Ashish and Dutta were partners in a firm sharing profits in 3:2 ratio. On Jan. 01, 2015 they admitted Vimal for 1/5 share in the profits. The Balance Sheet of Ashish and Dutta as on March 31, 2016 was as follows: | Liabilities | Amount (₹) | Assets | Amount (₹) | |---|---:|---|---:| | Ashish's Capital | 80,000 | Land & Building | 35,000 | | Dutta's Capital | 35,000 | Plant | 45,000 | | Creditors | 15,000 | Debtors 22,000 – Provision 2,000 | 20,000 | | Bills Payable | 10,000 | Stock | 35,000 | | | | Cash | 5,000 | | **Total** | **1,40,000** | **Total** | **1,40,000** | It was agreed that: (i) The value of Land and Building be increased by ₹15,000. (ii) The value of plant be increased by ₹10,000. (iii) Goodwill of the firm be valued at ₹20,000. (iv) Vimal to bring in capital to the extent of 1/5th of the total capital of the new firm. Record the necessary journal entries and prepare the Balance Sheet of the firm after Vimal's admission.

> [!TLDR] > Vimal is admitted for 1/5 share; revaluation increases assets by ₹25,000, credited to Ashish and Dutta in their old ratio 3:2; goodwill of ₹20,000 is adjusted directly through Vimal's capital account (no Goodwill account is opened, since Vimal is not stated to bring cash for goodwill); the new firm's Balance Sheet totals ₹2,05,000. ## Concept and Accounting Treatment When a new partner is admitted, the existing partnership is reconstituted. The key adjustments here are: 1. **Revaluation of Assets** – The increase in Land & Building and Plant is a gain that belongs to the *old* partners (it arose before Vimal joined), so it is transferred to Ashish and Dutta's capital accounts in their old profit-sharing ratio (3:2). 2. **Goodwill Adjustment** – The question values the firm's goodwill at ₹20,000 but does **not** say Vimal brings this in cash. When a new partner does not bring his share of goodwill in cash, the standard treatment is to adjust it **directly through the capital accounts**, without ever opening a separate Goodwill account: the new partner's capital account is debited with his share of the goodwill, and the old partners' capital accounts are credited in their **sacrificing ratio** (here, the same as the old ratio 3:2, since Vimal's share comes proportionately from both). This keeps goodwill out of the firm's books entirely, consistent with the question giving no cash entry for it. 3. **Capital Determination** – Vimal is to bring capital equal to 1/5th of the total capital of the new firm. Since the combined capital of Ashish and Dutta (after revaluation and the goodwill adjustment) represents the remaining 4/5 share, the total capital of the new firm — and hence Vimal's own capital — can be derived from it. Vimal must additionally bring enough cash to cover his own required capital *and* the goodwill debit against his capital account, so that his account is left with exactly his required closing balance. --- ## Solution ### Journal Ent

Ashish and Dutta were partners in a firm sharing profits in 3:2 ratio. On Jan. 01, 2015 they admitted Vimal fo

Numerical Questions · Q35

Ashish and Dutta were partners in a firm sharing profits in 3:2 ratio. On Jan. 01, 2015 they admitted Vimal for 1/5 share in the profits. The Balance Sheet of Ashish and Dutta as on March 31, 2016 was as follows:

Liabilities	Amount (₹)	Assets	Amount (₹)
Ashish's Capital	80,000	Land & Building	35,000
Dutta's Capital	35,000	Plant	45,000
Creditors	15,000	Debtors 22,000 – Provision 2,000	20,000
Bills Payable	10,000	Stock	35,000
		Cash	5,000
Total	1,40,000	Total	1,40,000

It was agreed that:

The value of Land and Building be increased by ₹15,000.
The value of plant be increased by ₹10,000.
Goodwill of the firm be valued at ₹20,000.
Vimal to bring in capital to the extent of 1/5th of the total capital of the new firm. Record the necessary journal entries and prepare the Balance Sheet of the firm after Vimal's admission.

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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: …

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We first revalue the assets and record the gain. Land & Building increases by ₹15,000 and Plant by ₹10,000 — total revaluation profit ₹25,000. This gain is shared between old partners in their old profit-sharing ratio (3:2).

Ashish’s share: 3/5 × ₹25,000 = ₹15,000

Dutta’s share: 2/5 × ₹25,000 = ₹10,000

Journal entries

Date	Particulars	Debit (₹)	Credit (₹)
2016 Jan 01	Land & Building A/c Dr.	15,000
	Plant A/c Dr.	10,000
	To Revaluation A/c		25,000
	(Being increase in value of assets)
	Revaluation A/c Dr.	25,000
	To Ashish’s Capital A/c		15,000
	To Dutta’s Capital A/c		10,000
	(Being revaluation profit transferred to old partners)

Goodwill of the firm is valued at ₹20,000. Vimal’s share (1/5) = ₹4,000. This goodwill is brought in by Vimal and credited to the old partners in their sacrificing ratio (same as old ratio, 3:2, since nothing else is stated).

