Sanju and Manju were partners in a firm sharing profits and losses in the ratio of 3 : 2. Their Balance Sheet

Question

Sanju and Manju were partners in a firm sharing profits and losses in the ratio of 3 : 2. Their Balance Sheet on 31st March, 2023 was as follows :

Balance Sheet of Sanju and Manju as at 31st March, 2023

Liabilities	Amount (₹)	Assets	Amount (₹)
Capitals : Sanju 1,40,000; Manju 1,20,000	2,60,000	Plant and Machinery	80,000
General Reserve	40,000	Furniture	1,32,000
Creditors	1,80,000	Investments	60,000
		Debtors 76,000 Less : Provision for doubtful debts 4,000	72,000
		Cash at Bank	1,36,000
Total	4,80,000	Total	4,80,000

On 1st April, 2023, Uday was admitted into the firm for 1/4 th share in profits on the following terms : (i) Furniture was to be depreciated by ₹6,000. (ii) Investments were valued at ₹72,000. (iii) Plant and Machinery was taken over by Sanju and Manju in their profit sharing ratio. (iv) Uday will bring in proportionate capital and ₹10,000 as his share of goodwill premium in cash. Prepare Revaluation Account and Partners' Capital Accounts.

OR Ravi, Tanu and Sara were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. Ravi retired from the firm due to his illness on 31st March, 2023. The Balance Sheet of the firm on that date was as follows :

Balance Sheet of Ravi, Tanu and Sara as at 31st March, 2023

Liabilities	Amount (₹)	Assets	Amount (₹)
Capitals : Ravi 80,000; Tanu 1,24,000; Sara 66,000	2,70,000	Fixed Assets	1,20,000
Profit and Loss	1,70,000	Stock	1,60,000
Employees' Provident Fund	20,000	Debtors	2,00,000
Creditors	1,00,000	Cash in hand	80,000
Total	5,60,000	Total	5,60,000

Additional Information : (i) Creditors included a sum of ₹4,000 which was not likely to be claimed. (ii) A provision of 5% for doubtful debts was to be created on debtors. (iii) Goodwill of the firm was valued at ₹1,60,000. (iv) Fixed Assets were found overvalued by ₹5,000. (v) New profit sharing ratio of Tanu and Sara was agreed at 2 : 3. (vi) The amount due to Ravi was transferred to his loan account. Prepare Revaluation Account and Partners' Capital Accounts on Ravi's retirement.

CBSECBSE Class XII Board 2024Subjective· 6mImportance★★★★★

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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 — Goodwill Adjustment on Retirement

Goodwill Adjustment on Retirement – A First Look

Think of a cricket team. Four friends start a team together. Over time, they build a reputation – people come to watch them, sponsors pay them, and their brand becomes valuable. Now one player retires. Should he walk away with nothing for the reputation the team built while he was part of it? Of course not. That reputation – the team's ability to earn more than just its raw assets – is goodwill.

In a partnership, goodwill is that same intangible value: the firm's name, its customer loyalty, its location advantage, its reputation for quality. When a partner retires, the remaining partners continue the business. They will enjoy the benefits of that goodwill going forward. The retiring partner, who helped build it, deserves a share of its value at the time of retirement.

The Precise Meaning

Goodwill on retirement is the compensation paid by the continuing partners to the retiring partner for his/her share of the firm's reputation and earning power. It is not a cash payment for a physical asset – it is an adjustment of the partners' capital accounts to reflect that the retiring partner's share of goodwill is being transferred to the remaining partners.

Important

Goodwill is not brought into the books as a new asset. It is adjusted through the partners' capital accounts. The retiring partner's capital account is credited with his/her share of goodwill, and the continuing partners' capital accounts are debited in their gaining ratio.

Why Does This Matter?

If goodwill were ignored, the retiring partner would be underpaid. The continuing partners would get a free benefit – the firm's reputation – without compensating the person who helped create it. The adjustment ensures fairness: the retiring partner gets his/her rightful share, and the continuing partners pay for the advantage they now exclusively enjoy.

