(a) Jain and Gupta were partners in a firm sharing profits and losses in the ratio of 3 : 1. On 1st April, 202

Question

Q. (a) Jain and Gupta were partners in a firm sharing profits and losses in the ratio of 3 : 1. On 1st April, 2024, Agarwal was admitted as a new partner for 1/5th share in the profits of the firm with a minimum guaranteed amount of ₹ 75,000. Any deficiency arising out of this account will be borne by Jain and Gupta in the ratio of 1 : 3. During the year ended 31st March, 2025, the firm earned a net profit of ₹ 3,00,000. Prepare Profit and Loss Appropriation Account of Jain, Gupta and Agarwal for the year ended 31st March, 2025.

(OR)

(b) Annu, Bandhu, Sheelu and Golu were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 2 : 1. On 1st April, 2025, they decided to share the future profits equally. For this purpose the goodwill of the firm was valued at ₹ 4,00,000. Calculate gain or sacrifice of the partners on change in profit sharing ratio and pass a single adjustment journal entry for the treatment of goodwill.

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Part (a)Concept understanding — Guarantee of Profit

Profit Appropriation Account – A First Look

Think of a partnership firm as a group of friends who run a business together. At the end of the year, they have earned some profit. But before they split that profit among themselves, they must first settle certain obligations: pay interest on the capital each partner contributed, give a salary to a partner who works full-time, or pay a commission to a partner who brought in a special client. Only after these items are accounted for can the remaining profit be divided.

That is exactly what the Profit Appropriation Account does. It is not a separate ledger account in the double-entry system — it is an extension of the Profit and Loss Account. The Profit and Loss Account shows the net profit (or net loss) of the firm. The Profit Appropriation Account shows how that net profit is appropriated (distributed or allocated) among the partners and to various reserves.

Why does it matter?

Without an appropriation account, you would not know:

How much interest on capital each partner is entitled to.
Whether a partner’s salary or commission has been paid.
How much profit is transferred to the General Reserve.
What remains to be shared as profit among the partners.

In short, it answers the question: “We made Rs 5,00,000 profit — now what happens to it?”

Accounting treatment – the logic

The Profit Appropriation Account is credited with the net profit brought forward from the Profit and Loss Account. Then, all appropriations (interest on capital, partner’s salary, partner’s commission, transfer to reserve) are debited to this account. The balance left after all debits is the divisible profit, which is then credited to the partners’ capital accounts in their profit-sharing ratio.

Important

The Profit Appropriation Account is not a real account — it is a nominal account. It is closed at the end of each year by transferring its balance to the partners’ capital accounts.

The format (as per NCERT Class 12)

Below is the standard proforma. Note that the left side (Dr.) shows all appropriations, and the right side (Cr.) shows the net profit brought in.

Dr.	Profit and Loss Appropriation Account	Cr.
Particulars	Amount (Rs)	Particulars
To Interest on Capital:		By Net Profit (transferred from P&L A/c)
– Partner A	XXX
– Partner B	XXX
To Partner’s Salary (if any)	XXX
To Partner’s Commission (if any)	XXX
To General Reserve	XXX
To Profit transferred to:
– Partner A’s Capital A/c	XXX
– Partner B’s Capital A/c	XXX
Total	XXX	Total

Part (b)Concept understanding — Sacrificing Ratio Definition

Let’s start with something you already know from everyday life.

Suppose you and your friend share a pizza equally — half each. One day, your friend says, “I’m not that hungry, you can have a bigger slice today.” So you take 60% and your friend takes 40%. Your friend has sacrificed 10% of the pizza in your favour. That 10% is the sacrificing ratio — the share your friend gave up so you could have more.

Now bring this into a partnership firm. Partners share profits in a fixed ratio (say 3:2). When a new partner is admitted, the old partners have to give up a part of their share to make room for the newcomer. The proportion in which they give up their shares is called the sacrificing ratio.

Precise meaning

Important

Sacrificing ratio = Old ratio – New ratio (for each old partner).

If the result is positive, that partner has sacrificed. If negative, that partner has gained (which is called the gaining ratio, used at retirement).

For example, if A and B share profits 3:2, and they admit C for a 1/5th share, the new ratio might become 2:2:1. Then:

A’s sacrifice = 3/5 – 2/5 = 1/5
B’s sacrifice = 2/5 – 2/5 = 0

So A alone sacrifices 1/5th of the total profit. That 1/5th is the sacrificing ratio between A and B — here it’s simply 1:0.

