Equally, which is 1 : 1 : 1

Total parts in new ratio = $1 + 1 + 1 = 3$ …
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CBSE 2026Set 67/4/11 markMCQ
$Q. Dinesh, Siddharth and Naina were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. On 31st March, 2025, they decided to dissolve the firm. On this date, the firm had debtors amounting to ₹ 2,10,000 and provision for doubtful debts of ₹ 20,000. On dissolution, debtors of ₹ 10,000 proved bad and the remaining debtors realised 90%. Amount realised from debtors will be : (A) ₹ 1,71,000 (B) ₹ 2,00,000 (C) ₹ 1,80,000 (D) ₹ 1,89,000$
›Reveal solutionSolution
Amount realised from debtors on dissolution = ₹1,80,000 (Option C).

Concept: Realisation of Debtors on Dissolution

When a partnership firm dissolves, all assets are converted into cash through a Realisation Account. Debtors represent amounts owed to the firm, and their realisation involves two steps:

Identify the book value of debtors (gross debtors minus any provision for doubtful debts already created).

Determine actual cash realised based on what is collected and what proves irrecoverable.

The provision for doubtful debts is an accounting estimate created before dissolution. On dissolution, we ignore this provision and work with the actual outcome: which debtors pay and which don't. The Realisation Account is debited with the book value of debtors (net of provision) and credited with the actual cash received.

Watch out

A common mistake is to deduct the provision for doubtful debts from the amount realised. The provision is merely an accounting adjustment already made in the books; on dissolution, we focus on actual realisations. The ₹20,000 provision is irrelevant to the cash calculation.

Treatment on Dissolution

Step 1: Transfer debtors to Realisation Account at their net book value:

Gross Debtors = ₹2,10,000

Less: Provision for Doubtful Debts = ₹20,000

Net Book Value = ₹1,90,000

The Realisation Account is debited with ₹1,90,000 (the asset taken over for realisation).

Step 2: Determine actual cash realised:

Debtors proving bad = ₹10,000 (these yield zero cash)

Remaining debtors = ₹2,10,000 − ₹10,000 = ₹2,00,000

These remaining debtors realise 90% of their face value

Cash realised = 90% of ₹2,00,000 = ₹1,80,000

The Realisation Account is credited with ₹1,80,000 (cash received), and Bank/Cash Account is debited.

Solution

Working Note 1: Calculation of Amount Realised from Debtors

Particulars Amount (₹)
Total (Gross) Debtors 2,10,000
Less: Debtors proving bad 10,000
Good Debtors 2,00,000
Realisation percentage 90%
Cash Realised (90% of ₹2,00,000) 1,80,000

The provision for doubtful debts (₹20,000) does not enter this calculation. It was an accounting estimate; the actual bad debts are ₹10,000, and the actual collection rate on the remaining ₹2,00,000 is 90%.

Journal Entry (Dissolution)

| Date | Particulars | L.F. | Debit (₹) | Credit (₹) | …
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Partner	Capital (₹)
Atul	1,20,000
Nisha	90,000
Mona	1,00,000
Total Actual Capital	3,10,000

Date	Particulars	Debit (₹)	Credit (₹)
2025 Mar 31	Land and Building A/c Dr.	5,00,000
	To Revaluation A/c		5,00,000
	(Being increase in value of land and building on revaluation)

Particulars	Amount (₹)
Total (Gross) Debtors	2,10,000
Less: Debtors proving bad	10,000
Good Debtors	2,00,000
Realisation percentage	90%
Cash Realised (90% of ₹2,00,000)	1,80,000

Part (a)

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