The Accounting Treatment – Step by Step

The NCERT textbook gives a clear procedure. Here is the logic:

Calculate the firm's total goodwill at the time of retirement. This is usually given in the problem or valued using an agreed method (e.g., average profit method, super profit method).
Find the retiring partner's share of that goodwill.

Retiring partner's share = Total goodwill × Retiring partner's profit-sharing ratio.
Determine the gaining ratio of the continuing partners.

Gaining ratio = New ratio – Old ratio (for each continuing partner).

If the new ratio is not given, the continuing partners share the retiring partner's share in their old profit-sharing ratio.
Pass the journal entry:
```
Continuing Partners' Capital A/cs (individually)   Dr.   (in gaining ratio)
     To Retiring Partner's Capital A/c
```
This entry reduces the continuing partners' capital (they pay) and increases the retiring partner's capital (he receives).

Watch out

Do not debit the Goodwill account. The goodwill is not being recorded as an asset – it is an adjustment among partners. Only if the firm decides to raise goodwill as an asset and then write it off would you touch the Goodwill account, but that is a different treatment (usually for admission, not retirement).

Format: Partners' Capital Accounts (after adjustment)

Here is how the capital accounts look after the goodwill adjustment. Assume three partners: A, B, and C. C retires. A and B continue in the ratio 3:2. Total goodwill is ₹1,00,000. Old ratio was 2:2:1 (A:B:C). C's share = 1/5 × ₹1,00,000 = ₹20,000. Gaining ratio of A and B = New ratio – Old ratio = (3/5 – 2/5) : (2/5 – 2/5) = 1/5 : 0. So A gains fully. A's capital is debited ₹20,000; C's capital is credited ₹20,000.

Particulars	A (₹)	B (₹)	C (₹)
To C's Capital A/c (Goodwill)	20,000	–	–

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Part (a)

New ratio (Uday 1/4; balance 3/4 to Sanju:Manju 3:2) = Sanju 9 : Manju 6 : Uday 5.

Revaluation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Furniture A/c	6,000	By Investments A/c	12,000
To Profit — Sanju (3/5)	3,600
To Profit — Manju (2/5)	2,400
Total	12,000	Total	12,000

Plant & Machinery ₹80,000 taken over by Sanju & Manju in 3:2 (Sanju ₹48,000, Manju ₹32,000). General Reserve ₹40,000 in 3:2 (Sanju ₹24,000, Manju ₹16,000). Goodwill premium ₹10,000 in 3:2 (Sanju ₹6,000, Manju ₹4,000).

Adjusted capitals: Sanju ₹1,25,600, Manju ₹1,10,400 (combined ₹2,36,000 = 3/4 of firm). Uday's proportionate capital = 2,36,000 × 1/3 = ₹78,667.

Partners' Capital Accounts

Particulars	Sanju	Manju	Uday	Particulars	Sanju	Manju	Uday
To Plant & Machinery	48,000	32,000	—	By Balance b/d	1,40,000	1,20,000	—
To Balance c/d	1,25,600	1,10,400	78,667	By General Reserve	24,000	16,000	—
				By Revaluation (profit)	3,600	2,400	—
				By Premium for Goodwill	6,000	4,000	—
				By Bank (capital)	—	—	78,667

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Part (a): Revaluation profit ₹6,000; closing capitals Sanju ₹1,25,600, Manju ₹1,10,400, Uday ₹78,667.

Part (b): Revaluation loss ₹11,000; Ravi's ₹2,39,500 to Loan A/c; Tanu ₹1,55,700, Sara ₹33,800.

Part (a) — Admission of Uday

Step 1 — New profit-sharing ratio. Uday takes 1/4; the old partners keep the balance 3/4 in 3:2.

Sanju = 3/4 × 3/5 = 9/20, Manju = 3/4 × 2/5 = 6/20, Uday = 5/20 → 9 : 6 : 5.