Why does it matter?

Because the new partner brings in goodwill (a premium) to compensate the old partners for the share they gave up. That goodwill is distributed among the sacrificing partners in their sacrificing ratio. If you don’t calculate the sacrificing ratio correctly, you’ll distribute the goodwill unfairly — and that’s a serious accounting error.

Accounting treatment

When the new partner brings in his share of goodwill in cash:

Journal entry:
- Debit: Cash/Bank A/c (with the amount brought in)
- Credit: Premium for Goodwill A/c (with the same amount)
Then the premium is distributed to the sacrificing partners:
- Debit: Premium for Goodwill A/c
- Credit: Old Partners’ Capital A/cs (individually, in sacrificing ratio)

If the new partner does not bring in cash, the adjustment is done through the capital accounts directly (the new partner’s capital is debited, and the old partners’ capitals are credited).

Format: Capital Accounts (showing goodwill adjustment) …

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Part (a)

New ratio — Agarwal gets 1/5; Jain & Gupta share the balance 4/5 in 3:1 → Jain 3/5, Gupta 1/5, Agarwal 1/5 = 3 : 1 : 1.

Distribute ₹3,00,000 in 3:1:1 → Jain 1,80,000; Gupta 60,000; Agarwal 60,000.

Agarwal is guaranteed ₹75,000 → deficiency ₹15,000, borne by Jain : Gupta = 1 : 3 → Jain ₹3,750, Gupta ₹11,250.

Final: Jain 1,80,000 − 3,750 = 1,76,250; Gupta 60,000 − 11,250 = 48,750; Agarwal 60,000 + 15,000 = 75,000.

Profit and Loss Appropriation Account for the year ended 31st March, 2025

Particulars	Amount (₹)	Particulars	Amount (₹)
To Profit transferred to Capital A/cs:		By Profit & Loss A/c (Net Profit)	3,00,000
Jain	1,76,250
Gupta	48,750
Agarwal	75,000

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Part (a): Distribute ₹3,00,000 in new ratio 3:1:1 (Jain 1,80,000; Gupta 60,000; Agarwal 60,000); Agarwal's ₹15,000 deficiency borne by Jain (₹3,750) and Gupta (₹11,250) in 1:3 → Jain ₹1,76,250, Gupta ₹48,750, Agarwal ₹75,000.

Part (b): Annu sacrifices 3/20, Bandhu 1/20; Sheelu gains 1/20, Golu 3/20; single goodwill entry — Sheelu Dr 20,000, Golu Dr 60,000 → Annu 60,000, Bandhu 20,000.

Part (a)

Concept: Guarantee of Minimum Profit to a Partner

When a new partner is admitted with a guaranteed minimum profit, the firm's profit is first shared among all partners in the agreed (new) ratio. If the guaranteed partner's share falls short of the guarantee, the deficiency is borne by the guaranteeing partners in their agreed ratio, and transferred to the guaranteed partner.

Step 1 — New profit-sharing ratio

Agarwal = 1/5. Balance = 4/5 to Jain and Gupta in 3:1.

Jain = 4/5 × 3/4 = 3/5; Gupta = 4/5 × 1/4 = 1/5; Agarwal = 1/5.

New ratio = 3 : 1 : 1.

Step 2 — Distribute ₹3,00,000 in 3:1:1

Jain = 1,80,000; Gupta = 60,000; Agarwal = 60,000.

Step 3 — Deficiency

Agarwal guaranteed ₹75,000; actual ₹60,000 → deficiency ₹15,000.

Borne by Jain : Gupta = 1 : 3 → Jain 1/4 × 15,000 = ₹3,750; Gupta 3/4 × 15,000 = ₹11,250.

Step 4 — Final shares

Jain = 1,80,000 − 3,750 = ₹1,76,250; Gupta = 60,000 − 11,250 = ₹48,750; Agarwal = 60,000 + 15,000 = ₹75,000. (Total = ₹3,00,000.)

Profit and Loss Appropriation Account for the year ended 31st March, 2025

Particulars	Amount (₹)	Particulars	Amount (₹)
To Profit transferred to Capital A/cs:		By Profit & Loss A/c (Net Profit)	3,00,000
Jain	1,76,250
Gupta	48,750
Agarwal	75,000

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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 88 on this concept.