Date	Particulars	Debit (₹)	Credit (₹)
Jan 01	Cash A/c Dr.	4,000
	To Premium for Goodwill A/c		4,000
	(Being goodwill brought by Vimal)
	Premium for Goodwill A/c Dr.	4,000
	To Ashish’s Capital A/c		2,400
	To Dutta’s Capital A/c		1,600
	(Being goodwill credited to old partners in 3:2)

Now compute the total capital of the new firm. After revaluation and goodwill adjustments, the capitals of Ashish and Dutta are:

Ashish: ₹80,000 + ₹15,000 + ₹2,400 = ₹97,400

Dutta: ₹35,000 + ₹10,000 + ₹1,600 = ₹46,600

Total old partners’ capital = ₹97,400 + ₹46,600 = ₹1,44,000

This ₹1,44,000 represents 4/5th of the new firm’s total capital (since Vimal gets 1/5). Therefore, total capital = ₹1,44,000 × 5/4 = ₹1,80,000. Vimal’s share (1/5) = ₹36,000. …

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Vimal is admitted for 1/5 share; revaluation increases assets by ₹25,000, credited to Ashish and Dutta in their old ratio 3:2; goodwill of ₹20,000 is adjusted directly through Vimal's capital account (no Goodwill account is opened, since Vimal is not stated to bring cash for goodwill); the new firm's Balance Sheet totals ₹2,05,000.

Concept and Accounting Treatment

When a new partner is admitted, the existing partnership is reconstituted. The key adjustments here are:

Revaluation of Assets – The increase in Land & Building and Plant is a gain that belongs to the old partners (it arose before Vimal joined), so it is transferred to Ashish and Dutta's capital accounts in their old profit-sharing ratio (3:2).
Goodwill Adjustment – The question values the firm's goodwill at ₹20,000 but does not say Vimal brings this in cash. When a new partner does not bring his share of goodwill in cash, the standard treatment is to adjust it directly through the capital accounts, without ever opening a separate Goodwill account: the new partner's capital account is debited with his share of the goodwill, and the old partners' capital accounts are credited in their sacrificing ratio (here, the same as the old ratio 3:2, since Vimal's share comes proportionately from both). This keeps goodwill out of the firm's books entirely, consistent with the question giving no cash entry for it.
Capital Determination – Vimal is to bring capital equal to 1/5th of the total capital of the new firm. Since the combined capital of Ashish and Dutta (after revaluation and the goodwill adjustment) represents the remaining 4/5 share, the total capital of the new firm — and hence Vimal's own capital — can be derived from it. Vimal must additionally bring enough cash to cover his own required capital and the goodwill debit against his capital account, so that his account is left with exactly his required closing balance.

Solution

Journal Entries

Date	Particulars	Debit (₹)	Credit (₹)
2016 Apr 1	Land & Building A/c Dr.	15,000
	Plant A/c Dr.	10,000
	To Revaluation A/c		25,000
	(Being increase in value of assets recorded)
	Revaluation A/c Dr.	25,000
	To Ashish's Capital A/c		15,000
	To Dutta's Capital A/c		10,000
	(Being revaluation gain transferred to old partners in 3:2)
	Vimal's Capital A/c Dr.	4,000
	To Ashish's Capital A/c		2,400
	To Dutta's Capital A/c		1,600
	(Being Vimal's share of goodwill (1/5 × ₹20,000 = ₹4,000) adjusted through capital accounts in the old/sacrificing ratio 3:2, since no cash is brought for goodwill)
	Cash A/c Dr.	40,000
	To Vimal's Capital A/c		40,000
	(Being cash brought in by Vimal — his required capital of ₹36,000 plus ₹4,000 to cover the goodwill debit above)

Watch out

A common mistake here is to open a Goodwill account and record a cash entry for the premium, when the question never says Vimal brings cash for goodwill. Whenever a problem values goodwill but is silent on how it is paid, the safe default is to adjust it only through the capital accounts — debit the incoming partner, credit the old partners in the sacrificing ratio — and never let a Goodwill account or an unstated cash flow appear in the books.

Ledger Accounts

Revaluation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Ashish's Capital A/c (3/5)	15,000	By Land & Building A/c	15,000
To Dutta's Capital A/c (2/5)	10,000	By Plant A/c	10,000
Total	25,000	Total	25,000

Cash Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance b/d	5,000	By Balance c/d	45,000
To Vimal's Capital A/c	40,000
Total	45,000	Total	45,000

Ashish's Capital Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance c/d	97,400	By Balance b/d	80,000
		By Revaluation A/c	15,000
		By Vimal's Capital A/c (goodwill)	2,400
Total	97,400	Total	97,400

Dutta's Capital Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance c/d	46,600	By Balance b/d	35,000
		By Revaluation A/c	10,000
		By Vimal's Capital A/c (goodwill)	1,600
Total	46,600	Total	46,600

Vimal's Capital Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Ashish's Capital A/c (goodwill)	2,400	By Cash A/c	40,000
To Dutta's Capital A/c (goodwill)	1,600
To Balance c/d	36,000
Total	40,000	Total	40,000

Balance Sheet of the New Firm (as on April 1, 2016)

Liabilities	Amount (₹)	Assets	Amount (₹)
Capital Accounts:		Fixed Assets:
Ashish	97,400	Land & Building (35,000 + 15,000)	50,000

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

JAC Jharkhand Intermediate Class 12 (Commerce) 2026Set ANNUAL1 markMCQ
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Old partnership will be reconstituted.

On admission of a new partner, the existing agreement among the old partners ends and a new agreement takes its place, but the firm itself continues its business. This is reconstitu …

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Reconstitution of firm.

When the terms of the partnership agreement change (admission, retirement, death, or change in ratio) but the firm continues, it is called reconstitution. Dissolution means the firm is …

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Old partners' capital accounts, in the old ratio.

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Concept and Accounting Treatment

Solution

Journal Entries

Ledger Accounts

Balance Sheet of the New Firm (as on April 1, 2016)

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