Step 2 — Revaluation Account. Furniture falls ₹6,000 (loss); Investments rise from ₹60,000 to ₹72,000 = ₹12,000 (gain). Net profit ₹6,000 shared in old ratio 3:2 (Sanju ₹3,600, Manju ₹2,400).

Particulars	Amount (₹)	Particulars	Amount (₹)
To Furniture A/c	6,000	By Investments A/c	12,000
To Profit — Sanju	3,600
To Profit — Manju	2,400
Total	12,000	Total	12,000

Step 3 — Other adjustments.

Plant & Machinery ₹80,000 taken over by Sanju & Manju in 3:2 → Sanju's Capital Dr. ₹48,000, Manju's Capital Dr. ₹32,000 (asset removed at book value, so no revaluation effect).
General Reserve ₹40,000 distributed in 3:2 → Sanju ₹24,000, Manju ₹16,000.
Goodwill premium ₹10,000 brought by Uday credited to sacrificing partners in 3:2 → Sanju ₹6,000, Manju ₹4,000.

Step 4 — Proportionate capital of Uday.

	Sanju (₹)	Manju (₹)
Opening capital	1,40,000	1,20,000
+ General Reserve	24,000	16,000
+ Revaluation profit	3,600	2,400
+ Goodwill premium	6,000	4,000
− Plant & Machinery taken over	(48,000)	(32,000)
Adjusted capital	1,25,600	1,10,400

Combined adjusted capital = ₹2,36,000, representing the old partners' 3/4 share. Uday's 1/4 capital = 2,36,000 × (1/4 ÷ 3/4) = 2,36,000 × 1/3 = ₹78,667 (rounded).

Partners' Capital Accounts

Particulars	Sanju	Manju	Uday	Particulars	Sanju	Manju	Uday
To Plant & Machinery	48,000	32,000	—	By Balance b/d	1,40,000	1,20,000	—
To Balance c/d	1,25,600	1,10,400	78,667	By General Reserve	24,000	16,000	—
				By Revaluation (profit)	3,600	2,400	—
				By Premium for Goodwill	6,000	4,000	—
				By Bank (capital)	—	—	78,667

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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 146 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
$Q. (a) Ravi, Sohan and Neena were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. On 1st April 2025, Sohan retired and his share was taken up by Ravi and Neena in the ratio of 2 : 1. The new profit sharing ratio between Ravi and Neena will be : (A) 3 : 2 (B) 2 : 1 (C) 5 : 4 (D) 7 : 3$
(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 67/5/11 markMCQ
$Q. There are two statements Assertion (A) and Reason (R) : Assertion (A) : At the time of admission of a new partner in a partnership firm, the newly admitted partner brings an agreed amount of capital either in cash or in kind. Reason (R) : On admission, the new partner gets the right to acquire share in the assets and profits of the partnership firm. Choose the correct option from the following : (A) Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A). (B) Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A). (C) Assertion (A) is correct, but Reason (R) is incorrect. (D) Assertion (A) is incorrect, but Reason (R) is correct.$
›Reveal solutionSolution

Both the Assertion and the Reason are correct, and the Reason correctly explains why the new partner brings capital — because they gain a share in the firm’s assets and profits.

When a new partner is admitted into an existing partnership, the firm’s original agreement is effectively rewritten. The old partners have been running the business with their own capital, skills, and shared risks. Now, a newcomer steps in. Naturally, that newcomer must contribute something of value to the firm — otherwise, why would the existing partners give up a portion of their ownership? This contribution is what the Assertion refers to: the new partner brings an agreed amount of capital, which can be in cash (money) or in kind (assets like machinery, land, or stock).

The Reason states that on admission, the new partner acquires the right to a share in the firm’s assets and profits. This is the very essence of partnership — every partner has a claim on the firm’s net assets and a right to a portion of the profits as per the partnership deed. Without bringing capital, the new partner would be getting something for nothing, which would be unfair to the existing partners who built the business. So the capital brought in is the price of acquiring that share.