CBSE 2026Set MARCH1 mark
$Q. Old Ratio - New Ratio = __________ Ratio.$
›Reveal solutionSolution

Old Ratio - New Ratio = Sacrificing Ratio.

On admission of a partner, the existing partners surrender a portion of their profit share in favour of the incoming partner. The proportion in which they surrender is the sacrificing ratio, calculated as the difference between each old partner's old share and new shar …

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CBSE 2026Set ANNUAL1 markMCQ
$Q. Consider the following statements: Statement (I): Sacrificing Ratio = Old Profit and Loss sharing ratio - New Profit and Loss sharing ratio. Statement (II): Super profit = Average profits - Normal profits. Choose the correct answer from the following options: A) Only statement (I) is wrong B) Only statement (II) is correct C) Statement (I) is wrong and statement (II) is correct D) Both statements (I) and (II) are correct$
›Reveal solutionSolution

Both definitions are standard and correct, so option (D) applies.

Statement (I): Sacrificing Ratio = Old profit-sharing ratio - New profit-sharing ratio. This is the correct formula; it measures the share old partners give up to the incoming/gaining partner.

…

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CBSE 2026Set ANNUAL1 markMCQ
$Q. If Nisha and Komal are sharing profits in the ratio of 4 : 3. They decided to distribute profits equally in future. The sacrifice of Nisha will be A) 1/14 B) 4/14 C) 4/7 D) 3/7$
›Reveal solutionSolution

Nisha's sacrifice on moving from a 4:3 ratio to an equal ratio is 1/14 — option (A).

Old ratio of Nisha and Komal = 4 : 3, so Nisha's old share = 4/7.

New ratio = equal = 1 : 1, so Nisha's new share = 1/2.

Sacrifice = Old share - New share

= 4/7 - 1/2

= 8/14 - 7/14

= 1/14

…

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CBSE 2026Set ANNUAL1 mark
$Q. Mahaveer and Jitendra are partners in a firm sharing profits in the ratio of 4 : 3. They admitted Vaibhav for 1/5th share in profit, which he received from Jitendra. Calculate the sacrificing ratio.$
›Reveal solutionSolution
Only Jitendra sacrifices his 1/5th share, so the sacrificing ratio is entirely Jitendra's (Mahaveer nil).

Mahaveer and Jitendra share profits 4 : 3. Vaibhav is admitted for a 1/5th share, which he takes wholly from Jitendra.

Mahaveer's sacrifice = 0 (his share is unchanged).

Jitendra's sacrifice = 1/5 (he alone gives up the share). …
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CBSE 2026Set ANNUAL1 mark
$Q. Fill in the blank: Sacrificing ratio is always ________ to gaining ratio.$
›Reveal solutionSolution

Answer: Opposite / reverse.

Sacrificing ratio = Old ratio - New ratio (share given up), while gaining ratio = New ratio - Old ratio (share acquired). They are computed in opposite directions, so a sacrificing ratio is always the opposite (reverse) of a gaining r …

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CBSE 2026Set ANNUAL1 mark
$Q. Answer in one word/sentence: The amount of goodwill brought by new partner is distributed to old partners in which ratio?$
›Reveal solutionSolution

Answer: Sacrificing ratio.

The premium (goodwill) brought in by a new partner compensates the old partners for the share of profit they give up, so it is distributed among the …

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CBSE 2026Set ANNUAL1 markMCQ
$Q. Case study: Pawan and Ritesh are partners in Vision Tech Solutions, a partnership business sharing profit-loss in the ratio of 3:2. Capital invested by Pawan was ₹1,00,000 and by Ritesh ₹1,20,000 in the business. Their business involves developing software and providing related services according to market demand. Considering the potential for increased demand in the future, they plan to expand their business. To expand their business, they decide to bring in Sundar, a software investor, as a new partner to provide the necessary additional capital. Sundar contributed ₹80,000 as his capital. Pawan and Ritesh surrender 1/2 of their respective profit shares in favor of Sundar. Upon Sundar's admission, the firm's goodwill is to be valued at 2 years' purchase of the average profits of the last three years. The profits for the last three years were: I year ₹10,000 (loss); II year ₹40,000; III year ₹60,000. Sundar did not bring his share of goodwill in cash, and goodwill of ₹30,000 already existed in the firm's books. Based on the above information, answer the following question: What will be the sacrificing ratio of Pawan and Ritesh?$
(a) 1:1
(b) 3:2
(c) 2:1
(d) 2:3
(a) 1:1
(b) 3:2
(c) 2:1
(d) 2:3
›Reveal solutionSolution

Sacrificing ratio of Pawan and Ritesh = 3:2.

Pawan and Ritesh share profit-loss in the ratio 3:2, so Pawan's share = 3/5 and Ritesh's share = 2/5. Each of them surrenders exactly 1/2 of their OWN respective share in favour of Sundar:

Pawan's sacrifice = 1/2 × 3/5 = 3/10

Ritesh's sacrifice = 1/2 × 2/5 = 2/10 (= 1/5)

Sacrificing Ratio = Pawan's sacrifice : Ritesh's sacrifice

= 3/10 : 2/10

= 3 : 2

…

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CBSE 2026Set ANNUAL1 markMCQ
$Q. Case study (same as above — Pawan and Ritesh are partners in Vision Tech Solutions sharing profit-loss 3:2; capitals ₹1,00,000 and ₹1,20,000; they admit Sundar as a new partner who contributes ₹80,000 capital, with Pawan and Ritesh each surrendering 1/2 of their respective profit shares in favor of Sundar). Based on the above information, answer the following question: What will be the new profit sharing ratio of Pawan, Ritesh and Sundar?$
(a) 3:2:5
(b) 3:2:1
(c) 1:1:1
(d) 5:2:3
(a) 3:2:5
(b) 3:2:1
(c) 1:1:1
(d) 5:2:3
›Reveal solutionSolution

New profit-sharing ratio of Pawan, Ritesh and Sundar = 3:2:5.

Step 1 — Old shares

Pawan = 3/5, Ritesh = 2/5

Step 2 — Sacrifice by each (from Q29)

Pawan sacrifices 3/10, Ritesh sacrifices 2/10

Step 3 — New shares of Pawan and Ritesh

Pawan's new share = 3/5 − 3/10 = 6/10 − 3/10 = 3/10

Ritesh's new share = 2/5 − 2/10 = 4/10 − 2/10 = 2/10

Step 4 — Sundar's share

Sundar receives exactly what both partners sacrificed:

Sundar's share = 3/10 + 2/10 = 5/10

Step 5 — New Ratio

…

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CBSE 2026Set ANNUAL1 mark
$Q. How can the gaining partner compensate the sacrificing partner in case of change in profit sharing ratio?$
›Reveal solutionSolution

The gaining partner compensates the sacrificing partner by paying him the value of goodwill corresponding to the share he has gained, usually through an adjustment in the partners' capital accounts.

When partners decide to change their profit-sharing ratio, some partners' shares increase (gaining partners) while others' shares decrease (sacrificing partners). Since goodwill represents the value of the firm's reputation and future profit-earning capacity built up by all partners together, it is only fair that a partner whose share of future profits increases (the gaining partner) compensates the partner whose share decreases (the sacrificing partner).

The compensation is calculated as:

Compensation = Gaining Partner's Gain in Share × Firm's Goodwill

This amount is adjusted by passing a journal entry:

Gaining Partner's Capital A/c Dr.

To Sacrificing Partner's Capital A/c

…

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CBSE 2026Set ANNUAL1 markMCQ
$Q. P and Q are partners in a firm sharing profits and losses in the ratio of 3 : 2. They admit R, a new partner for 1/5th share in profit. What is the sacrificing ratio of P and Q?$
(a) 3 : 1
(b) 2 : 1
(c) 3 : 2
(d) 1 : 1
›Reveal solutionSolution

With no new ratio specified, P and Q are assumed to sacrifice in their existing old ratio of 3:2 to make room for R's 1/5th share.

Sacrificing Ratio = Old Share − New Share, for each existing partner. It tells us in what proportion the old partners give up their share of profit to accommodate the incoming partner.

Here, P and Q share profits in the ratio 3:2, and they admit R for a 1/5th share. The question does not state that P and Q will share the remaining profit in any ratio different from their old one. Whenever the new partner's share is simply carved out and the old partners' mutual ratio is left unchanged, the sacrificing ratio equals the old profit-sharing ratio itself — because both partners give up a share of their own profit proportionate to what they used to hold.