Note

The capital brought by the new partner is not a gift — it becomes part of the firm’s total capital, and the new partner’s capital account is credited with that amount. The existing partners’ capital accounts may also be adjusted through revaluation or goodwill adjustments, but that is a separate accounting treatment. …

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CBSE 2026Set 67/5/11 markMCQ
$Q. (a) Guru and Prakash were partners in a firm sharing profits and losses in the ratio of 7 : 3. They admitted Anu as a new partner for 1/4th share in the profits of the firm. On the date of Anu’s admission, the Profit and Loss Account of Guru and Prakash showed a credit balance of ₹ 40,000. The necessary journal entry for its treatment will be : (A) Profit and Loss A/c Dr. — Debit ₹ 40,000 | To Guru’s Capital A/c — Credit ₹ 21,000 | To Prakash’s Capital A/c — Credit ₹ 9,000 | To Anu’s Capital A/c — Credit ₹ 10,000 (B) Profit and Loss A/c Dr. — Debit ₹ 40,000 | To Guru’s Capital A/c — Credit ₹ 28,000 | To Prakash’s Capital A/c — Credit ₹ 12,000 (C) Guru’s Capital A/c Dr. — Debit ₹ 21,000 | Prakash’s Capital A/c Dr. — Debit ₹ 9,000 | Anu’s Capital A/c Dr. — Debit ₹ 10,000 | To Profit and Loss A/c — Credit ₹ 40,000 (D) Guru’s Capital A/c Dr. — Debit ₹ 28,000 | Prakash’s Capital A/c Dr. — Debit ₹ 12,000 | To Profit and Loss A/c — Credit ₹ 40,000$
(OR)
$(b) Samta, Mamta and Geeta were partners in a firm sharing profits and losses in the ratio of 11 : 5 : 4. On 31st March, 2025 Samta died. On Samta’s death, the goodwill of the firm was valued at ₹ 1,80,000. The necessary journal entry for the treatment of goodwill on Samta’s death will be : (A) Samta’s Capital A/c Dr. — Debit ₹ 99,000 | To Mamta’s Capital A/c — Credit ₹ 55,000 | To Geeta’s Capital A/c — Credit ₹ 44,000 (B) Mamta’s Capital A/c Dr. — Debit ₹ 1,00,000 | Geeta’s Capital A/c Dr. — Debit ₹ 80,000 | To Samta’s Capital A/c — Credit ₹ 1,80,000 (C) Samta’s Capital A/c Dr. — Debit ₹ 1,80,000 | To Mamta’s Capital A/c — Credit ₹ 1,00,000 | To Geeta’s Capital A/c — Credit ₹ 80,000 (D) Mamta’s Capital A/c Dr. — Debit ₹ 55,000 | Geeta’s Capital A/c Dr. — Debit ₹ 44,000 | To Samta’s Capital A/c — Credit ₹ 99,000$
›Reveal solutionSolution
Part (a): P&L credit balance Rs 40,000 goes to old partners Guru:Prakash 7:3 -> option (B) (Guru 28,000, Prakash 12,000).

Part (b): On Samta's death, Mamta and Geeta pay her share of goodwill in gaining ratio 5:4 -> option (D) (Mamta 55,000, Geeta 44,000, Samta 99,000).

Part (a)

Accumulated profit (a credit balance in the Profit and Loss Account) was earned before the new partner joined, so it is distributed to the old partners only, in their old ratio, by debiting the P&L Account and crediting their capital accounts.

Old ratio Guru : Prakash = 7 : 3; balance = Rs 40,000.

Guru = 7/10 x 40,000 = Rs 28,000; Prakash = 3/10 x 40,000 = Rs 12,000.

Particulars Debit (Rs) Credit (Rs)
Profit and Loss A/c Dr. 40,000
To Guru's Capital A/c 28,000
To Prakash's Capital A/c 12,000
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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	Debit (Rs)	Credit (Rs)
Profit and Loss A/c Dr.	40,000
To Guru's Capital A/c		28,000
To Prakash's Capital A/c		12,000

Part (a) — Admission of Uday

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