…

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CBSE 2026Set ANNUAL1 mark

Q. State one point of difference between Sacrificing Ratio and Gaining Ratio.

›Reveal solution

Sacrificing Ratio belongs to admission (old partners give up share); Gaining Ratio belongs to retirement/death (continuing partners gain share) — the two ratios serve opposite purposes at opposite events.

Both ratios compare a partner's old share of profit with their new share after reconstitution, but they are used in entirely different situations and for opposite reasons:

Basis	Sacrificing Ratio	Gaining Ratio
When computed	At the time of admission of a new partner	At the time of retirement or death of a partner
Formula	Old Share − New Share	New Share − Old Share
Purpose	To find how much of their share the existing partners give up to accommodate the new partner, so that the new partner's goodwill premium can be fairly distributed among them	To find how much of the retiring/deceased partner's share is picked up by each continuing partner, so that the continuing partners can compensate for the retiring/deceased partner's share of goodwill

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CBSE 2025Set 67/5/11 markMCQ
$Q. John and Harry were partners in a firm sharing profits and losses in the ratio of 2 : 1. On 1st April, 2023, they admitted Dinesh as a new partner for 1/4th share in the profits of the firm with a guarantee that his share in the profits shall be at least ₹ 1,00,000. The net profit of the firm for the year ended 31st March, 2024 was ₹ 2,80,000. John’s share in the profits of the firm after giving the guaranteed amount of profit to Dinesh will be : (A) ₹ 1,40,000 (B) ₹ 1,20,000 (C) ₹ 1,00,000 (D) ₹ 70,000$
›Reveal solutionSolution
John's share after bearing the guarantee shortfall to Dinesh is ₹1,20,000.

Concept: Guarantee of Minimum Profit to a Partner

When an incoming partner is admitted with a guarantee of minimum profit, the firm promises that the new partner will receive at least a specified amount, regardless of what the profit-sharing ratio yields. If the new partner's share calculated by the agreed ratio falls short of the guaranteed amount, the deficiency must be borne by one or more of the existing partners.

The accounting treatment depends on who bears the guarantee. The question is silent on this point, which means we apply the default rule: the deficiency is borne by the old partners (here, John and Harry) in their old profit-sharing ratio. The new partner receives the guaranteed amount, and the remaining profit is distributed among all partners in the new ratio, but the old partners' shares are reduced to make up the shortfall.

The mechanics are straightforward:

Calculate Dinesh's share under the new profit-sharing ratio.

Compare it with the guaranteed amount.

If the calculated share is less, the deficiency is borne by John and Harry in their old ratio (2:1).

Adjust each partner's final share accordingly.

Determination of New Profit-Sharing Ratio

Dinesh is admitted for $\frac{1}{4}$ share. The remaining share for John and Harry together is:
$1 - \frac{1}{4} = \frac{3}{4}$
John and Harry continue to share this $\frac{3}{4}$ in their old ratio of 2:1.

John's new share:
$\frac{2}{3} \times \frac{3}{4} = \frac{2}{4} = \frac{1}{2}$
Harry's new share:
$\frac{1}{3} \times \frac{3}{4} = \frac{1}{4}$
New profit-sharing ratio = John : Harry : Dinesh = $\frac{1}{2} : \frac{1}{4} : \frac{1}{4}$ = 2 : 1 : 1.

Calculation of Profit Distribution

Working Note 1: Dinesh's share as per new ratio

Net profit for the year = ₹2,80,000

Dinesh's share = $\frac{1}{4} \times 2,80,000 = ₹70,000$

Working Note 2: Guarantee shortfall

Guaranteed amount to Dinesh = ₹1,00,000

Dinesh's share as per ratio = ₹70,000

Deficiency = ₹1,00,000 – ₹70,000 = ₹30,000

This deficiency of ₹30,000 must be borne by John and Harry in their old ratio of 2:1.

Working Note 3: Deficiency borne by old partners

John's share of deficiency = $\frac{2}{3} \times 30,000 = ₹20,000$

Harry's share of deficiency = $\frac{1}{3} \times 30,000 = ₹10,000$

Working Note 4: Final distribution of profit

| Partner | Share as per new ratio (2:1:1) | Adjustment for guarantee | Final share | …
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Part (a)

Concept: Guarantee of Minimum Profit to a Partner

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